<PAGE>
As filed with the Securities and Exchange Commission on May 1, 2000
Registration No. 333-78581
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 1
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
THE SAGE VARIABLE LIFE ACCOUNT A
(Exact Name of Registrant)
SAGE LIFE ASSURANCE OF AMERICA, INC.
(Name of Depositor)
300 Atlantic Street
Stamford, CT 06901
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: (203) 602-6500
James F. Bronsdon
Sage Life Assurance of America, Inc.
300 Atlantic Street
Stamford, CT 06901
(Name and Address of Agent for Service of Process)
Copy to:
Stephen E. Roth
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
It is proposed that this filing become effective:
X immediately upon filing pursuant to paragraph (b) of Rule 485;
__ on May 1, 2000 pursuant to paragraph (b) of Rule 485;
__ 60 days after filing pursuant to paragraph (a)(1) of Rule 485;
__ on May 1, 2000 pursuant to paragraph (a)(1) of Rule 485;
__ 75 days after filing pursuant to paragraph (a)(2) of Rule 485; or
__ on ___ pursuant to paragraph (a)(2) of Rule 485.
Title of Securities: Interests in a separate account under modified single
payment combination fixed and variable life insurance contracts.
<PAGE>
PROSPECTUS DATED MAY 1, 2000
MODIFIED SINGLE PAYMENT COMBINATION FIXED AND VARIABLE
LIFE INSURANCE CONTRACTS
ISSUED BY
THE SAGE VARIABLE LIFE ACCOUNT A AND
SAGE LIFE ASSURANCE OF AMERICA, INC.
Executive Office: Customer Service Center:
300 Atlantic Street P.O. Box 290680
Stamford, CT 06901 Wethersfield, CT 06129-0680
Telephone: (877) 835-7243 (Toll Free)
This Prospectus describes individual and group modified single payment
combination fixed and variable life insurance contracts offered by Sage Life
Assurance of America, Inc. ("we," "us," "our," or the "Company"). We designed
the Contracts for your estate planning or other insurance needs, or to
supplement your long-term retirement savings. The Contracts provide a means for
investing your Account Value on a tax-deferred basis in our Variable Account and
our Fixed Account. You can purchase a Contract by making a minimum initial
purchase payment. After purchase, you determine the amount and timing of
additional purchase payments, subject to certain restrictions.
You may allocate purchase payments and transfer Account Value to our
Variable Account and/or our Fixed Account within certain limits. The Variable
Account has 33 Sub-Accounts. Through our Fixed Account, you can choose to invest
your money in one or more of 5 different guarantee periods.
Each Variable Sub-Account invests in a corresponding Fund of the following
Trusts (collectively the "Trusts"):
. AIM Variable Insurance Funds, Inc.
. The Alger American Fund
. Liberty Variable Investment Trust
. SteinRoe Variable Investment Trust
. MFS(R) Variable Insurance Trust(SM)
. The Universal Institutional Funds, Inc.
. Oppenheimer Variable Account Funds
. Sage Life Investment Trust
. T. Rowe Price Equity Series, Inc.
Your Account Value will vary daily with the investment performance of the
Variable Sub-Accounts and any interest we credit under our Fixed Account. We do
not guarantee any minimum Account Value for amounts you allocate to the Variable
Account. We do guarantee principal and a minimum fixed rate of interest for
specified periods of time on amounts you allocate to the Fixed Account.
However, amounts you withdraw, surrender, transfer, or borrow from the Fixed
Account before the end of an applicable Guarantee Period ordinarily will be
subject to a Market Value Adjustment, which may increase or decrease these
amounts.
The Contracts provide a death benefit, as well as additional benefits,
including five alternative Settlement Options for receiving death or surrender
proceeds as income payments under the Contract, and optional programs including
dollar-cost averaging, asset allocation, automatic portfolio rebalancing, and
systematic partial withdrawals.
If you currently own a life insurance policy on the life of the Insured,
you should consider carefully whether the Contract should be used to replace or
supplement your existing policy.
In almost all cases, the Contracts will be modified endowment contracts for
Federal income tax purposes. This means that a loan or other distribution from
the Contract during the life of the Insured will in almost all cases be taxed as
ordinary income to the extent of any earnings in the Contract, and may be
subject to an additional 10% Federal penalty tax, if taken before the Owner
attains age 59 1/2. Special tax and legal considerations apply if this Contract
is used in connection with a qualified plan or certain other employment plans.
This Prospectus includes basic information about the Contracts that you
should know before investing. Please read this Prospectus carefully and keep it
for future reference. The Trust prospectuses contain important information
about the Funds. Your registered representative can provide these prospectuses
to you before you invest.
The Securities and Exchange Commission has not approved these Contracts or
determined that this Prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
Variable life contracts are not deposits or obligations of, or endorsed or
guaranteed by, any bank, nor are they federally insured or otherwise protected
by the FDIC, the Federal Reserve Board, or any other agency; they are subject to
investment risks, including possible loss of principal.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Index of Terms...................................................... 4
Summary of the Contracts............................................ 7
Part I - Description of the Contracts............................... 17
1. What Are The Contracts?........................................ 17
2. How Do I Purchase A Contract?.................................. 18
Initial Purchase Payment....................................... 18
Issuance of a Contract......................................... 18
Free Look Right to Cancel Contract............................. 18
Making Additional Purchase Payments............................ 18
Grace Period................................................... 19
Reinstatement.................................................. 19
Specialized Uses of the Contract............................... 20
Illustrations.................................................. 20
3. What Are My Investment Options?................................ 20
Purchase Payment Allocations................................... 20
Variable Sub-Account Investment Options........................ 21
Fixed Account Investment Options............................... 25
Market Value Adjustment........................................ 27
Transfers...................................................... 28
Telephone Transactions......................................... 29
Power of Attorney.............................................. 29
Dollar-Cost Averaging Program.................................. 30
Asset Allocation Program....................................... 30
Automatic Portfolio Rebalancing Program........................ 31
Account Value.................................................. 31
Variable Account Value......................................... 32
Accumulation Unit Value........................................ 32
Net Investment Factor.......................................... 32
Fixed Account Value............................................ 33
Loan Account Value............................................. 33
Surrender Value................................................ 34
4. What Are The Expenses Under A Contract?........................ 34
Monthly Deduction Amount....................................... 35
Asset-Based Charges............................................ 35
Cost of Insurance Charge....................................... 36
Annual Administration Charge................................... 37
Surrender Charge............................................... 37
Transfer Charge................................................ 38
Fund Annual Expenses........................................... 39
</TABLE>
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<TABLE>
<S> <C>
5. How Will My Contract Be Taxed?................................. 39
Introduction................................................... 39
Tax Status of the Contract..................................... 39
Tax Treatment of Contract Benefits............................. 40
Possible Legislative Changes................................... 43
Possible Charge for Sage Life's Taxes.......................... 44
6. How Do I Access My Money?...................................... 44
Withdrawals.................................................... 44
Systematic Partial Withdrawal Program.......................... 44
Surrenders..................................................... 45
Loans.......................................................... 45
Requesting Payments............................................ 47
7. How Is Contract Performance Presented?......................... 47
8. What Is The Death Benefit Under My Contract?................... 48
Death Benefit.................................................. 48
Insurance Amount............................................... 48
Minimum Death Benefit.......................................... 49
Proof of Death................................................. 49
Insurance Amount Increases..................................... 50
9. What Supplemental Benefits Are Available Under My Contract?.... 50
Accelerated Death Benefit Rider................................ 50
Accidental Death Benefit Rider................................. 50
Waiver of Surrender Charge Rider............................... 51
10. What Are My Settlement Options?................................ 51
Variable Income Payments....................................... 52
Income Unit Value.............................................. 52
Exchange of Income Units....................................... 53
11. What Other Information Should I Know?.......................... 53
Sage Life Assurance of America, Inc............................ 53
Separate Accounts.............................................. 53
Modification................................................... 55
Distribution of the Contracts.................................. 55
Experts........................................................ 56
Legal Proceedings.............................................. 56
Reports to Contract Owners..................................... 56
Assignment..................................................... 56
The Owner...................................................... 56
The Beneficiary................................................ 56
Change of Owner or Beneficiary................................. 57
Misstatement And Proof of Age, Sex, or Survival................ 57
Incontestability............................................... 57
Suicide........................................................ 57
Authority to Make Agreements................................... 57
Participation.................................................. 58
</TABLE>
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<TABLE>
<S> <C>
Safekeeping of Account Assets.................................. 58
Legal Matters.................................................. 58
Financial Statements........................................... 58
12. How Can I Make Inquiries?...................................... 58
Hypothetical Illustrations of Contract Values....................... 58
Part II - Additional Information.................................... 65
History and Business........................................... 65
Management's Discussion and Analysis of Financial Condition.... 66
Compensation................................................... 69
Appendix A.......................................................... A-1
Appendix B.......................................................... B-1
</TABLE>
This Prospectus does not constitute an offering in any jurisdiction in which
such offering may not lawfully be made.
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Index of Terms
We have tried to make this Prospectus as readable and understandable as
possible. To help you to understand how the Contract works, we have used
certain terms that have special meanings. We define these terms below.
Account Value - The Account Value is the entire amount we hold under your
Contract. It equals the sum of the values in the Variable Account, the Fixed
Account, and the Loan Account.
Accumulation Unit - An Accumulation Unit is the unit of measure we use to keep
track of the Account Value in each Variable Sub-Account.
Attained Age - The Attained Age is the Issue Age plus the number of full years
since the Contract Date.
Asset-Based Charges - The Asset-Based Charges are assessed monthly against your
Account Value and are charges for mortality and expense risks, certain
administrative expenses, certain distribution costs, and certain state and
federal tax expenses. After the proceeds from the Contract are applied to a
Settlement Option, we call these charges Variable Sub-Account Charges and deduct
them daily from the assets of the Variable Account only.
Beneficiary - The Beneficiary is the person or persons to whom we pay the Death
Proceeds when the Insured dies.
Business Day - A Business Day is any day the New York Stock Exchange ("NYSE") is
open for trading exclusive of (i) Federal holidays, (ii) any day on which an
emergency exists making the disposal or fair valuation of assets in the Variable
Account not reasonably practicable, and (iii) any day on which the Securities
and Exchange Commission ("SEC") permits a delay in the disposal or valuation of
assets in the Variable Account.
Contracts - The Contracts are modified single payment combination fixed and
variable life insurance contracts. In some jurisdictions, we issue the
Contracts directly to individuals. In most jurisdictions, however, the
Contracts are only available as a group contract. We issue a group Contract to
or on behalf of a group. Individuals who are part of a group to which we issue
a Contract receive a certificate that recites substantially all of the
provisions of the group Contract. Throughout this Prospectus and unless
otherwise stated, the term "Contract" refers to individual Contracts, group
Contracts, and certificates for group Contracts.
Contract Anniversary - A Contract Anniversary is each anniversary of the
Contract Date.
Contract Date - The Contract Date is the day we invest your initial purchase
payment in the Sub-Accounts. It is the date from which we measure Contract
Anniversaries and Contract Years. The Contract Date may or may not be the same
as the Issue Date.
Contract Year - A Contract Year is each and every consecutive twelve-month
period beginning on the Contract Date and the anniversaries thereof.
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Death Proceeds - The Death Proceeds is the amount of money that we will pay your
Beneficiary if the Insured dies while your Contract is in force.
Debt - Debt is the sum of all outstanding loans plus accrued interest under a
Contract.
Excess Withdrawal - An Excess Withdrawal is a withdrawal of Account Value that
exceeds the Free Withdrawal Amount.
Expiration Date - The Expiration Date is the last day in a Guarantee Period. In
the Contract, we refer to this as the "Expiry Date."
Fixed Account - The Fixed Account is The Sage Fixed Interest Account A. The
Fixed Account is a separate investment account of ours into which you may invest
purchase payments or transfer Account Value. In certain states, we refer to the
Fixed Account as the Interest Account or the Interest Separate Account. We
divide the Fixed Account into Fixed Sub-Accounts, and establish a Fixed Sub-
Account each time you allocate an amount to the Fixed Account.
Free Withdrawal Amount - A Free Withdrawal Amount is the maximum amount that you
can withdraw within a Contract Year without being subject to a surrender charge.
Fund - A Fund is an investment portfolio in which a Variable Sub-Account
invests.
General Account - The General Account consists of all our assets other than
those held in any separate investment accounts.
Insured - The Insured is the person you named in your application for the
Contract whose life your Contract covers.
Issue Age - The Issue Age is the Insured's age on the last birthday on or before
the Contract Date.
Issue Date - The Issue Date is the date we issue an individual Contract or a
certificate for a group Contract at our Customer Service Center.
Loan Account - The Loan Account is an account in our General Account,
established for any amounts transferred from the Sub-Accounts as a result of a
loan. The Loan Account credits a fixed rate of interest, the loan credited
rate, that is not based on the investment experience of the Variable Account or
the Guaranteed Interest Rates applicable to the Fixed Sub-Accounts of the Fixed
Account.
Market Value Adjustment - A Market Value Adjustment is a positive or negative
adjustment that may apply to a surrender, withdrawal, transfer, or loan from a
Fixed Sub-Account before the end of its Guarantee Period.
Monthly Processing Date - The Monthly Processing Date is the day of each month
that we deduct the Monthly Deduction Amount from the Account Value of your
Contract. See "What Are the Expenses Under A Contract?" Monthly Processing
Dates are the Contract Date and the same day of each month thereafter. If there
is no such date in a particular month, the Monthly Processing Date will be the
last day of that month. If a Monthly Processing Date is not a Valuation Date,
the Monthly Processing Date will be the next Valuation Date. This means that if
your Monthly Processing Date is the 31st, and the current month is April, your
Monthly Processing Date for April will be April 30th. If April 30th is a Sunday
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(which is not a Valuation Date), your Monthly Processing Date for that April
will be May 1 (assuming May 1 is a Valuation Date).
Net Asset Value - Net Asset Value is the price of one share of a Fund.
Owner - The person or persons who owns (or own) a Contract. Provisions relating
to action by the Owner mean, in the case of joint Owners, both Owners acting
jointly. In the context of a Contract issued on a group basis, Owners refer to
holders of certificates under the group Contract.
Satisfactory Notice - Satisfactory Notice is a notice or request you make or
authorize, in a form satisfactory to us, received at our Customer Service
Center.
Surrender Value - The Surrender Value is the amount we pay you upon surrender of
your Contract. It reflects the deduction of any applicable surrender charge,
any Market Value Adjustment, and any Debt.
Valuation Date - Valuation Date is the date at the end of a Valuation Period
when we value each Variable Sub-Account.
Valuation Period - A Valuation Period is the period between one calculation of
an Accumulation Unit value and the next calculation.
Variable Account - The Variable Account is The Sage Variable Life Account A. It
is a separate investment account of ours into which you may invest purchase
payments or transfer Account Value. We divide the Variable Account into
Variable Sub-Accounts, each of which invests in shares of a particular Fund.
"We", "us", "our", "Sage Life" or the "Company" is Sage Life Assurance of
America, Inc.
"You" or "Your" is the owner of a Contract.
6
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This Prospectus has three sections:
. Summary of the Contracts;
. Part I - which gives more detailed information on the Summary topics; and
. Part II - which provides additional information.
Please read the entire Prospectus carefully.
================================================================================
Summary of the Contracts
================================================================================
1. What Are The Contracts?
The Contracts are modified single payment combination fixed and variable
life insurance contracts offered by Sage Life Assurance of America, Inc. Your
Contract is a contract between you, the Owner, and us, Sage Life. Your Contract
may differ from the description below because of the requirements of the state
where we issued your Contract.
We designed the Contract to meet your estate planning or other insurance
needs, or to supplement your long-term retirement needs. Because life insurance
is not a short-term investment, you should evaluate your need for life insurance
coverage and the suitability of the Contract to meet your long-term financial
objectives before you purchase a Contract.
Under the Contract, you can accumulate Account Value on a tax-deferred
basis in our Variable Account and in our Fixed Account.
Investment Flexibility. You can invest among 33 subdivisions of our
Variable Account, known as "Variable Sub-Accounts," each corresponding to a
different Fund. These Funds, listed in Section 3, are professionally managed
and use a broad range of investment strategies (growth and income, aggressive
growth, etc.), styles (growth, value, etc.) and asset classes (stocks, bonds,
international, etc.). You can select a mix of Funds to meet your financial and
retirement needs and objectives, tolerance for risk, and view of the market.
Amounts you invest in these Funds will fluctuate daily based on underlying
investment performance. So, the value of your investment may increase or
decrease.
Through our Fixed Account, you can invest to receive guaranteed rates of
interest for periods of up to 5 years ("Guarantee Periods"). We also guarantee
your principal while it remains in our Fixed Account. However, if you decide to
surrender your Contract, or transfer or access amounts in the Fixed Account
before the end of a Guarantee Period you have chosen, we ordinarily will apply a
Market Value Adjustment. This adjustment reflects changes in prevailing interest
rates since your allocation to the Fixed Account. The Market Value Adjustment
may result in an increase or decrease in the amounts surrendered, transferred,
or accessed.
As your needs or financial goals change, your investment mix can change
with them. You may transfer funds among any of the investment choices in our
Fixed or Variable Accounts while continuing to defer current income taxes.
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Safety of Separate Accounts. Significantly, both our Fixed and Variable
Accounts are separate investment accounts of Sage Life. This provides you with
an important feature: we cannot charge the assets supporting your allocations to
these Accounts with liabilities arising out of any other business we may
conduct.
Income Tax-Free Life Insurance Protection For Your Beneficiaries. The
Contract provides a life insurance benefit that can pass free of federal and
state income taxes to your beneficiaries. You can create and preserve a legacy
for loved ones, a favorite charity, or even your Alma Mater.
Access to Amounts Invested. The Contract provides access to your
investment should you need it. ("Access" means a surrender of the Contract, a
withdrawal of Account Value, and a borrowing of Account Value.) During the
Insured's lifetime your investment grows tax-free until withdrawn or borrowed.
You decide how much to take and when to take it.
Ordinarily, once you access earnings, they are taxed as income. If you
access earnings before you are 59 1/2 years old, you may have to pay an
additional 10% federal tax penalty. However, if you acquire a Contract by making
a tax-free exchange from an existing contract that provides tax-free access
through loans, the Contract also may provide tax-free access through loans.
Amounts you access may be subject to a surrender charge, and a Market Value
Adjustment (positive or negative) may apply if you access the amount from the
Fixed Account before the end of the applicable Guarantee Period.
2. How Do I Purchase A Contract?
In most cases, you may purchase a Contract with $10,000 or more through an
authorized registered representative. You must complete an application, and the
proposed Insured must meet our underwriting requirements. We have designed a
simplified underwriting program that could make qualifying easier and let us
issue a Contract faster than would otherwise be possible. Your eligibility for
this program will depend on the amount you want to invest and the proposed
Insured's age, sex, and health.
After the first Contract Anniversary, you may make additional payments of
at least $250, subject to certain conditions. We reserve the right to require
satisfactory evidence of insurability before we accept any additional payment
that increases the life insurance benefit by more than it increases your Account
Value.
Also, if the Surrender Value of your Contract is not sufficient to pay the
charges as they come due, you will have a grace period of 61 days to make a
sufficient additional payment to keep your Contract in force. We will send you
a notice at the start of the Grace Period.
We have included hypothetical illustrations in this Prospectus to show you
how the Contract works. We have based these illustrations on hypothetical rates
of return and we do not guarantee these rates. The rates are illustrative only,
and do not represent past or future investment performance. Your actual
Contract values and benefits will be different from those in the illustrations.
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3. What Are My Investment Options?
There are 38 investment options under the Contracts available through our
Variable and Fixed Accounts. These choices are professionally managed and allow
for a broad range of investment strategies, styles, and asset classes.
Additional options may be available in the future.
Through our Variable Account you can choose to have your money invested in
one or more of the Variable Sub-Accounts investing in the following 33 Funds:
AIM Variable Insurance Funds, Inc.
. AIM V.I. Government Securities Fund
. AIM V.I. Growth and Income Fund
. AIM V.I. International Equity Fund
. AIM V.I. Value Fund
The Alger American Fund
. Alger American MidCap Growth Portfolio
. Alger American Income and Growth Portfolio
. Alger American Small Capitalization Portfolio
Liberty Variable Investment Trust
. Colonial High Yield Securities Fund, Variable Series
. Colonial Small Cap Value Fund, Variable Series
. Colonial Strategic Income Fund, Variable Series
. Colonial U.S. Growth and Income Fund, Variable Series
. Liberty All-Star Equity Fund, Variable Series
. Newport Tiger Fund, Variable Series
. Stein Roe Global Utilities Fund, Variable Series
SteinRoe Variable Investment Trust
. Stein Roe Growth Stock Fund, Variable Series
. Stein Roe Balanced Fund, Variable Series
MFS(R) Variable Insurance Trust(SM)
. MFS Growth With Income Series
. MFS High Income Series
. MFS Research Series
. MFS Total Return Series
. MFS Capital Opportunities Series
The Universal Institutional Funds, Inc.
. The Global Equity Portfolio
. The Mid Cap Value Portfolio
. The Value Portfolio
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Oppenheimer Variable Account Funds
. Oppenheimer Bond Fund/VA
. Oppenheimer Capital Appreciation Fund/VA
. Oppenheimer Small Cap Growth Fund/VA
Sage Life Investment Trust
. EAFE(R) Equity Index Fund
. S&P 500 Equity Index Fund
. Money Market Fund
T. Rowe Price Equity Series, Inc.
. T. Rowe Price Equity Income Portfolio
. T. Rowe Price Mid-Cap Growth Portfolio
. T. Rowe Price Personal Strategy Balanced Portfolio
The prospectuses for the Trusts describe the Funds in detail. These Funds
do not provide any performance guarantees, and their values will increase or
decrease depending upon investment performance.
Through our Fixed Account, you can choose to invest your money in one or
more of 5 different Guarantee Periods. We guarantee your principal and interest
rate when your investment is left in the Guarantee Period until it ends. You
currently can choose periods of 1, 2, 3, 4, and 5 years. However, if you
transfer or access amounts before the end of a period you have chosen, we
ordinarily will apply a Market Value Adjustment. This Adjustment may be
positive or negative depending upon current interest rates.
4. What Are The Expenses Under A Contract?
The Contract has insurance and investment features. Each has related
costs. Below is a brief summary of the Contract's charges:
Annual Administration Charge - During the first seven Contract Years only,
we will deduct an annual $40 administration charge. However, there is no charge
if, at the time of deduction, your Account Value is at least $50,000.
Asset-Based Charges - Each month, we deduct Asset-Based Charges for
mortality and expense risks, certain administrative and distribution costs, and
certain state and Federal tax expenses from your Account Value. The maximum
charges equal, on an annual basis, 1.80% of your Account Value, decreasing to
1.30% after the tenth Contract Year.
Cost of Insurance Charges - Each month, we deduct from the amounts you
allocate to the Variable and Fixed Accounts a charge for providing the life
insurance protection. This charge will never reflect rates greater than those
shown in your Contract.
Surrender Charge - During the first seven Contract Years only, we
ordinarily will deduct a surrender charge when you surrender your Contract or
withdraw amounts in excess of the Free Withdrawal Amount (see Part I). The
maximum applicable percentage is 9% in the first Contract Year. It
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declines to 0% after the seventh Contract Year. We calculate the surrender
charge as a percentage(s) of the purchase payment(s) you surrender or withdraw.
Fund Fees and Expenses - There are also Fund fees and expenses that are
based on the average daily value of the Funds. Currently, Fund fees and
expenses together range on an annual basis from 0.55% to 1.34%, depending upon
the Fund. A table of the Fund fees and expenses appears below.
Sage Life's business philosophy is to reward our long-term customers. So,
. After the seventh Contract Year we eliminate Surrender Charges.
. After the seventh Contract Year we eliminate the Annual Administration
Charge.
. And after the tenth Contract Year, we reduce the Asset-Based Charges.
This means more of your investment is working for you over the long-term.
Fund Annual Expenses (as a percentage of average daily net assets of a
Fund)
<TABLE>
<CAPTION>
Management Total Expenses Total Expenses
Fees (after fee Other Expenses (after (after fee waivers (before fee waivers
waiver, as reimbursement, as and reimbursements as and reimbursements as
Fund applicable) applicable) applicable) applicable)
---- --------------- --------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds:
AIM V.I. Government
Securities Fund..................... 0.50% 0.40% 0.90% N/A
AIM V.I. Growth and
Income Fund......................... 0.61 0.16 0.77 N/A
AIM V.I. International
Equity Fund......................... 0.75 0.22 0.97 N/A
AIM V.I. Value Fund................. 0.61 0.15 0.76 N/A
The Alger American Fund:
Alger American MidCap
Growth Portfolio.................... 0.80 0.05 0.85 N/A
Alger American Income
and Growth Portfolio................ 0.625 0.075 0.70 N/A
Alger American Small
Capitalization Portfolio............ 0.85 0.05 0.90 N/A
Liberty Variable Investment Trust:
Colonial High Yield
Securities Fund, Variable
Series............................ 0.60/(1)/ 0.20/(1)/ 0.80/(1)/ 1.88%
Colonial Small Cap Value
Fund, Variable Series............... 0.80/(1)/ 0.20/(1)/ 1.00/(1)/ 4.46
Colonial Strategic Income
Fund, Variable Series............... 0.65 0.10 0.75 N/A
Colonial U.S. Growth and
Income Fund, Variable
Series........................... 0.80 0.08 0.88 N/A
Liberty All-Star Equity
Fund, Variable Series............... 0.80 0.15 0.95 N/A
Newport Tiger Fund,
Variable Series..................... 0.90 0.31 1.21 N/A
Stein Roe Global Utilities
Fund, Variable Series............... 0.65 0.12 0.77 N/A
SteinRoe Variable
Investment Trust:
Stein Roe Growth Stock
Fund, Variable Series............... 0.50 0.17 0.67 N/A
Stein Roe Balanced Fund,
Variable Series..................... 0.45 0.17 0.62 N/A
MFS(R) Variable
Insurance Trust:(SM)
MFS Growth with Income
Series........................... 0.75 0.13/(2)/ 0.88/(2)/ N/A
MFS High Income Series.............. 0.75/(2)/ 0.16/(2)/ 0.91/(2)/ 0.97
MFS Research Series................. 0.75 0.11/(2)/ 0.86/(2)/ N/A
MFS Total Return Series............. 0.75 0.15/(2)/ 0.90/(2)/ N/A
MFS Capital Opportunities
Series........................... 0.75/(2)/ 0.16/(2)/ 0.91/(2)/ 1.02
</TABLE>
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<TABLE>
<CAPTION>
Management Total Expenses Total Expenses
Fees (after fee Other Expenses (after (after fee waivers (before fee waivers
waiver, as reimbursement, as and reimbursements as and reimbursements as
Fund applicable) applicable) applicable) applicable)
---- --------------- --------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
The Universal
Institutional Funds, Inc.:
The Global Equity Portfolio.......... 0.47%/(3)/ 0.68%/(3)/ 1.15%/(3)/ 1.48%
The Mid Cap Value Portfolio.......... 0.43/(3)/ 0.62/(3)/ 1.05/(3)/ 1.37
The Value Portfolio.................. 0.18/(3)/ 0.67/(3)/ 0.85/(3)/ 1.22
Oppenheimer Variable Funds:
Oppenheimer Bond Fund/VA............. 0.72 0.01 0.73 N/A
Oppenheimer Capital.................. 0.68 0.02 0.70 N/A
Appreciation Fund/VA
Oppenheimer Small Cap
Growth Fund/VA...................... 0.75 0.59 1.34 N/A
Sage Life Investment Trust:
EAFE/(R)/ Equity Index
Fund*............................... 0.73/(4)/ 0.17/(4)/ 0.90/(4)/ 1.07
S&P 500 Equity Index Fund**......... 0.38/(4)/ 0.17/(4)/ 0.55/(4)/ .72
Money Market Fund................... 0.48/(4)/ 0.17/(4)/ 0.65/(4)/ .82
T. Rowe Price Equity
Series, Inc.:
T. Rowe Price Equity
Income Portfolio.................... 0.85/(5)/ 0.00 0.85 N/A
T. Rowe Price Mid-Cap
Growth Portfolio.................... 0.85/(5)/ 0.00 0.85 N/A
T. Rowe Price Personal
Strategy Balanced
Portfolio........................... 0.90/(5)/ 0.00 0.90 N/A
</TABLE>
_____________
(1) Without fee waivers and expense reimbursements, the management fees, the
other expenses, and total expenses for each of the following Liberty
Variable Investment Trust Funds during 1999 would have been: Colonial High
Yield Securities Fund, Variable Series 0.60%, 1.28%, 1.88%; and Colonial
Small Cap Value Fund, Variable Series 0.80%, 3.66% and 4.46%.
(2) Without fee waivers and expense reimbursements, the management fees, the
other expenses, and total expenses for each of the following MFS Variable
Insurance Trust Funds during 1999 would have been: MFS Capital Opportunity
Series 0.75%, 0.27% and 1.02%; and MFS High Income Series 0.75%, 0.22%, and
0.97%. In addition, each Fund has an expense offset arrangement with
reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. Each Fund may
enter into such arrangements and directed brokerage arrangements, which
would also have the effect of reducing Fund expenses. "Other Expenses" do
not take into account these expense reductions, and are therefore higher
than the actual expenses of the Fund. Had these fee reductions been taken
into account, "Total Expenses (after fee waivers and reimbursements, as
applicable)" would be lower and would equal: MFS Growth with Income
Series -- 0.87%; MFS High Income Series -- 0.90%; MFS Research Series --
0.85%; MFS Total Return Series -- 0.89%; and MFS Capital Opportunities
Series -- 0.90%.
(3) Without fee waivers and expense reimbursements, the management fees, the
other expenses, and total expenses for each of the following The
Universal Institutional Funds, Inc. Funds during 1999 would have been:
Global Equity Portfolio 0.80%, 0.68%, and 1.48%; Mid Cap Value Portfolio
0.75%, 0.62%, and 1.37%; and Value Portfolio 0.55%, 0.67%, and 1.22%
(4) Without fee waivers and expense reimbursements, total expenses for each of
the Sage Life Investment Trust Funds during 1999 would have been:
EAFE(R) Equity Index Fund 1.07%; S&P 500 Equity Index Fund 0.72%; and
Money Market Fund 0.82%. In addition, 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. No Plan payments were made during 1999, and no payments
will be made under the plan prior to May 1, 2001.
(5) For each of the portfolios in the T. Rowe Price Equity Series, management
fees include operating expenses.
* The EAFE(R) Index is the exclusive property of Morgan Stanley Capital
International ("MSCI"). This Fund is not sponsored, endorsed, sold or
promoted by MSCI or any affiliate of MSCI.
** S&P 500(R) is a trademark of the McGraw-Hill Companies, Inc. and has been
licensed for use by Sage Advisors, Inc. The S&P 500 Equity Index Fund is
not sponsored, endorsed, sold or
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promoted by Standard & Poor's, and Standard & Poor's makes no
representation regarding the advisability of investing in the Fund.
5. How Will My Contract Be Taxed?
Under current federal tax law, life insurance contracts receive tax-favored
treatment. The death benefit is fully excludable from the Beneficiary's gross
income for federal income tax purposes. You are not taxed on any increase in
the Account Value while a life insurance contract remains in force. In most
cases, your Contract will be a Modified Endowment Contract ("MEC"). If your
Contract is a MEC, certain distributions made during the Insured's lifetime,
such as loans and withdrawals from, and collateral assignments of, the Contract
are includable in gross income on an income-first basis. A 10% Federal tax
penalty ordinarily will be imposed on income distributed before you attain age
59 1/2. Contracts that are not Modified Endowment Contracts ("non-MECs")
receive preferential tax treatment with respect to certain distributions. See
Part I "How Will My Contract Be Taxed?"
We do not give tax advice, nor is any registered representative authorized
to give tax advice on our behalf. We recommend that you consult your tax
adviser about your particular tax situation.
6. How Do I Access My Money?
If you need to take money out of your Contract, you can choose among
several different options. You can tailor your withdrawals to meet your
liquidity needs.
. You can withdraw some of your money.
. You can surrender the Contract and take the entire proceeds as a
single lump sum payment or apply the proceeds to one of the Settlement
Options we offer.
. You can withdraw money using our systematic partial withdrawal
program.
. If your Contract is a non-MEC, you have tax-free access though loans.
. If your Contract is a MEC, you may take taxable loans that may be
subject to a 10% Federal tax penalty.
Keep in mind that amounts you surrender or withdraw may be subject to a
surrender charge if taken during the first seven Contract Years. However,
during that period the Contract does provide a Free Withdrawal Amount (not
subject to a surrender charge) each year equal to your cumulative earnings, or
if greater, 10% of total purchase payments you have invested.
In addition, if you access amounts from the Fixed Account, we ordinarily
will apply a Market Value Adjustment. If you are younger than 59 1/2 when you
take money out, you may owe a 10% federal tax penalty, as well as the income tax
that ordinarily would apply. Please remember that withdrawals will reduce your
death benefit.
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7. How Is Contract Performance Presented?
Articles about the Variable Account's investment performance, rankings, or
other characteristics may appear in publications. Publications may use articles
and releases developed by us, the Funds and other parties about the Variable
Account or the Funds.
Please remember that performance data represents past performance. Amounts
you invest in the Variable Sub-Accounts will fluctuate daily based on underlying
Fund investment performance, so the value of your investment may increase or
decrease.
8. What Is The Death Benefit Under My Contract?
The Contract provides for a payment to your designated Beneficiary if the
Insured dies while the Contract is in force. This payment is called the "Death
Proceeds" and is equal to the following:
. the death benefit described below; plus
. any additional insurance on the Insured's life that may be provided by
riders to the Contract; minus
. any Debt from Contract loans; minus
. any due and unpaid charges; and minus
. any amounts previously paid under the Accelerated Death Benefit Rider
plus accrued interest.
Your death benefit at issue equals your initial Insurance Amount. On any
Business Day after that it equals the greater of:
. the Insurance Amount; and
. the Minimum Death Benefit
The initial Insurance Amount depends on the amount of your initial purchase
payment, and the age and sex of the proposed Insured. We show your initial
Insurance Amount in your Contract. Your Insurance Amount remains level unless
you make additional purchase payments or withdrawals.
The Minimum Death Benefit equals the Account Value plus any positive Market
Value Adjustment as of that Business Day, multiplied by a percentage that varies
with the attained age of the Insured. We show these percentages in your
Contract.
Your Beneficiaries decide how they wish to receive the Death Proceeds.
They can elect payment in a single sum, or apply proceeds under one of the
Settlement Options we offer.
9. What Supplemental Benefits Are Available Under My Contract?
Accelerated Death Benefit Rider: This rider is automatically included in
your Contract at no additional cost. It allows you to take an advance payment
against the Death Proceeds under your Contract if the Insured is diagnosed as
having a terminal illness. You can request up to 50% of the Insurance Amount, to
a maximum of $500,000.
Accidental Death Benefit Rider: The Contract also provides an accidental
death benefit at no additional cost. If the Insured dies as a direct result of
an accident before
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reaching age 81, we will pay an additional death benefit to the Beneficiary of
your choice. This additional benefit equals 100% of the sum of all purchase
payments you have invested in your Contract, less any withdrawals you have made
(including any associated surrender charge and Market Value Adjustment
incurred), up to a maximum of $250,000.
Waiver of Surrender Charge Rider: We will include this rider
automatically in your Contract at no additional cost. It permits you to withdraw
money from your Contract without a surrender charge if you need it while you are
confined to a nursing care facility or hospital. Certain restrictions
apply.
10. What Are My Settlement Options?
You can apply proceeds under your Contract to purchase a stream of regular
income payments under one of the Settlement Options shown below (or under any
other option acceptable to us). Our descriptions assume that you apply the
Surrender Value and receive the income payments from one of the options below.
Of course, you always can designate someone other than yourself to receive the
income payments, and we pay income payments from any Death Proceeds to your
Beneficiary.
Option 1 - Payments for Life: You will receive payments for your life.
Option 2 - Life Annuity with 10 or 20 Years Certain: You will receive
payments for your life. However, if you die before the end of the
guaranteed certain period you select (10 or 20 years), your Beneficiary
will receive the payments for the remainder of that period.
Option 3 - Joint and Last Survivor Life Annuity: We will make payments as
long as either you or a second person you select (such as your spouse) is
alive.
Option 4 - Payments for a Specified Period Certain: You will receive
payments for the number of years you select, which may be from 5-30 years.
However, if you die before the end of that period, your Beneficiary will
receive the payments for the remainder of the guaranteed certain period.
You or your Beneficiary, as the case may be, tell us how much to apply to
fixed income payments and to variable income payments. With variable income
payments, you currently have all of the investment choices you had before income
payments began. However, we currently limit transfers among your investment
choices. Once income payments begin, you may surrender your Contract only if you
choose variable income payments under Option 4.
We will allocate the amount you apply to provide fixed income payments to
the Fixed Account and invest it in the Guarantee Periods you select. We
guarantee the amount of each fixed income payment. The amount of each fixed
income payment will remain level throughout the period you select.
We will allocate the amount you apply to provide variable income payments
to the Variable Account and invest it in the Funds you select. The amount of
each income payment will vary according to the investment performance of those
Funds.
11. What Other Information Should I Know?
The Contract has several additional features available to you at no
additional charge:
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Free Look Right: You have the right to return your Contract to us at our
Customer Service Center or to the registered representative who sold it to you,
and have us cancel the Contract within a certain number of days (usually 10 days
from the date you receive the Contract, but some states require different
periods).
If you exercise this right, we will cancel your Contract as of the Business
Day we receive it. We will send you a refund equal to your Account Value plus
any Asset-Based Charges and cost of insurance charges we have deducted on or
before the date we received the returned Contract. If required by the law of
your state, we will refund your initial purchase payment (less any withdrawals
previously taken). In the states where we are required to return purchase
payment less withdrawals, if you allocated amounts to the Variable Account, we
will temporarily allocate those amounts to the Money Market Sub-Account until we
deem the Free Look Period to end.
Dollar-Cost Averaging Program: Under our optional Dollar-Cost Averaging
Program, you may transfer a set dollar amount systematically from the Money
Market Sub-Account and/or from specially designated Fixed Sub-Accounts to any
other Variable Sub-Account, subject to certain limitations. By investing the
same amount on a regular basis, you don't have to worry about timing the market.
Since you invest the same amount each period, you automatically acquire more
units when market values fall and fewer units when they rise. The potential
benefit is to lower your average cost per unit. This strategy does not
guarantee that any Fund will gain in value. It also will not protect against a
decline in value if market prices fall. However, if you can continue to invest
regularly throughout changing market conditions, this program can be an
effective way to help meet your long-term goals. Due to the effect of interest
that continues to be paid on the amount remaining in the Money Market Sub-
Account or the specially designated Fixed Sub-Account, the amounts that we
transfer will vary slightly from month to month.
Asset Allocation Program: An optional Asset Allocation Program is
available if you do not wish to make your own particular investment decisions.
This investment planning tool is designed to find an asset mix that attempts to
achieve the highest expected return based upon your tolerance for risk, and
consistent with your needs and objectives. Bear in mind that the use of an
asset-allocation model does not guarantee investment results.
Automatic Portfolio Rebalancing Program: Our optional Automatic Portfolio
Rebalancing Program can help prevent a well-conceived investment strategy from
becoming diluted over time. Investment performance will likely cause the
allocation percentages you originally selected to shift. With this program, you
can instruct us to automatically rebalance your Contract to your original
percentages on a calendar quarterly, semi-annual, or annual basis. Money
invested in the Fixed Account is not part of this program.
No Probate: If the Insured dies, we will pay the Death Proceeds to your
heirs or designated beneficiary. Generally, the Death Proceeds will be received
without going through probate.
12. How Can I Make Inquiries?
If you need further information about the Contracts, please write or call
us at our Customer Service Center (877) TEL-SAGE (835-7243), or contact an
authorized registered representative. The address of our Customer Service
Center office is P.O. Box 290680, Wethersfield, CT 06129-0680.
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Part I
Description of the Contracts
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1. What Are The Contracts?
================================================================================
The Contracts are modified single payment combination fixed and variable
life insurance Contracts offered by us, Sage Life Assurance of America, Inc. We
designed the Contracts for your estate planning or other insurance needs, or to
supplement your long-term retirement savings. They provide many benefits
including:
. investing amounts on a tax-deferred basis in our Variable Account and
our Fixed Account;
. access to your investment should you need it (however, a surrender
charge and Market Value Adjustment may apply); and
. life insurance that can pass free of federal and state income taxes to
your heirs.
However, life insurance is not a short-term investment. You should
evaluate your need for life insurance coverage and the Contract's long-term
investment potential and risks before you purchase a Contract.
Under the terms of the Contract, we promise to pay the Death Proceeds to
your designated Beneficiary upon receipt of proof that the Insured died while
your Contract is in force. You purchase the Contract with an initial purchase
payment. While your Contract is in force and the Insured is alive, you may make
additional payments under the Contract (subject to certain conditions) and will
ordinarily not be taxed on increases in the value of your Contract as long as
you do not take distributions. See "How Will My Contract Be Taxed?" The
Contracts may not be available in all states or in all markets. Your Contract
may differ from the description here because of the requirements of the State
where we issued your Contract.
When you make purchase payments, you can allocate those purchase payments
to one or more of the 33 subdivisions of the Variable Account, known as
"Variable Sub-Accounts." We will invest purchase payments you allocate to a
Variable Sub-Account solely in its corresponding Fund. Your Account Value in a
Variable Sub-Account will vary according to the investment performance of that
Fund. Depending on market conditions, your value in each Variable Sub-Account
could increase or decrease. We do not guarantee a minimum value. You bear the
risk of investing in the Variable Account. We call the total of the values in
the Variable Sub-Accounts the "Variable Account Value."
You can also allocate purchase payments to our Fixed Account. See "Fixed
Account Investment Option." The Fixed Account includes "Fixed Sub-Accounts" to
which we credit fixed rates of interest for the Guarantee Periods you select.
We call the total of the values in the Fixed Sub-Accounts, the "Fixed Account
Value." We currently offer Guarantee Periods with durations of 1, 2, 3, 4, and
5 years. If any amount allocated or transferred remains in a Guarantee Period
until the Expiration Date, its value will equal the amount originally allocated
or transferred, multiplied on an annually compounded basis, by its guaranteed
interest rate. We will ordinarily apply a Market Value Adjustment to any
surrender, withdrawal, transfer, or amount borrowed from a Fixed Sub-Account
before its Expiration Date. The
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Market Value Adjustment may increase or decrease the value of the Fixed Sub-
Account (or portion thereof) being surrendered, withdrawn, transferred, or
borrowed. See "What Are My Investment Options?"
You can transfer Account Value from one Variable Sub-Account to another,
and from a Fixed Sub-Account to a Variable Sub-Account and from a Variable Sub-
Account to a Fixed Sub-Account, subject to certain conditions. See "What Are My
Investment Options?"
We may offer other variable life insurance contracts that also invest in
the same Funds offered under the Contracts. These contracts may have different
charges and they may offer different benefits.
================================================================================
2. How Do I Purchase A Contract?
================================================================================
Initial Purchase Payment. You must make the initial purchase payment to
put a Contract in force. The minimum initial purchase payment is $10,000. We
will not issue a Contract if the proposed Insured is over age 90.
Issuance of a Contract. Once we receive your initial purchase payment and
your application at our Customer Service Center, we will process your
application to see if the proposed Insured meets our underwriting and other
criteria. Under our current underwriting rules, which are subject to change, a
proposed Insured age 80 and under may be eligible for our simplified
underwriting program. This program does not involve a medical examination, and
may enable us to issue a Contract much faster than we otherwise could. To
qualify, an Insured's application responses must meet our simplified
underwriting standards. The maximum initial purchase payment we currently
accept on a simplified underwriting basis varies with the issue age and gender
of the Insured, but, the difference between the initial Insurance Amount and the
initial purchase payment may never exceed $100,000.
We will apply customary underwriting standards to all other Insureds. Our
current underwriting rules are subject to change.
We reserve the right to reject an application for any lawful reason. If we
do not issue a Contract, we will return to you any purchase payment you
submitted with the application. If we issue a Contract, your Issue Date will be
the date we issue your Contract at our Customer Service Center.
Free Look Right to Cancel Contract. During your "Free Look" Period, you
may cancel your Contract. The Free Look Period usually ends 10 days after you
receive your Contract. Some states may require a longer period. If you decide
to cancel your Contract, you must return it to our Customer Service Center or to
one of our authorized registered representatives. We will send you a refund of
your Account Value plus any Asset-Based Charges and cost of insurance charges we
have deducted on or before the date we receive your returned Contract at our
Customer Service Center. If required by the law of your state, we will refund
your initial purchase payment (less any withdrawals previously taken). In those
latter states where this requirement exists, we will temporarily invest amounts
you allocate to the Variable Account to the Money Market Sub-Account until the
time we deem the Free Look Period to end. See "What Are My Investment Options?"
Making Additional Purchase Payments. You may make additional payments at
any time after the first Contract Anniversary, while your Contract is in force
and the Insured is alive, subject to the following conditions:
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. Each additional purchase payment must be at least $250.
. You may make only one purchase payment in any Contract Year.
. The Attained Age of the Insured must be less than 81.
. We must approve in advance any payment that would cause the Account
Value of all single payment or modified single payment contracts that
you maintain with us to exceed $1,000,000.
While the Insured is alive, you also may make any additional payment
necessary to keep your Contract in force.
When we accept an additional payment, that payment increases your Account
Value and may increase your death benefit. We reserve the right to require
satisfactory evidence of insurability before accepting any additional payment
that increases your Death Benefit by more than it increases your Account Value.
This is because our risk increases under these circumstances.
All additional payments are payable at our Customer Service Center. We
will credit any payment we receive after the Contract Date to the Contract as of
the Business Day on which our Customer Service Center receives it unless the
payment represents an increase in the Insurance Amount. See "What Is the Death
Benefit Under My Contract?" We will deem purchase payments we receive on other
than a Business Day as received on the next following Business Day.
Unless you tell us otherwise, we will first consider all payments we
receive while a loan is outstanding as a payment of any loan interest, next as a
loan repayment, and last as an additional purchase payment.
Grace Period. If your Surrender Value on a Monthly Processing Date is not
sufficient to cover the Monthly Deduction Amount, we will allow you a Grace
Period of 61 days for you to pay an amount sufficient to cover the Monthly
Deduction Amount due. See "What Are The Expenses Under A Contract?" We will
send you a notice at the start of the Grace Period at your last known address.
The Grace Period will end 61 days after we mail you the notice.
If you do not make the necessary payment by the end of the Grace Period,
your Contract will terminate without value. Subject to the terms and conditions
of your Contract, if the Insured dies during the Grace Period, we will pay the
Death Proceeds.
Reinstatement. If the Grace Period has ended and you have not paid the
necessary payment and have not surrendered your Contract for its Surrender
Value, you may be able to reinstate your Contract. To do so:
. submit a written request to us for reinstatement within 3 years after
the end of the Grace Period;
. provide us with satisfactory evidence of insurability;
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. pay an additional purchase payment equal to the minimum initial
purchase payment for which we would then issue a Contract based upon
the Insured's Attained Age, sex, and health; and
. repay or reinstate any Debt against the Contract that existed at the
end of the Grace Period.
The effective date of a reinstated Contract will be the Monthly Processing
Date on or next following the date we approve your application for reinstatement
and receive the necessary purchase payment.
If we reinstate your Contract, the Account Value on the date of
reinstatement will be the amount provided by the purchase payment that you paid
to reinstate the Contract. Certain charges under the Contract vary depending on
how long the Contract has been in force. We will calculate these charges based
on the length of time from the Contract Date until the date of reinstatement.
Unless you have told us otherwise, we will calculate your Account Value based on
your allocation instructions in effect at the start of the Grace Period.
Specialized Uses of the Contract. The Contract offers potential benefits
such as providing:
. a means for investing on a tax-deferred basis;
. access to your investment if you need it; and
. life insurance that can pass free of federal and state income taxes to
your Beneficiaries under the Contract.
However, purchasing the Contract partly or wholly for such purposes entails
certain risks. For example, poor investment performance in Variable Sub-Accounts
in which you may invest may cause the need for an additional payment in order to
keep the Contract in force (this may be particularly true if there is
outstanding Debt). Such poor investment performance may cause the Account Value
or Surrender Value to be insufficient to fund the purpose for which you
purchased the Contract. Withdrawals and loans may significantly affect current
and future Account Value, Surrender Value, or Death Proceeds. Before purchasing
a Contract, you should consider whether the long-term nature of the Contract is
consistent with the purpose for which it is being considered. Using a Contract
for a specialized purpose may also have tax consequences. See "How Will My
Contract Be Taxed?"
Illustrations. We have included hypothetical illustrations in this
Prospectus to show you how the Contract works. We have based these
illustrations on hypothetical rates of return and we do not guarantee these
rates. The rates are an illustration only, and do not represent past or future
investment performance. Your actual Contract values will be different from those
in the illustrations.
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3. What Are My Investment Options?
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Purchase Payment Allocations. When you apply for a Contract, you specify
the percentage of your purchase payment to be allocated to each Variable Sub-
Account and/or to each Fixed Sub-Account. You can change the allocation
percentages at any time by sending Satisfactory Notice to our Customer Service
Center. The change will apply to all purchase payments we receive on or after
the date we receive your request. Purchase payment allocations must be in
percentages totaling 100%, and each
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allocation percentage must be a whole number. We currently require that each
purchase payment allocation be at least $250.
We may, however, require that an initial purchase payment allocated to a
Variable Sub-Account be temporarily invested in the Money Market Sub-Account
during the Free Look Period. We will require this if the law of your state
requires us to refund your full initial purchase payment less any withdrawals
previously taken, should you cancel your Contract during the Free Look Period.
At the end of the Free Look Period, if we temporarily allocated your initial
purchase payment to the Money Market Sub-Account, we will transfer the value of
what is in the Money Market Sub-Account to the Variable Sub-Account(s) you
specified in your application. Solely for the purpose of processing this
transfer from the Money Market Sub-Account, we will deem the Free Look Period to
end 15 days after the Contract Date. This transfer from the Money Market Sub-
Account to the Variable Sub-Accounts upon the expiration of the Free Look Period
does not count as a transfer for any other purposes under your Contract.
Variable Sub-Account Investment Options. The Variable Account has 33 Sub-
Accounts, each investing in a specific Fund. Each of the Funds is either an
open-end diversified management investment company or a separate investment
portfolio of such a company, and is managed by a registered investment adviser.
The Funds, as well as brief descriptions of their investment objectives, are
provided below. There is no assurance that these objectives will be met. Not
every Fund may be available in every state or in every market.
AIM Variable Insurance Funds
AIM V.I. Government Securities Fund. This Fund seeks to achieve a high
level of current income consistent with reasonable concern for safety of
principal by investing in debt securities issued, guaranteed or otherwise backed
by the United States Government.
AIM V.I. Growth and Income Fund. This Fund's primary objective is growth
of capital with a secondary objective of current income.
AIM V.I. International Equity Fund. This Fund seeks to provide long-term
growth of capital by investing in a diversified portfolio of international
equity securities whose issuers are considered to have strong earnings momentum.
AIM V.I. Value Fund. This Fund seeks to achieve long-term growth of
capital by investing primarily in equity securities judged by the Fund's
investment adviser to be undervalued relative to the investment adviser's
appraisal of the current or projected earnings of the companies issuing the
securities, or relative to current market values of assets owned by the
companies issuing the securities or relative to the equity market generally.
Income is a secondary objective.
AIM Advisers, Inc. advises the AIM Variable Insurance Funds.
The Alger American Fund
Alger American Midcap Growth Portfolio. This Fund seeks long-term capital
appreciation. It focuses on midsize companies with promising growth potential.
Under normal circumstances, the portfolio invests primarily in the equity
securities of companies having a market capitalization within the range of
companies in the S&P MidCap 400 Index.
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Alger American Income and Growth Portfolio. This Fund primarily seeks to
provide a high level of dividend income; its secondary goal is to provide
capital appreciation. The Portfolio invests in dividend paying equity
securities, such as common or preferred stocks, preferably those which the
Manager believes also offer opportunities for capital appreciation.
Alger American Small Capitalization Portfolio. This Fund seeks long-term
appreciation. It focuses on small, fast-growing companies that offer innovative
products, services or technologies to a rapidly expanding marketplace. Under
normal circumstances, the portfolio invests primarily in the equity securities
of small capitalization companies. A small capitalization company is one that
has a market capitalization within the range of the Russell 2000 Growth Index or
the S&P SmallCap 600 Index.
Fred Alger Management, Inc. advises The Alger American Fund.
Liberty Variable Investment Trust
Colonial High Yield Securities Fund, Variable Series. This Fund seeks
current income and total return by investing primarily in lower rated corporate
debt securities (commonly referred to as "junk bonds").
Colonial Small Cap Value Fund, Variable Series. This Fund seeks long-term
growth by investing primarily in smaller capitalization equity securities.
Colonial Strategic Income Fund, Variable Series. This Fund seeks a high
level of current income, as is consistent with prudent risk and maximizing total
return, by diversifying investments primarily in U.S. and foreign government and
lower rated corporate debt securities.
Colonial U.S. Growth and Income Fund, Variable Series. This Fund seeks
long-term growth and income by investing primarily in large capitalization
equity securities. Up to 10% of its assets may be invested in debt securities.
Liberty All-Star Equity Fund, Variable Series. This Fund seeks total
investment return, comprised of long-term capital appreciation and current
income, through investment primarily in a diversified portfolio of equity
securities.
Newport Tiger Fund, Variable Series. This Fund seeks long-term capital
growth by investing primarily in equity securities of companies located in the
nine Tigers of Asia (Hong Kong, Singapore, South Korea, Taiwan, Malaysia,
Thailand, Indonesia, The People's Republic of China and the Philippines).
Stein Roe Global Utilities Fund, Variable Series. This Fund seeks current
income and long-term growth of capital by investing primarily in U.S. and
foreign securities of utility companies.
Liberty Advisory Services Corp. provides investment management and advisory
services to the Liberty Variable Investment Trust. Colonial Management
Associates, Inc. sub-advises the High Yield Securities Fund, the U.S. Growth and
Income Fund, the Small Cap Value Fund, and the Strategic Income Fund. Stein Roe
& Farnham Incorporated sub-advises the Global Utility Fund. Newport Fund
Management, Inc. sub-advises the Tiger Fund. Liberty Asset Management Company
sub-advises the All-Star Fund.
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SteinRoe Variable Investment Trust
Stein Roe Growth Stock Fund. This Fund seeks long-term growth of capital
through investment primarily in common stocks.
Stein Roe Balanced Fund. This Fund seeks high total investment return
through a changing mix of equities, debt securities, and cash.
Stein Roe & Farnham Incorporated advises the SteinRoe Variable Investment
Trust.
MFS(R) Variable Insurance Trust(SM)
MFS(R) Variable Insurance Trust(SM)
MFS Growth with Income Series. This Fund seeks long-term growth of capital
and income. The Fund invests, under normal market conditions, at least 65% of
its total assets in common stock and related securities, such as preferred
stocks, convertible securities and depositary receipts for those securities.
These securities may be listed on a securities exchange or traded in the over-
the-counter markets. While the Fund may invest in companies of any size, the
Fund generally focuses on companies with larger market capitalizations that the
Fund's adviser believes have sustainable growth prospects and attractive
valuations based on current and expected earnings or cash flow.
MFS High Income Series. This Fund seeks high current income by investing
primarily in a professionally managed diversified portfolio of fixed income
securities, some of which may involve equity features. The Fund invests, under
normal market conditions, at least 80% of its total assets in high yield fixed
income securities. Fixed income securities offering the high current income
sought by the series generally are lower rated bonds (junk bonds).
MFS Research Series. This Fund seeks to provide long-term growth of
capital and future income. The Fund invests, under normal market conditions, at
least 80% of its total assets in common stocks and related securities, such as
preferred stocks, convertible securities and depositary receipts. The Fund
focuses on companies that the Fund's adviser believes have favorable prospects
for long-term growth, attractive valuations based on current and expected
earnings or cash flow, dominant or growing market share and superior management.
MFS Total Return Series. This Fund primarily seeks to obtain above-average
income (compared to a portfolio entirely invested in equity securities)
consistent with prudent employment of capital; its secondary objective is to
take advantage of opportunities for growth of capital and income since many
securities offering a better than average yield may also possess growth
potential. The Fund is a "balanced fund," and invests in a combination of
equity and fixed income securities. Under normal market conditions, the Fund
invests (i) at least 40%, but not more than 75%, of its net assets in common
stocks and related securities (referred to as equity securities), such as
preferred stocks, bonds, warrants or rights convertible into stock, and
depositary receipts for those securities; and (ii) at least 25% of its net
assets in non-convertible fixed income securities.
MFS Capital Opportunities Series. This Fund seeks capital appreciation.
The Fund invests, under normal market conditions, at least 65% of its total
assets in common stocks and related securities, such as preferred stocks,
convertible securities and depositary receipts for those securities. The Fund
focuses on companies which the Fund's adviser believes have favorable growth
prospects and attractive valuations based on current and expected earnings or
cash flow.
MFS Investment Management(R) advises the MFS(R) Variable Insurance Trust.
The Universal Institutional Funds, Inc.
The Global Equity Portfolio. This Fund seeks long-term capital
appreciation by investing primarily in equity securities of issuers throughout
the world, including U.S. issuers, using an approach that is oriented to the
selection of individual stocks that the Fund's investment adviser believes are
undervalued.
The Mid Cap Value Portfolio. This Fund seeks above-average total return
over a market cycle of three to five years by investing primarily in common
stocks of companies with equity capitalizations in the range of companies
included in the S&P MidCap 400 Index (currently $500 million to $6 billion).
The Value Portfolio. This Fund seeks above-average return over a market
cycle of three to five years by investing primarily in a portfolio of common
stocks and other equity securities of companies with equity capitalization
greater than $2.5 billion that are deemed by the Fund's investment adviser to be
relatively undervalued based on the market as a whole, as measured by the S&P
500 Index.
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Morgan Stanley Dean Witter Investment Management, Inc. advises The Global
Equity Portfolio. Miller Anderson & Sherrerd, LLP advises The Value Portfolio
and The Mid Cap Value Portfolio.
Oppenheimer Variable Account Funds
Oppenheimer Bond Fund/VA. This Fund seeks a high level of current income.
Secondarily, this Fund seeks capital growth when consistent with its primary
objective. The Fund will, under normal market conditions, invest at least 65%
of its total assets in investment grade debt securities.
Oppenheimer Capital Appreciation Fund/VA. This Fund seeks to achieve
capital appreciation by investing in securities of well-known, established
companies.
Oppenheimer Small Cap Growth Fund/VA. This Fund seeks capital
appreciation. Current income is not an objective. In seeking its investment
objective, the Fund invests mainly in securities of "growth type" companies with
market capitalizations of less than $1 billion.
Oppenheimer Funds, Inc. manages Oppenheimer Variable Account Funds.
Sage Life Investment Trust
EAFE(R) Equity Index Fund. This 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.
S&P 500 Equity Index Fund. This Fund seeks to replicate as closely as
possible the performance of the S&P 500 Composite Stock Price Index before the
deduction of Fund expenses.
Money Market Fund. This Fund seeks to provide high current income
consistent with the preservation of capital and liquidity. Although the Fund
seeks to maintain a constant net asset value of $1.00 per share, there can be no
assurance that the Fund can do so on a continuous basis. An investment in the
Money Market Fund is not guaranteed.
Sage Advisors, Inc. is the investment manager to the Sage Life Investment
Trust. State Street Global Advisors subadvises the EAFE(R) Equity Index Fund
and S&P 500 Equity Index Fund. Conning Asset Management Company subadvises the
Money Market Fund.
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Income Portfolio. This Fund seeks to provide
substantial dividend income as well as long-term growth of capital through
investments in the common stocks of established companies.
T. Rowe Price Mid-Cap Growth Portfolio. This Fund seeks to provide long-
term capital appreciation by investing in mid-cap stocks with potential for
above-average earnings.
T. Rowe Price Personal Strategy Balanced Portfolio. The Fund seeks to
provide the highest total return over time, with an emphasis on both capital
growth and income. The Personal Strategy Balanced Portfolio invests in a
diversified portfolio of stocks, bonds, and money market securities.
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T. Rowe Price Associates, Inc. provides investment management to the T.
Rowe Price Equity Series, Inc.
The investment objectives and policies of certain Funds may be similar to
those of other retail mutual funds which can be purchased outside of a variable
insurance product, and that are managed by the same investment adviser or
manager. The investment results of the Funds, however, may be higher or lower
than the results of such other retail mutual funds. There can be no assurance,
and no representation is made, that the investment results of any of the Funds
will be comparable to the investment results of any other retail mutual fund,
even if the other retail mutual fund has the same investment adviser or manager.
Shares of the Funds may be sold to separate accounts of insurance companies
that are not affiliated with us or each other, a practice known as "shared
funding." They also may be sold to separate accounts to serve as the underlying
investment for both variable annuity contracts and variable life insurance
contracts, a practice known as "mixed funding." As a result, there is a
possibility that a material conflict may arise between the interests of Owners
who allocate Account Values to the Variable Account, and owners of other
contracts who allocate contract values to one or more other separate accounts
investing in any of the Funds. Shares of some of the Funds may also be sold
directly to certain qualified pension and retirement plans qualifying under
Section 401 of the Code. As a result, there is a possibility that a material
conflict may arise between the interest of Owners or owners of other contracts
(including contracts issued by other companies), and such retirement plans or
participants in such retirement plans. In the event of any such material
conflicts, we will consider what action may be appropriate, including removing a
Fund from the Variable Account or replacing the Fund with another Fund. There
are certain risks associated with mixed and shared funding and with the sale of
shares to qualified pension and retirement plans, as disclosed in each Trust's
prospectus.
We have entered into agreements with either the investment adviser or
distributor for each of the Funds in which the adviser or distributor pays us a
fee ordinarily based upon an annual percentage of up to .25% of the average
aggregate net amount we have invested on behalf of the Variable Account and
other separate accounts. These percentages differ, and some investment advisers
or distributors pay us a greater percentage than other advisers or distributors.
These agreements reflect administrative services we provide.
More detailed information concerning the investment objectives, policies,
and restrictions of the Funds, the expenses of the Funds, the risks attendant to
investing in the Funds and other aspects of their operations can be found in the
current prospectus for each Trust which accompanies this Prospectus. You should
read the Trusts' prospectuses carefully before you decide to allocate amounts to
the Variable Sub-Accounts.
Fixed Account Investment Options. Each time you allocate purchase payments
or transfer funds to the Fixed Account, we establish a Fixed Sub-Account. We
guarantee an interest rate (the "Guaranteed Interest Rate") for each Fixed Sub-
Account for a period of time (a "Guarantee Period"). When you make an allocation
to the Fixed Sub-Account, we apply the Guaranteed Interest Rate then in effect.
(Keep in mind that we deduct charges from a Fixed Sub-Account, and these
deductions will reduce your actual return. See "What are the Expenses Under a
Contract?") We may establish specially designated Fixed Sub-Accounts ("DCA Fixed
Sub-Accounts"), for our Dollar-Cost Averaging Program.
We have no specific formula for establishing the Guaranteed Interest Rates
for the different Guarantee Periods. The determination we make will be
influenced by, but not necessarily correspond to,
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interest rates available on fixed income investments that we may acquire with
the amounts we receive as purchase payments or transfers of Account Value under
the Contracts. We will invest these amounts primarily in investment-grade fixed
income securities including: securities issued by the U.S. Government or its
agencies or instrumentalities, which issues may or may not be guaranteed by the
U.S. Government; debt securities that have an investment grade, at the time of
purchase, within the four highest grades assigned by Moody's Investor Services,
Inc., Standard & Poor's Corporation, or any other nationally recognized rating
service; mortgage-backed securities collateralized by real estate mortgage
loans, or securities collateralized by other assets, that are insured or
guaranteed by the Federal Home Loan Mortgage Corporation , the Federal National
Mortgage Association, or the Government National Mortgage Association, or that
have an investment grade at the time of purchase within the four highest grades
described above; other debt instruments; commercial paper; cash or cash
equivalents. You will have no direct or indirect interest in these investments,
and you do not share in the investment performance of the assets of the Fixed
Account. We will also consider other factors in determining the Guaranteed
Interest Rates, including regulatory and tax requirements, sales commissions,
administrative expenses borne by us, general economic trends, and competitive
factors. The Company's management will make the final determination of the
Guaranteed Interest Rates it declares. We cannot predict or guarantee the level
of future interest rates. However, our Guaranteed Interest Rates will be at
least 3% per year. Guaranteed Interest Rates do not depend upon and do not
reflect the performance of the Fixed Account.
We measure the length of a Guarantee Period from the end of the calendar
month in which you allocated or transferred the amount to the Fixed Sub-Account.
This means that the Expiration Date of any Guarantee Period will always be the
last day of a calendar month. The currently available Guarantee Periods are 1,
2, 3, 4, and 5 years. We may offer different Guarantee Periods in the future.
Not all Guarantee Periods may be available in all states.
We will notify you of your options for renewal at least thirty days before
an Expiration Date of a Fixed Sub-Account in which you are invested. Your
options are:
. Take no action and we will transfer the value of the expiring Fixed
Sub-Account to the Fixed Sub-Account with the same Guarantee Period,
but not longer than five years, as of the day the previous Fixed Sub-
Account expires. If such Guarantee Period is not currently available,
we will transfer your value to the next shortest Guarantee Period. If
there is no shorter Guarantee Period, we will transfer your value to
the Money Market Sub-Account.
. Elect a new Guarantee Period(s) from among those we offer as of the
day the previous Fixed Sub-Account expires.
. Elect to transfer the value of the Fixed Sub-Account to one or more
Variable Sub-Accounts.
Any amounts surrendered, withdrawn, transferred or borrowed other than
during the thirty days before the Expiration Date of the Guarantee Period are
subject to a Market Value Adjustment with the exception of the following
transactions:
. Transfers from DCA Fixed Sub-Accounts made automatically under our
Dollar-Cost Averaging Program; and
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. Withdrawals of earned interest made automatically under our Systematic
Partial Withdrawal Program.
Market Value Adjustment. A Market Value Adjustment reflects the change in
interest rates since we established a Fixed Sub-Account. It compares: (1) the
current Index Rate for a period equal to the time remaining in the Guarantee
Period, and (2) the Index Rate at the time we established the Fixed Sub-Account
for a period equal to the Guarantee Period.
Ordinarily, if the current Index Rate for a period equal to the time
remaining in the Guarantee Period is higher than the applicable Index Rate at
the time we established the Fixed Sub-Account, the Market Value Adjustment will
be negative. Similarly, if the current Index Rate for a period equal to the
time remaining in the Guarantee Period is lower than the applicable Index Rate
at the time we established the Fixed Sub-Account, the Market Value Adjustment
will be positive.
We will apply a Market Value Adjustment as follows:
. For a surrender, withdrawal, transfer, or amount borrowed, we will
calculate the Market Value Adjustment on the total amount (including
any applicable surrender charge) that must be surrendered, withdrawn,
transferred or borrowed to provide the amount requested.
. If the Market Value Adjustment is negative, it reduces any remaining
value in the Fixed Sub-Account, or amount of Surrender Value. Any
remaining Market Value Adjustment then reduces the amount withdrawn,
transferred, or borrowed.
. If the Market Value Adjustment is positive, it increases any remaining
value in the Fixed Sub-Account. In the case of surrender, or if you
withdraw, transfer or borrow the full amount of the Fixed Sub-Account,
the Market Value Adjustment increases the amount surrendered,
withdrawn, transferred, or borrowed.
We will compute the Market Value Adjustment by multiplying the factor below
by the total amount (including any applicable surrender charge) that must be
surrendered, withdrawn, transferred, or borrowed from the Fixed Sub-Account to
provide the amount you requested.
[(1+I)/(1+J+.0025)]/N/365/ - 1
Where
I is the Index Rate for a maturity equal to the Fixed Sub-Account's Guarantee
Period at the time we established the Sub-Account;
J is the Index Rate for a maturity equal to the time remaining (rounded up to
the next full year) in the Fixed Sub-Account's Guarantee Period at the time of
calculation; and
N is the remaining number of days in the Guarantee Period at the time of
calculation.
We currently base the Index Rate for a calendar week on the reported rate
for the preceding calendar week. We reserve the right to set it less frequently
than weekly but in no event less often than monthly. If there is no Index Rate
for the maturity needed to calculate I or J, we will use straight-line
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interpolation between the Index Rate for the next highest and next lowest
maturities to determine that Index Rate. If the maturity is one year or less,
we will use the Index Rate for a one-year maturity.
In the states of Maryland and Oregon, state insurance law requires that the
Market Value Adjustment be computed by multiplying the amount being surrendered,
withdrawn, transferred, or borrowed, by the greater of the factor above and the
following factor: [(1.03)/(1+K)]/(G-N)/365)/ -1, where N is as defined above, K
equals the Guaranteed Interest Rate for the Guarantee Period, and G equals the
initial number of days in the Guarantee Period. In the state of Washington, we
will not assess the Market Value Adjustment because of state insurance law
requirements. Because of these requirements, not all Guarantee Periods are
available in Washington state; please contact our Customer Service Center for
available Guarantee Periods.
Examples of how the Market Value Adjustment works are shown in Appendix A.
Transfers. You may transfer Account Value from and among the Variable and
Fixed Sub-Accounts at any time, subject to certain conditions. In certain
states, your right to transfer Account Value is restricted until after the end
of the Free Look Period. See "How Do I Purchase a Contract?" The minimum amount
of Account Value that you may transfer from a Sub-Account is $250, or, if less,
the entire remaining Account Value held in that Sub-Account. You must give us
Satisfactory Notice of the Sub-Accounts from which and to which we are to make
the transfers. Otherwise, we will not transfer your Account Value. A transfer
from a Fixed Sub-Account ordinarily will be subject to a Market Value
Adjustment. There is currently no limit on the number of transfers from and
among the Sub-Accounts.
A transfer ordinarily takes effect on the Business Day we receive
Satisfactory Notice at our Customer Service Center. We will deem requests
received on other than a Business Day as received on the next following Business
Day. We may, however, defer transfers to, from, and among the Variable Sub-
Accounts under the same conditions that we may delay paying proceeds.
We reserve the right to impose a transfer charge of up to $25 on each
transfer in a Contract Year in excess of twelve, and to limit, upon notice, the
maximum number of transfers you may make per calendar month or per Contract
Year. For purposes of assessing any transfer charge, we will consider each
transfer request one transfer, regardless of the number of Sub-Accounts affected
by the transfer.
In addition, we may not honor your transfer request if:
. Any Variable Sub-Account that would be affected by the transfer is
unable to purchase or redeem shares of the Fund in which the Variable
Sub-Account invests;
. We determine the transfer would adversely affect Accumulation Unit
values;
. Any affected Fund determines it would be adversely affected by the
transfer.
We also may not honor certain transfers made by individuals holding multiple
powers of attorney. See "What Are My Investment Options? - Power of Attorney,"
below.
If you have applied proceeds under your Contract to a Settlement Option,
you must have our prior consent to transfer value from the Fixed Account to the
Variable Account or from the Variable Account to the Fixed Account. A Market
Value Adjustment ordinarily will apply to transfers from the Fixed
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<PAGE>
Account. We reserve the right to limit the number of transfers among the
Variable Sub-Accounts to one transfer per Contract Year.
Telephone Transactions. You may request transfers, withdrawals or loans by
telephone. We will not be liable for following instructions communicated by
telephone that we reasonably believe to be genuine. To request transfers,
withdrawals or loans by telephone, you must elect the option on our
authorization form. We will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. We may only be liable for
any losses due to unauthorized or fraudulent instructions where we fail to
follow our procedures properly. These procedures include: (a) asking you or
your authorized representative to provide certain identifying information; (b)
tape recording all such conversations; and (c) sending you a confirmation
statement after all such telephone transactions.
Our telephone transaction authorization form also allows you to create a
power of attorney by authorizing another person to give telephone instructions.
Unless prohibited by state law, we will treat such power as a durable power of
attorney. The Owner's subsequent incapacity, disability, or incompetency will
not affect the power of attorney. We may cease to honor the power by sending
written notice to you at your last known address. Neither we nor any person
acting on our behalf shall be subject to liability for any act done in good
faith reliance upon your power of attorney.
In addition to telephone transactions, we expect to be able to offer all of
these transactions via the Internet in the second quarter of 2000. We will send
Owners information about our website and transactions that may be made through
it.
Power of Attorney. As a general rule and as a convenience to you, we allow
the use of powers of attorney whereby you can give a third party the right to
make transfers on your behalf. However, when the same third party possesses
powers of attorney executed by many Owners, the result can be simultaneous
transfers involving large amounts of Account Value. Such transfers can disrupt
the orderly management of the Funds, can result in higher costs to Owners, and
are ordinarily not compatible with the long-range goals of purchasers of the
Contracts. We believe that such simultaneous transfers made by such third
parties are not in the best interest of all shareholders of the Funds. The
managements of the Funds share this position.
Therefore, to the extent necessary to reduce the adverse effects of
simultaneous transfers made by third parties holding multiple powers of
attorney, we may not honor such powers of attorney and have instituted or will
institute procedures to assure that the transfer requests that we receive have,
in fact, been made by the Owners in whose names they are submitted. However, you
will not be prevented by these procedures from making your own transfer
requests.
Dollar-Cost Averaging Program. Our optional dollar-cost averaging program
permits you to systematically transfer (monthly or as frequently as we allow) a
set dollar amount from the Money Market Sub-Account to any combination of
Variable Sub-Accounts. We also allow dollar-cost averaging from the DCA Fixed
Sub-Accounts. These DCA Fixed Sub-Accounts may have different Guarantee Periods
and different Guaranteed Interest Rates than the Fixed Sub-Accounts.
The dollar-cost averaging method of investment is designed to reduce the
risk of making purchases only when the price of Accumulation Units is high.
However, you should carefully consider your financial ability to continue the
program over a long enough period of time to purchase units when their value is
low as well as when high. Dollar-cost averaging does not assure a profit or
protect against a loss. Due to the effect of interest that continues to be
earned on the balance in the Money Market Sub-
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Account or a DCA Fixed Sub-Account, the amounts we transfer will vary slightly
from month to month. An example of how our dollar-cost averaging program works
is shown in Appendix B.
You may elect to participate in the dollar-cost averaging program at any
time before the proceeds are applied to a Settlement Option by sending us
Satisfactory Notice. The minimum transfer amount is $250 from the Money Market
Sub-Account or from a DCA Fixed Sub-Account. We will make all dollar-cost
averaging transfers on the day of each month that corresponds to your Contract
Date unless that date is not a Business Day. Otherwise, we will make the
transfer on the next following Business Day. If you want to dollar-cost average
from more than one DCA Fixed Sub-Account at the same time, certain restrictions
may apply.
Once elected, dollar-cost averaging remains in effect from the date we
receive your request until you surrender the Contract, until the value of the
Sub-Account from which transfers are being made is depleted, or until you cancel
the program by written request. If you request to cancel dollar-cost averaging
from a DCA Fixed Sub-Account before the end of the selected period, we reserve
the right to treat this request as a transfer request and transfer any proceeds
that remain to a Fixed Sub-Account that has the duration you request, and we
ordinarily will assess a Market Value Adjustment on the amount canceled. You
can request changes by writing us at our Customer Service Center. There is no
additional charge for dollar-cost averaging. We do not consider a transfer
under this program a transfer for purposes of assessing a transfer charge. We
reserve the right to discontinue offering this program at any time and for any
reason. Dollar-cost averaging is not available while you are participating in
the systematic partial withdrawal program.
Asset Allocation Program. You may select from asset allocation model
portfolios we make available, or you may use these models as a guide to help you
develop your own asset allocation model.
If you participate in the asset allocation program, we will automatically
allocate all initial and additional purchase payments among the Variable Sub-
Accounts indicated by the model you select. The models do not include
allocations to the Fixed Account. Although you may only use one model at a
time, you may elect to change your selection as your tolerance for risk, and/or
your needs and objectives change. Bear in mind, the use of an asset allocation
model does not guarantee investment results. You may use a questionnaire that
is offered to determine the model that best meets your risk tolerance and time
horizons.
Because each Variable Sub-Account performs differently over time, your
portfolio mix may vary from its initial allocations. We will automatically
rebalance your Fund mix quarterly to bring your portfolio back to its original
allocation percentages.
From time to time the models are reviewed and the allocation percentages
among the Variable Sub-Accounts or even some of the Variable Sub-Accounts within
a particular model may need to be changed. We will send you a notice at least
30 days before any such change is made, and give you an opportunity not to make
---
the change.
If you participate in the asset allocation program, the transfers made
under the program are not taken into account in determining any transfer charge.
There is no additional charge for this program, and you may discontinue your
participation in this program by contacting our Customer Service Center. We
reserve the right to cancel the asset allocation program at any time and for any
reason. Please contact our Customer Service Center for more information about
our asset allocation program.
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Automatic Portfolio Rebalancing Program. Once you allocate your money
among the Variable Sub-Accounts, the investment performance of each Variable
Sub-Account may cause your allocation to shift. Before proceeds are applied to
a Settlement Option, you may instruct us to automatically rebalance (on a
calendar quarter, semi-annual, or annual basis) your Variable Account Value to
return it to your original allocation percentages. Your request will be
effective on the Business Day on which we receive your request at our Customer
Service Center. We will deem requests received on other than a Business Day as
received on the next following Business Day. Your allocation percentages must
be in whole percentages. You may start and stop automatic portfolio rebalancing
at any time and make changes to your allocation percentages by written request.
There is no additional charge for using this program. We do not consider a
transfer under this program a transfer for purposes of assessing any transfer
charge. We reserve the right to discontinue offering this program at any time
and for any reason. We do not include any money allocated to the Fixed Account
in the rebalancing.
Account Value. The Account Value is the entire amount we hold under your
Contract for you. The Account Value serves as a starting point for calculating
certain values under your Contract. It equals the sum of the Variable Account
Value, the Fixed Account Value, and the Loan Account Value (each term as defined
below) credited to your Contract. We first determine your Account Value on the
Contract Date and after that on each Business Day. The Account Value will vary
to reflect:
. the performance of the Variable Sub-Accounts you have selected;
. interest credited on amounts you allocated to the Fixed Account;
. interest credited on amounts allocated to the Loan Account;
. any additional purchase payments; and
. charges, transfers, withdrawals, loans, and surrenders.
Your Account Value may be more or less than purchase payments you made.
Variable Account Value. Variable Account Value equals the sum of the
values in each Variable Sub-Account on any particular day. On the Contract
Date, the Variable Account Value for a Variable Sub-Account equals the portion
of the initial purchase payment allocated to the Sub-Account. On each
subsequent Business Day it equals:
. the Variable Account Value in the Sub-Account on the preceding
Business Day multiplied by its net investment factor for the current
Valuation Period; plus
. the amount of any allocation or transfer to the Sub-Account during the
current Valuation Period; minus
. the amount of any transfer from the Sub-Account during the current
Valuation Period; minus
. the amount of any charges allocated to the Sub-Account during the
current Valuation Period; and minus
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. the amount of any withdrawal or loan allocated to the Sub-Account
during the current Valuation Period.
We keep track of the Variable Account Value in each of your Variable Sub-
Accounts by the number of Accumulation Units in that Sub-Account. The value in
each Variable Sub-Account equals the number of Accumulation Units attributable
to that Variable Sub-Account multiplied by the Accumulation Unit value for that
Variable Sub-Account on that Business Day. When you allocate a purchase payment
or transfer Account Value to a Variable Sub-Account, we credit your Contract
with Accumulation Units in that Variable Sub-Account. We determine the number
of Accumulation Units by dividing the dollar amount allocated or transferred to
the Variable Sub-Account by the Sub-Account's Accumulation Unit value for that
Business Day. Similarly, when you transfer, withdraw, borrow, or surrender an
amount from a Variable Sub-Account, we cancel Accumulation Units in that
Variable Sub-Account. We determine the number of Accumulation Units canceled by
dividing the dollar amount you transferred, withdrew, borrowed, or surrendered
by the Variable Sub-Account's Accumulation Unit value for that Business Day.
Accumulation Unit Value. An Accumulation Unit value varies to reflect the
investment experience of the underlying Fund, and may increase or decrease from
one Business Day to the next. We arbitrarily set the Accumulation Unit value
for each Variable Sub-Account at $10 when we established the Sub-Account. For
each Valuation Period after the date of establishment, we determine the
Accumulation Unit value by multiplying the Accumulation Unit value for a Sub-
Account for the prior Valuation Period by the net investment factor for the
Variable Sub-Account for the Valuation Period.
Net Investment Factor. The net investment factor is an index we use to
measure the investment performance of a Variable Sub-Account from one Valuation
Period to the next. We determine the net investment factor for any Valuation
Period by dividing (a) by (b) where:
(a) is the net result of:
(i) the Net Asset Value of the Fund in which the Variable Sub-
Account invests determined at the end of the current Valuation Period;
plus
(ii) the per share amount of any dividend or capital gain
distributions made by the Fund on shares held in the Variable Sub-
Account if the "ex-dividend" date occurs during the current Valuation
Period; and plus or minus
(iii) a per share charge or credit for any taxes reserved for, which
we determine to have resulted from the operations of the Variable Sub-
Account; and
(b) is the Net Asset Value of the Fund in which the Variable Sub-Account
invests determined at the end of the immediately preceding Valuation
Period.
The net investment factor may be more or less than, or equal to, one.
Fixed Account Value. Fixed Account Value is the sum of the values in each
Fixed Sub-Account (including a DCA Fixed Sub-Account) on any particular date.
On the Contract Date the Fixed Account Value for a Sub-Account equals the
portion of the initial purchase payment allocated to the Sub-Account. On each
subsequent Business Day it equals:
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. the Fixed Account Value in the Sub-Account on the preceding Business
Day multiplied by the daily equivalent of its Guaranteed Interest Rate
earned for the number of days in the current Valuation Period; plus
. the amount of any allocation or transfer to the Sub-Account during the
current Valuation Period; minus
. the amount of any transfer from the Sub-Account during the current
Valuation Period; minus
. the amount of any charges allocated to the Sub-Account during the
current Valuation Period and minus
. the amount of any withdrawal or loan allocated to the Sub-Account
during the current Valuation Period.
We also adjust the Fixed Account Value for any Market Value Adjustment, the
value of which could be positive or negative.
Loan Account Value. Unless you take a loan, the Loan Account Value is
zero. If you take a loan, then on the effective date of the loan the Loan
Account Value equals the amount of the loan. On each subsequent Business Day it
equals:
. the Loan Account Value on the preceding Business Day; plus
. the amount of interest earned (at the loan credited rate) on Loan
Account Value duri ng the current Valuation Period; plus
. any amounts transferred to the Loan Account because of any additional
loans and any due and unpaid loan interest during the current
Valuation Period; minus
. the amount of any loan repayment you make during the current Valuation
Period; and minus
. any amount of interest earned on Loan Account Value and transferred to
the Sub-Accounts during the current Valuation Period.
Surrender Value. The Surrender Value on a Business Day is the Account
Value, plus or minus any applicable Market Value Adjustment, reduced by any
applicable surrender charge or other charges that are due us but not yet
deducted, less any Debt.
================================================================================
4. What Are The Expenses Under A Contract?
================================================================================
We deduct the charges described below. The charges are for the services
and benefits we provide, costs and expenses we incur, and risks we assume under
the Contracts. Services and benefits we provide include:
. the ability of Owners to make withdrawals, surrenders, and take loans
under the Contracts;
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. the death benefit paid on the death of the Insured;
. the available investment options, including dollar-cost averaging,
asset allocation, automatic portfolio rebalancing, and systematic
partial withdrawal programs;
. administration of the Settlement Options available under the
Contracts; and
. the distribution of various reports to Owners.
Costs and expenses we incur include:
. those related to various overhead and other expenses associated with
providing the services and benefits provided by the Contracts;
. sales and marketing expenses; and
. other costs of doing business.
Risks we assume include:
. the risks that Insureds may live for a shorter period than we
estimated when we established the mortality factors under the
Contracts; and
. that the costs of providing the services and benefits under the
Contracts will exceed the charges deducted.
We may realize a profit or loss on one or more of the charges. We may use
any such profits for any corporate purpose, including, among other things,
payment of sales expenses.
To assist you in understanding how the expenses under a Contract will
affect values, we have included hypothetical illustrations beginning on page __.
You can also request a personalized illustration from your registered
representative.
Unless we otherwise specify, we will deduct charges proportionately from
all Variable Sub-Accounts and Fixed Sub-Accounts in which you are invested.
We may reduce or eliminate charges under the Contracts when sales result in
savings, reduction of expenses and/or risks to the Company. Generally, we will
make such reductions based on the following factors:
. the size of the group;
. the total amount of purchase payments to be received from the group;
. the purposes for which the Contracts are purchased;
. the nature of the group for which the Contracts are purchased; and
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. any other circumstances that could reduce Contract costs and expenses.
We may also sell the Contracts with lower or no charges to a person who is
an officer, director or employee of Sage Life or of certain affiliates or
service providers of ours. Reductions in Contract charges will not be unfairly
discriminatory against any person. Please contact our Customer Service Center
for more information about those cost reductions.
Monthly Deduction Amount
We deduct the Monthly Deduction Amount on each Monthly Processing Date. It
equals:
. the Asset-Based Charges, plus
. the cost of insurance charge, plus
. the cost of any riders for which a separate charge is assessed, and
plus
. any other applicable charge that we assess.
On a Monthly Processing Date that is also a Contract Anniversary, the
Monthly Deduction Amount equals the Monthly Deduction Amount described above,
plus the Annual Administration Charge.
Asset-Based Charges. We assess Asset-Based Charges against your Contract for
assuming mortality and expense risks, certain administrative and distribution
costs, and certain state and Federal tax expenses. We calculate the charges as a
percentage of your Account Value as of the date we deduct them. On the Contract
Date, and monthly thereafter, we deduct the charges proportionately from the
Sub-Accounts in which you are invested.
The maximum asset-based charges are:
<TABLE>
<CAPTION>
-----------------------------------------------
Combined
Asset-Based Charges
Annual Monthly
Charge Charge
----------- ---------
<S> <C> <C>
Contract Years 1.80% 0.150000%
1-7
Contract Years 1.30% 0.108333%
8+
-----------------------------------------------
</TABLE>
Asset-Based Charges will also apply to any Loan Account Value you have. (If
you have not taken a loan, then no charges will be assessed.) The current
charges applicable to the Loan Account Value are, on an annual basis, 0.90%
(0.075000% monthly), decreasing to .40% (0.033333% monthly) after the tenth
Contract Year.
If proceeds are applied to a Settlement Option, we will deduct the Asset-
Based Charges daily from the assets in each Variable Sub-Account supporting
variable income payments. We refer to these charges as Variable Sub-Account
Charges when applied to the proceeds under a Settlement Option.
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Cost of Insurance Charge. We deduct the cost of insurance charge from your
Account Value to compensate us for providing life insurance for the Insured.
Current Cost of Insurance Charge. The current cost of insurance charge is
the actual monthly charge that we deduct from your Account Value. We calculate
this charge as a percentage of your Account Value on the date of deduction. On
the Contract Date, and monthly thereafter, we deduct the current cost of
insurance charge in proportion to the Sub-Accounts in which you are invested.
The maximum charge will never be more than the guaranteed maximum monthly cost
of insurance charge described below.
We determine the current cost of insurance charge based on our expectation
of future mortality experience. Your cost of insurance charge will depend on
the Insured's risk class. The two standard risk classes are smoker and
nonsmoker. We generally charge higher rates for smokers.
We also place Insureds in various sub-standard risk classes, if the
underwriting warrants doing so. These sub-standard risk classes involve a higher
mortality risk and, therefore, higher charges.
At present, in most states the current cost of insurance charges as an
annual percentage of Account Value are 0.55% and 0.85% for standard nonsmokers
and smokers, respectively, and 0.75% and 1.40% for sub-standard nonsmokers and
smokers, respectively. We will apply any charge we make on a uniform basis for
Insureds of the same risk class and Attained Age.
Guaranteed Maximum Monthly Cost of Insurance Charge. The maximum monthly
cost of insurance charge equals (a) times (b) and then divided by (c), where:
(a) is the maximum Cost of Insurance Rate per $1,000 shown in your
Contract based on the Insured's Attained Age, gender and risk class;
(b) is an amount equal to the death benefit minus the Account Value; and
(c) is $1,000.
For standard risks, we base the guaranteed cost of insurance charge on the
1980 Commissioners Standard Ordinary Mortality Table, Male/Female, Age Last
Birthday ("1980 CSO"). Because the mortality table differentiates between men
and women, the Contract may pay different benefits to men and women of the same
age, even if all other factors are the same. Certain states, however, may
require unisex rates. We include a table of guaranteed maximum cost of
insurance rates per $1,000 in your Contract. For substandard risks, we base the
guaranteed cost of insurance charge on a multiple of the 1980 CSO. We will base
the multiple on the Insured's substandard rating.
Annual Administration Charge
We will deduct an annual administration charge of $40 for the first seven
Contract Years (i) on each Contract Anniversary, and (ii) on the day of any
surrender if the surrender is not on the Contract Anniversary. We will waive
this charge on and after the eighth Contract Anniversary, or if the Account
Value is at least $50,000 when we would have otherwise deducted the annual
administration charge.
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Surrender Charge
If you make an Excess Withdrawal or surrender your Contract during the
first seven Contract Years, we may deduct a surrender charge calculated as a
percentage of the amount of purchase payment(s) withdrawn or surrendered. We
apply the surrender charge to each purchase payment as a percentage of the
payment as follows:
Complete Years Elapsed Maximum Surrender
Since Contract Date Charge Percentage
------------------------ --------------------
0 9%
1 9%
2 8%
3 7%
4 6%
5 5%
6 3%
7+ 0%
If you surrender your Contract, we deduct the surrender charge from your
Account Value in determining the Surrender Value. If you take an Excess
Withdrawal, we deduct the surrender charge from your Account Value remaining
after we pay you the amount requested. We include any surrender charge we
assess in the calculation of any applicable Market Value Adjustment for
withdrawals from the Fixed Account. Each year you may withdraw the "Free
Withdrawal Amount" without incurring a surrender charge. The Free Withdrawal
Amount equals the greater of:
(i) 10% of your total purchase payments; less all prior withdrawals in
that Contract Year (including any associated surrender charge and
Market Value Adjustment incurred); or
(ii) cumulative earnings (i.e., the excess of the Account Value on the date
of withdrawal over unliquidated purchase payments).
With an Excess Withdrawal, we will liquidate purchase payments in whole or
in part on a "first-in, first-out" basis. This means we liquidate purchase
payments in the order you made them: the oldest unliquidated purchase payment
first, the next oldest unliquidated purchase payment second, until all purchase
payments have been liquidated.
The total surrender charge will be the sum of the surrender charges for
each purchase payment being liquidated. The amount you request from a Sub-
Account may not exceed the value of that Sub-Account less any applicable
surrender charge.
Example of Calculation of Surrender Charge. Assume the applicable
surrender charge is 7%, you have requested a withdrawal of $2,000 and no Market
Value Adjustment is applicable. Your total purchase payments are $10,000, your
current Account Value is $10,500, and you made no prior withdrawals during that
Contract Year. Your Free Withdrawal Amount is the greater of (a) or (b), where:
(a) is the excess of 10% of the total purchase payments, over 100% of all
prior withdrawals in that Contract Year (including any associated
surrender charge and Market Value Adjustment incurred) (10% x $10,000
= $1,000); and
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(b) is the excess of the Account Value on the date of withdrawal over the
unliquidated purchase payments ($10,500 - $10,000 = $500).
Therefore, the Free Withdrawal Amount is $1,000. A surrender charge will
apply to the excess of $2,000 over $1,000. The surrender charge equals $70 (7%
x $1,000).
Waiver of Surrender Charge. We will not deduct a surrender charge if, at
the time we receive your request for a withdrawal or a surrender, we have also
received due proof that you have been confined continuously to a "Qualifying
Hospital or Nursing Care Facility" for at least 45 days in a 60 day period. We
define "Qualifying Hospital or Nursing Care Facility" in your Contract.
Transfer Charge
We currently do not deduct this charge. However, we reserve the right to
deduct a transfer charge of up to $25 for the 13th and each subsequent transfer
during a Contract Year. For the purpose of assessing the transfer charge, we
consider each written or telephone request to be one transfer, regardless of the
number of Sub-Accounts affected by the transfer. In the event that the transfer
charge becomes applicable, we will deduct it proportionately from the Sub-
Accounts from which you made the transfer. This charge is at cost with no
profit to us. Transfers made in connection with the dollar-cost averaging, asset
allocation, and automatic portfolio rebalancing programs will not count as
transfers for purposes of assessing this charge.
Fund Annual Expenses
Because the Variable Account purchases shares of the various Funds you
choose, the net assets of the Variable Account will reflect the investment
management fees and other operating expenses incurred by those Funds. These
Fund fees and other expenses are shown in the Summary under "What Are the
Expenses Under A Contract?". For a description of each Fund's expenses,
management fees, and other expenses, see the Trusts' prospectuses.
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================================================================================
5. How Will My Contract Be Taxed?
================================================================================
Introduction
The following summary provides a general description of the Federal income
tax considerations associated with the Contract and does not purport to be
complete or to cover all tax situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisors should be consulted for more
complete information. This discussion is based upon our understanding of the
present Federal income tax laws. No representation is made as to the likelihood
of continuation of the present Federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
Tax Status of the Contract
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a Contract must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that the
Contract should satisfy the applicable requirements. There is less guidance,
however, with respect to Contracts issued on a rated or automatic issue basis
and Contracts with term riders added and it is not clear whether such Contracts
will in all cases satisfy the applicable requirements. If it is subsequently
determined that a Contract does not satisfy the applicable requirements, we may
take appropriate steps to bring the Contract into compliance with such
requirements and we reserve the right to restrict Contract transactions in order
to do so.
In certain circumstances, owners of variable life insurance contracts have
been considered for Federal income tax purposes to be the owners of the assets
of the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the variable account assets. There is little guidance in this area, and some
features of the Contracts, such as the flexibility of a Owner to allocate
premiums and cash values, have not been explicitly addressed in published
rulings. While we believe that the Contracts do not give Owners investment
control over Variable Account assets, we reserve the right to modify the
Contracts as necessary to prevent an Owner from being treated as the owner of
the Variable Account assets supporting the Contract.
In addition, the Code requires that the investments of the Variable Account
be "adequately diversified" in order for the Contracts to be treated as life
insurance contracts for Federal income tax purposes. It is intended that the
Variable Account, through the Funds, will satisfy these diversification
requirements.
The following discussion assumes that the Contract will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Contract Benefits
In General. We believe that the death benefit under a Contract should be
excludible from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Contract
proceeds depend on the circumstances of each Owner or beneficiary. A tax
advisor should be consulted on these consequences.
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Generally, the Owner will not be deemed to be in constructive receipt of
the Contract cash value until there is a distribution. When distributions from
a Contract occur, or when loans are taken out from or secured by a Contract, the
tax consequences depend on whether the Contract is classified as a "Modified
Endowment Contract."
Modified Endowment Contracts. Under the Internal Revenue Code, certain
life insurance contracts are classified as "Modified Endowment Contracts," with
less favorable tax treatment than other life insurance contracts. In most cases
the Contract will be classified as a Modified Endowment Contract. Any Contract
issued in exchange for a Modified Endowment Contract will be a Modified
Endowment Contract. A Contract issued in exchange for a life insurance contract
that is not a Modified Endowment Contract will generally not be treated as a
Modified Endowment Contract. The payment of additional premiums at the time of
or after the exchange or certain changes to the Contract after is is issued may,
however, cause the Contract to become a Modified Endowment Contract. A
prospective Owner should consult a tax advisor before effecting an exchange.
Distributions Other Than Death Benefits from Modified Endowment Contracts.
Contracts classified as Modified Endowment Contracts are subject to the
following tax rules:
(1) All distributions other than death benefits, including distributions
upon surrender and withdrawals, from a Modified Endowment Contract
will be treated first as distributions of gain taxable as ordinary
income and as tax-free recovery of the Owner's investment in the
Contract only after all gain has been distributed.
(2) Loans taken from or secured by a Contract classified as a Modified
Endowment Contract are treated as distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Owner has
attained age 59 1/2 or is disabled, or where the distribution is part
of a series of substantially equal periodic payments for the life (or
life expectancy) of the Owner or the joint lives (or joint life
expectancies) of the Owner and the Owner's beneficiary or designated
beneficiary.
Distributions Other Than Death Benefits from Contracts that are not
Modified Endowment Contracts. Distributions other than death benefits from a
Contract that is not classified as a Modified Endowment Contract are generally
treated first as a recovery of the Owner's investment in the Contract and only
after the recovery of all investment in the Contract as taxable income.
However, certain distributions which must be made in order to enable the
Contract to continue to qualify as a life insurance contract for Federal income
tax purposes if Contract benefits are reduced during the first 15 Contract years
may be treated in whole or in part as ordinary income subject to tax.
Loans from or secured by a Contract that is not a Modified Endowment
Contract are generally not treated as distributions. However, the tax
consequences associated with preferred loans are less clear and a tax adviser
should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Contract
that is not a Modified Endowment Contract are subject to the 10 percent
additional income tax.
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If a Contract becomes a Modified Endowment Contract, distributions that
occur during the Contract Year will be taxed as distributions from a Modified
Endowment Contract. In addition, distributions from a Contract within two years
before it becomes a Modified Endowment Contract will be taxed in this manner.
This means that a distribution made from a Contract that is not a Modified
Endowment Contract could later become taxable as a distribution from a Modified
Endowment Contract.
Investment in the Contract. Your investment in the Contract is generally
your aggregate Premiums. When a distribution is taken from the Contract, your
investment in the Contract is reduced by the amount of the distribution that is
tax-free.
Contract Loans. In general, interest on a Contract loan will not be
deductible. If a Contract loan is outstanding when a Contract is canceled or
lapses, the amount of the outstanding indebtedness will be added to the amount
distributed and will be taxed accordingly.
Before taking out a Contract loan, you should consult a tax adviser as to the
tax consequences.
Multiple Contracts. All Modified Endowment Contracts that are issued by us
(or our affiliates) to the same Owner during any calendar year are treated as
one Modified Endowment Contract for purposes of determining the amount
includible in the Owner's income when a taxable distribution occurs.
Accelerated Benefits Rider. If such a rider is made available, we believe
that payments received under the accelerated benefit rider should be fully
excludible from the gross income of the beneficiary if the beneficiary is the
insured under the Contract. (See "Acceleration of Death Benefit Rider" for more
information regarding the rider.) However, you should consult a qualified tax
adviser about the consequences of adding this rider to a Contract or requesting
payment under this rider.
Continuation of Contract Beyond Age 100. The tax consequences of
continuing the Contract beyond the insured's 100th year are unclear. You should
consult a tax adviser if you intend to keep the Contract in force beyond the
insured's 100th year.
Pension or Profit-Sharing Plan or Similar Deferred Compensation
Arrangement. If the Contract is used in connection with a pension or profit-
sharing plan, or similar deferred compensation arrangement, the Federal, state
and estate tax consequences could differ. The amounts of life insurance that
may be purchased on behalf of a participant in a pension or profit-sharing plan
are limited. The current cost of insurance for the net amount at risk is
treated as a "current fringe benefit" and must be included annually in the plan
participant's gross income. We report this cost (generally referred to as the
"P.S. 58" cost) to the participant annually. If the plan participant dies while
covered by the plan and the Contract proceeds are paid to the participant's
beneficiary, then the excess of the death benefit over the cash value is not
taxable. However, the cash value will generally be taxable to the extent it
exceeds the participant's cost basis in the Contract. Contracts owned under
these types of plans may be subject to restrictions under the Employee
Retirement Income Security Act of 1974 ("ERISA"). You should consult a
qualified adviser regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as non-taxable. Plan loan requirements and
provisions may differ from Contract loan provisions. Failure of plan loans to
comply with the requirements and provisions of the DOL regulations and of tax
law may result in adverse tax consequences and/or adverse consequences under
ERISA. Plan fiduciaries and participants should consult a qualified adviser
before requesting a loan under a Contract held in connection with a retirement
plan.
Business Uses of Contract. Businesses can use the Contracts in various
arrangements, including nonqualified deferred compensation or salary continuance
plans, split dollar insurance plans, executive bonus plans, tax exempt and
nonexempt welfare benefit plans, retiree medical benefit plans and others. The
tax consequences of such plans may vary depending on the particular facts and
circumstances. If you are purchasing the Contract for any arrangement the value
of which depends in part on its tax consequences, you should consult a qualified
tax adviser. In recent years, moreover, Congress has adopted new rules relating
to life insurance owned by businesses. Any business contemplating the purchase
of a new Contract or a change in an existing Contract should consult a tax
adviser.
Other Tax Considerations. The transfer of the Contract or designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate, and generation-skipping
transfer taxes. For example, the transfer of the Contract to, or the
designation as a beneficiary of, or the payment of proceeds to, a person who is
assigned to a generation which is two or more generations below the generation
assignment of the owner may have generation skipping transfer tax consequences
under federal tax law. The individual situation of each owner or beneficiary
will determine the extent, if any, to which federal, state, and local transfer
and inheritance taxes may be imposed and how ownership or receipt of Contract
proceeds will be treated for purposes of federal, state and local estate,
inheritance, generation skipping and other taxes.
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Possible Tax Law Changes. Although the likelihood of legislative changes
is uncertain, there is always the possibility that the tax treatment of the
Contract could change by legislation or otherwise. Consult a tax adviser with
respect to legislative developments and their effect on the Contract.
Our Income Taxes
Under current Federal income tax law, we are not taxed on the Variable
Account's operations. Thus, currently we do not deduct a charge from the
Variable Account for Federal income taxes. We reserve the right to charge the
Variable Account for any future Federal income taxes we may incur.
Under current laws in several states, we may incur state and local taxes
(in addition to premium taxes). These taxes are not now significant and we are
not currently charging for them. If they increase, we may deduct charges for
such taxes.
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================================================================================
6. How Do I Access My Money?
================================================================================
You may access the money in your Contract: (1) by making a withdrawal or a
surrender, or (2) by taking a loan from your Contract. If you surrender your
Contract, you can take the proceeds in a single sum, or you can request that we
pay the proceeds over a period of time under one of our Settlement Options. See
"What Are My Settlement Options?"
Withdrawals
You may withdraw all or part of your Surrender Value at any time while your
Contract is in force during the Insured's lifetime. (If you have elected
variable Settlement Option 4, Payments for a Specified Period Certain, you may
request a full or partial withdrawal after the date the Settlement Option
becomes effective; otherwise, no withdrawals are permitted after the effective
date of a Settlement Option.) You may make your withdrawal request in writing
or by telephone. See "Requesting Payments." Any
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withdrawal must be at least $250. If a withdrawal request would reduce your
Account Value remaining in a Sub-Account below $250, we will treat the
withdrawal request as a request to withdraw the entire amount. If a requested
withdrawal would reduce your Account Value below $5,000, we reserve the right to
treat the request as a withdrawal of only the excess over $5,000. We will pay
you the withdrawal amount in one sum. Under certain circumstances, we may delay
this payment. See "Requesting Payments."
When you request a withdrawal, you can direct how we deduct the withdrawal
from your Account Value. If you provide no directions, we will deduct the
withdrawal from your Account Value in the Sub-Accounts on a pro-rata basis.
When you make a withdrawal, we reduce the Account Value by the amount of
the withdrawal (including any associated surrender charges and Market Value
Adjustment incurred). We also reduce the Insurance Amount by the same percentage
that the withdrawal (including any associated surrender charge and Market Value
Adjustment incurred) reduced Account Value.
A withdrawal may have adverse tax consequences. See "How Will My Contract
Be Taxed?"
Systematic Partial Withdrawal Program
The systematic partial withdrawal program provides automatic monthly,
quarterly, semi-annual, or annual payments to you from the amounts you have
accumulated in the Sub-Accounts. You select the day we take the withdrawals, but
this day can be no later than the 28th day of the month. If you do not select a
day, we will use the day of each month that corresponds to your Contract Date.
If that date is not a Business Day, we will use the next following Business Day.
The minimum payment is $100. You can elect to withdraw either earnings in a
prior period (for example, prior month for monthly withdrawals or prior quarter
for quarterly withdrawals) or a specified dollar amount.
. If you elect earnings, we will deduct the withdrawals from the Sub-
Accounts in which you are invested on a pro-rata basis.
. If you elect a specified dollar amount, we will deduct the withdrawals
from the Sub-Accounts in which you are invested on a pro-rata basis
unless you tell us otherwise. Any amount in excess of the Free
Withdrawal Amount may be subject to a surrender charge. See "What Are
The Expenses Under A Contract?" Also, any amount in excess of interest
earned on a Fixed Sub-Account in the prior Guarantee Period ordinarily
will be subject to a Market Value Adjustment. See "What Are My
Investment Options?"
You may participate in the systematic partial withdrawal program at any
time during the Insured's lifetime by providing Satisfactory Notice. Once we
receive your request, the program will begin and will remain in effect until
your Account Value drops to zero. You may cancel or make changes in the program
at any time by providing us with Satisfactory Notice. We do not deduct any other
charges for this program. We reserve the right to discontinue the systematic
partial withdrawal program at any time and for any reason. Systematic partial
withdrawals are not available while you are participating in the dollar-cost
averaging program.
A systematic withdrawal may have adverse tax consequences. See "How Is My
Contract Taxed?"
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Surrenders
You may cancel and surrender your Contract at any time during the Insured's
lifetime. Your Contract will terminate on the Valuation Date we receive your
request or a later date as you might request. We will pay you the Surrender
Value in one sum unless you choose a Settlement Option. (Unless you choose
Settlement Option 4, you cannot surrender your Contract once payments have begun
under a Settlement Option.) Under certain circumstances, we may delay payments
of proceeds from a surrender. See "Requesting Payments."
A surrender may have adverse tax consequences. See "How Will My Contract
Be Taxed?"
Loans
While your Contract is in force and after the Free Look Period, you may
request a loan by giving us Satisfactory Notice. Unless you tell us otherwise,
we will transfer an amount equal to the loan from the Sub-Accounts to the Loan
Account in proportion to the Account Value in each Sub-Account in which you are
invested as of the date we process the loan. We use the Loan Account Value as
collateral for your loan. Your Contract will be the only security we require
for the loan. Any loan must be at least $250.
A loan may have adverse tax consequences. See "How Is My Contract Taxed?"
Maximum Loanable Value. The maximum amount that you may borrow ("maximum
loanable value") is 90% of the Account Value less any surrender charge and less
any due and unpaid Monthly Deduction Amount. The amount of the loan and all
existing loans may not be more than the maximum loanable value as of the loan
date, which is the date we process the loan.
If on any Business Day where there is Debt outstanding and the Surrender
Value is negative, we will send you an overloan notice at your last known
address. You will then have 61 days from the date we send the notice to avoid
termination of your Contract by paying us at least the minimum repayment amount
listed in the notice.
Loan Repayment. You may repay all or part of your loan at any time while
your Contract is in force during the Insured's lifetime. Any loan repayment
must be at least $250. If the Grace Period has expired and the Contract has
terminated, any Debt that exists at the end of the Grace Period may not be
repaid unless you reinstate your Contract.
Unless you tell us otherwise, we will transfer an amount equal to the loan
repayment from the Loan Account to the Sub-Accounts in the same proportion as
your most recent purchase payment.
Loan Interest. Interest on the loan accrues daily at a loan interest rate
of 6% per annum, and is due on each Contract Anniversary. If you do not pay
loan interest when due, we will transfer the difference between the Loan Account
and Debt from the Sub-Accounts to the Loan Account in proportion to the Account
Value in each Sub-Account in which you are invested.
Interest Credited. The portion of your Account Value represented by the
Loan Account will earn interest daily from the date of transfer at a minimum
loan credited rate of 4% per annum.
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However, the Preferred Loan Amount will earn interest daily at a Loan
Credited Rate that is currently 6% per annum. We can change this rate at any
time, however, it will never be less than 4% per annum. The Preferred Loan
Amount equals:
. The part of a Loan equal to cumulative earnings (i.e., the excess of
the Account Value on the date of the Loan over unliquidated purchase
payments), and
. Any loan carried over from an existing contract to a Contract as part
of a valid 1035 Exchange, as defined by the Internal Revenue Code.
Effects of a Loan. When you take out a loan, we transfer funds
proportionately from the Sub-Accounts in which you are invested to the Loan
Account. We also will transfer any loan interest that becomes due that you do
not pay from your Sub-Accounts to the Loan Account. A Market Value Adjustment
may apply to amounts taken from the Fixed Sub-Accounts.
Since we transfer the amount you borrow from the Sub-Accounts, a loan
whether or not repaid, will have a permanent effect on your Surrender Value and
may have a permanent effect on your death benefit. This is because the Loan
Account does not share in the investment results of the Sub-Accounts. Rather,
the Loan Account earns interest daily at the Loan Credited Rate. Depending upon
how the investment results compare to the Loan Credited Rate, this effect may be
favorable or unfavorable. This is true whether you repay the loan or not. If
not repaid, the loan will reduce the amount of Death Proceeds and could cause
your Contract to terminate if investment results are not as expected. See "How
Do I Purchase A Contract? - Grace Period" and "How Is My Contract Taxed?"
Requesting Payments
You must provide us with Satisfactory Notice of your request for payment.
We will ordinarily pay any Death Proceeds, loan, withdrawal, or surrender
proceeds within seven days after receipt at our Customer Service Center of all
requirements. We will determine the amount as of the Valuation Date our
Customer Service Center receives all requirements.
We may delay making a payment, applying proceeds to a Settlement Option, or
processing a transfer request if:
. the disposal or valuation of the Variable Account's assets is not
reasonably practicable because the New York Stock Exchange is closed
for other than a regular holiday or weekend, trading is restricted by
the SEC, or the SEC declares that an emergency exists; or
. the SEC, by order, permits postponement of payment to protect our
Owners.
We also may defer making payments attributable to a check that has not
cleared (which may take up to 15 days), and we may defer payment of proceeds
from the Fixed Account for a withdrawal, surrender, loan, or transfer request
for up to six months from the date we receive the request, if permitted by state
law.
If we defer payment 30 days or more, the amount deferred will earn interest
at a rate not less than the minimum required in the jurisdiction in which we
delivered the Contract.
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================================================================================
7. How Is Contract Performance Presented?
================================================================================
Articles discussing the Variable Account's investment performance,
rankings, and other characteristics may appear in publications. Some or all of
these publishers or ranking services (including, but not limited to, Lipper
Analytical Services and Morningstar, Inc.) may publish their own rankings or
performance review of variable contract separate accounts, including the
Variable Account. We may use references to or reprints of such articles or
rankings as sales material, and may include rankings that indicate the names of
other variable contract separate accounts and their investment experience.
Publications may use articles and releases developed by us, the Funds and
other parties, about the Variable Account or the Funds. We may use references
to or reprints of such articles in sales material for the Contracts or the
Variable Account. Such literature may refer to personnel of the advisers, who
have portfolio management responsibility, and their investment style and include
excerpts from media articles.
If we quote performance data, the data will represent past performance and
you should not view it as any indication of future performance. Amounts you
invest in the Variable Sub-Accounts will fluctuate daily based on Fund
investment performance, so the value of your investment may increase or
decrease. The hypothetical illustrations beginning on page ___ of this
Prospectus show how the performance of the Funds may affect Contract values.
================================================================================
8. What Is The Death Benefit Under My Contract?
================================================================================
The Contract provides for a payment to your designated Beneficiary if the
Insured dies while the Contract is in force. This payment is called the "Death
Proceeds," and equals:
. the death benefit described below; plus
. any additional insurance on the Insured's life that may be provided by
riders to the Cotract; minus
. any Debt from Contract loans, minus
. any due and unpaid charges; and minus
. any amounts previously paid under the Accelerated Death Benefit Rider
plus accrued interest.
The Death Proceeds will be adjusted in certain circumstances. See
"Incontestability," "Suicide," and "Misstatement of Age or Sex" in "What Other
Information Should I Know?"
You or your Beneficiary decide how to receive the Death Proceeds. You or
your Beneficiary can elect payment in a single sum, in which case your Contract
will terminate; or you or your Beneficiary may apply proceeds under one of the
Settlement Options in your Contract. See "What Are My Settlement Options?"
Unless you or your Beneficiary specify otherwise, we will pay the Death Proceeds
in one sum within 90 days after we receive proof of death. If required by the
law of your state, we also will pay interest from the date of death until we
distribute the Death Proceeds.
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Death Benefit. At issue, your death benefit equals your Insurance Amount
shown in your Contract. On any Business Day after that, it equals the greater
of:
. the Insurance Amount; or
. the Minimum Death Benefit.
However, if the state in which we issue a Contract does not allow us to
deduct a cost of insurance charge on or after the Contract Anniversary when the
Insured reaches age 100, we will limit the death benefit on and after that
anniversary to the Minimum Death Benefit. The tax consequences associated with
continuing a Contract after the Insured reaches age 100 are unclear.
Insurance Amount. The initial Insurance Amount depends on the amount of
your initial purchase payment and the age and sex of the proposed Insured. It
remains level unless you make additional purchase payments or withdrawals.
Additional payments may increase the Insurance Amount. See "Insurance Amount
Increases" below. Withdrawals reduce the Insurance Amount in the same
proportion as the Account Value is reduced.
Minimum Death Benefit. To ensure that the Contract continues to qualify as
life insurance under the Code, each Business Day we will calculate a Minimum
Death Benefit. The Minimum Death Benefit equals (a) times (b), where:
(a) is the Account Value plus any positive Market Value Adjustment on the
date of calculation; and
(b) is the Minimum Death Benefit Percentage from the table below.
Table of Minimun Death Benefit Percentages
------------------------------------------
<TABLE>
<CAPTION>
[Grey Shading]
Attained Attained Attained
Age Percentages Age Percentages Age Percentages
--- ----------- --- ----------- ---- -----------
<S> <C> <C> <C> <C> <C>
0-40 250% 54 157% 68 117%
41 243% 55 150% 69 116%
42 236% 56 146% 70 115%
43 229% 57 142% 71 113%
44 222% 58 138% 72 111%
45 215% 59 134% 73 109%
46 209% 60 130% 74 107%
47 203% 61 128% 75-90 105%
48 197% 62 126% 91 104%
49 191% 63 124% 92 103%
50 185% 64 122% 93 102%
51 178% 65 120% 94-99 101%
52 171% 66 119% 100+ 100%
53 164% 67 118%
</TABLE>
Since positive investment performance increases your Account Value, it may
increase your death benefit to the extent that the Minimum Death Benefit is
greater than the Insurance Amount. Conversely, since
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<PAGE>
negative investment performance decreases your Account Value, it may decrease
your death benefit, but never below the Insurance Amount.
Proof of Death. We will pay the Death Proceeds to your Beneficiary
after we receive satisfactory proof of death at our Customer Service Center. We
will accept one of the following items:
1. An original certified copy of an official death certificate, or
2. An original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or
3. Any other proof satisfactory to us.
Insurance Amount Increases. If you make additional purchase payments,
we may have to increase your Insurance Amount so that your Contract continues to
qualify as life insurance under the Code. We reserve the right to require
satisfactory evidence of insurability as to any increase in the Insurance
Amount. In addition, we reserve the right to require that the Insured's risk
class be identical to that on the Contract Date. Other than in connection with
making additional purchase payments, we do not currently permit you to request
an increase in your Insurance Amount.
================================================================================
9. What Supplemental Benefits Are Available Under My Contract?
================================================================================
The following supplemental benefits are available under the Contracts
by rider. We include these riders automatically in your Contract at no
additional cost. The riders have certain conditions and use special terms and
may not be available in all states.
Accelerated Death Benefit Rider. The Accelerated Death Benefit Rider
provides you with access to a portion of the death benefit during the Insured's
lifetime, if the Insured is diagnosed as having a terminal illness. You can
request to receive up to 50% of the Insurance Amount up to a maximum of
$500,000.
You must provide us with proof that the Insured has a terminal illness.
You may receive an accelerated benefit amount only once. The accelerated benefit
amount will first be used to repay any outstanding Debt. We will pay any amount
in excess of the outstanding Debt to you in a lump sum. Other conditions apply.
The tax treatment of amounts received under the Accelerated Death
Benefit is uncertain. You should consult a tax adviser before requesting
accelerated death benefits.
Accidental Death Benefit Rider. The Accidental Death Benefit Rider
provides an additional death benefit called the accidental death benefit. This
additional benefit will equal the purchase payments made minus any withdrawals
(including any associated surrender charge or Market Value Adjustment incurred),
determined as of the date of the Insured's death (or the next Business Day if
the Insured dies on other than a Business Day), up to a maximum of $250,000.
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To qualify for this benefit, the Insured's death must: (i) occur before
the first Contract Anniversary after the Insured attains age 80; and (ii) be a
direct result of accidental bodily injury, independent of all other causes.
Further, all the terms and conditions described in the Contract must be
satisfied, including the requirement that we receive satisfactory proof of
accidental death at our Customer Service Center within 30 days after an
accidental death or as soon thereafter as reasonably possible. We will pay the
accidental death benefit to the Beneficiary or the person entitled to receive
the death benefit under the Contract, after receipt of satisfactory proof of
accidental death.
We terminate the accidental death benefit provision:
. when we pay the benefit;
. when you surrender the Contract or apply the entire Surrender
Value to a settlement Option;
. when we distribute the interest in the Contract due to the death
of an Insured; or
. when you request termination of the benefit.
Waiver of Surrender Charge Rider. The Waiver of Surrender Charge Rider
provides that we will not deduct a surrender charge if, when you submit your
request for a withdrawal or a surrender, you also submit due proof that you have
been confined continuously to a "Qualifying Hospital or Nursing Care Facility"
for at least 45 days in a 60 day period. We define "Qualifying Hospital or
Nursing Care Facility" in your Contract.
================================================================================
10 . What Are My Settlement Options?
================================================================================
You may elect to have the Surrender Value or Death Proceeds paid in a
single sum or under one of our Settlement Options if the amount is at least
$5,000. You select a Settlement Option from the list below, and indicate whether
you want your income payments to be fixed or variable or a combination of fixed
and variable. Once payments have begun under a Settlement Option, (i) our prior
approval is necessary for transfers from the Fixed Account to the Variable
Account and from the Variable Account to the Fixed Account, and (ii) we reserve
the right to limit transfers between Variable Sub-Accounts to one per Contract
Year. Any other changes require our prior approval.
On the date the Settlement Option becomes effective, the Surrender
Value under the Contract will be used to provide income payments. Unless you
request otherwise, we will use any Variable Account Value to provide variable
income payments, and we will use any Fixed Account Value to provide fixed income
payments.
You may elect one of the Settlement Options shown below (or any other
option acceptable to us). For ease of describing these Settlement Options, we
assume that you apply the Surrender Value and receive the income payments from
one of the options below. Of course, you may always designate someone other than
yourself to receive the income payments, and your designated Beneficiary will
receive the income payments from any Death Proceeds.
Option 1 - Payments for Life: You will receive payments for your
life.
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Option 2 - Life Annuity with 10 or 20 Years Certain: You will
receive payments for your life. However, if you die before the end
of the guaranteed certain period you select (10 or 20 years), your
Beneficiary will receive the payments for the remainder of that
period.
Option 3 - Joint and Last Survivor Life Annuity: We will make
payments as long as either you or a second person you select (such
as your spouse) is alive.
Option 4 - Payments for a Specified Period Certain: You will
receive payments for the number of years you select, which may be
from 5-30 years. However, if you die before the end of that
period, your Beneficiary will receive the payments for the
remainder of the guaranteed certain period.
Your income payments will be made monthly, unless you or the
Beneficiary, as the case may be, choose quarterly, semi-annual or annual
payments by giving us Satisfactory Notice. Each payment must be at least $100.
If any payment would be less than $100, we may change the payment frequency to
the next longer interval, but in no event less frequent than annual.
If you told us that you want a life annuity, it is possible that you
could only receive one payment.
We will base your first income payment, whether fixed or variable, on
the amount of proceeds applied under the Settlement Option you or the
Beneficiary, as the case may be, have selected and on the applicable "purchase
rates." If applicable, these rates will vary based on: (i) the age and sex of
the person that will receive the income payments (the "Payee"); (ii) the age and
sex of a second designated person; and (iii) the specified period certain. The
purchase rate we apply will never be lower than the rate shown in your Contract.
If you told us you want fixed income payments, we guarantee the amount
of each income payment and it remains level throughout the period you selected.
If you told us you want variable income payments, the amount of each
payment will vary according to the investment performance of the Funds you
selected.
Variable Income Payments. To calculate your initial and future variable
income payments, we need to make an assumption regarding the investment
performance of the Funds you select. We call this your assumed investment rate.
This rate is simply the total return, after expenses, you need to earn to keep
your variable income payments level. Rather than building in our own estimate,
we will allow you to tailor your variable income payments to meet your needs by
giving you a choice of rates. Currently, you may select either 3% or 6%; if you
do not select a rate, we will apply the 3% rate. (We may offer other rates in
the future). The lower the rate, the lower your initial variable income payment,
but the better your payments will keep pace with inflation (assuming net
positive investment performance greater than the assumed investment rate).
Conversely, the higher the rate, the higher your initial variable income
payment, but the less likely your payments will keep pace with inflation
(assuming net positive investment performance greater than the assumed
investment rate).
For example, if you select 6%, this means that if the investment
performance, after expenses, of your Funds is less than 6%, then the dollar
amount of your variable income payment will decrease.
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<PAGE>
Conversely, if the investment performance, after expenses, of your Funds is
greater than 6%, then the dollar amount of your income payments will increase.
Your variable payments will fluctuate based on Variable Sub-Account
performance. The dollar amount of each payment attributable to each Variable
Sub-Account is the number of Income Units for each Variable Sub-Account times
the Income Unit value of that Sub-Account. The sum of the dollar amounts for
each Variable Sub-Account is the amount of the total variable income payment. We
will determine the Income Unit values for each payment no earlier than five
Business Days preceding the due date of the variable income payment (except for
Option 4, which is determined on the due date). We guarantee the payment will
not vary due to changes in mortality or expenses.
Income Unit Value. We calculate the value of an Income Unit at the same
time that we calculate the value of an Accumulation Unit and base it on the same
values for Fund shares and other assets and liabilities. The Income Unit value
for a Variable Sub-Account's first Business Day was set at $10. After that, we
determine the Income Unit value for every Business Day by multiplying (a) by
(b), and then dividing by (c) where:
(a) is the Income Unit value for the immediately preceding Valuation
Period;
(b) is the "net investment factor" for the Variable Sub-Account for
the Valuation Period for which the value is being determined;
and
(c) is the daily equivalent of the assumed investment rate that you
have selected for the number of days in the Valuation Period.
Under a Settlement Option, we calculate the net investment factor
slightly different than is otherwise the case. Before a Settlement Option is
elected, we calculate Asset-Based Charges as a percentage of the Account Value
on the date of deduction. These charges on an annual basis equal 1.80%,
decreasing to 1.30% after the tenth Contract Year. However, once a Settlement
Option is elected, we call these charges Variable Sub-Account Charges and deduct
them from the assets in each Variable Sub-Account on a daily basis. Therefore,
we determine the "net investment factor" in (b), above, by dividing (i) by (ii),
and then subtracting (iii) where:
(i) is the Accumulation Unit value for the current Valuation Period;
(ii) is the Accumulation Unit value for the immediately preceding
Valuation Period; and
(iii) is the daily equivalent Variable Sub-Account Charges (adjusted
for the number of days in the Valuation Period).
Exchange of Income Units. Under a Settlement Option, if there is an
exchange of value of a designated number of Income Units of particular Variable
Sub-Accounts into other Income Units, the value will be such that the dollar
amount of the income payment made on the date of exchange will be unaffected by
the exchange.
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================================================================================
11. What Other Information Should I Know?
================================================================================
Sage Life Assurance of America, Inc.
We are a Delaware stock life insurance company that is wholly owned by
Sage Life Holdings of America, Inc., also a Delaware corporation. Sage Life
Holdings is, in turn, wholly owned by Sage Insurance Group Inc., also a Delaware
corporation. Our Executive Office is located at 300 Atlantic Street, Stamford,
CT 06901. We were incorporated in 1981 and have been engaged in the life
insurance business since that year. We are subject to regulation by the
Insurance Department of the State of Delaware as well as by the insurance
departments of all other states and jurisdictions in which we do business. We
sell insurance in 49 states and the District of Columbia. We submit annual
statements on our operations and finance to insurance officials in such states
and jurisdictions where required. The Contracts described in this Prospectus
have been filed with and/or approved by insurance officials in jurisdictions
where they are sold.
Separate Accounts
The Sage Variable Life Account A. We established the Variable Account
as a separate investment account under Delaware law on December 3, 1997. The
Variable Account may invest in mutual funds, unit investment trusts, and other
investment portfolios. We own the assets in the Variable Account and are
obligated to pay all benefits under the Contracts. We use the Variable Account
to support the Contracts as well as for other purposes permitted by law. We
registered the Variable Account with the SEC as a unit investment trust under
the 1940 Act and it qualifies as a "separate account" within the meaning of the
federal securities laws. Such registration does not involve any supervision by
the SEC of the management of the Variable Account or Sage Life.
We divided the Variable Account into Variable Sub-Accounts, each of
which currently invests in shares of a specific Fund of AIM Variable Insurance
Funds, Inc., The Alger American Fund, Liberty Variable Investment Trust,
SteinRoe Variable Investment Trust, MFS(R) Variable Investment TrustSM, The
Universal Funds, Inc., Oppenheimer Variable Account Funds, Sage Life Investment
Trust, and T. Rowe Price Equity Series, Inc. Variable Sub-Accounts buy and
redeem Fund shares at net asset value without any sales charge. We reinvest any
dividends from net investment income and distributions from realized gains from
security transactions of a Fund at net asset value in shares of the same Fund.
Income, gains and losses, realized or unrealized, of the Variable Account are
credited to or charged against the Variable Account without regard to any other
income, gains or losses of Sage Life. Assets equal to the reserves and other
Contract liabilities with respect to the Variable Account are not chargeable
with liabilities arising out of any other business or account of Sage Life. If
the assets exceed the required reserves and other liabilities, we may transfer
the excess to our General Account.
Voting of Fund Shares. We are the legal owner of shares held by the
Variable Sub-Accounts and as such, have the right to vote on all matters
submitted to shareholders of the Funds. However, as required by law, we will
vote shares held in the Variable Sub-Accounts at regular and special meetings of
shareholders of the Funds according to instructions received from Owners with
Account Value in the Variable Sub-Accounts. To obtain your voting instructions
before a Fund shareholder meeting, we will send you voting instruction
materials, a voting instruction form, and any other related material. We will
vote shares held by a Variable Sub-Account for which we received no timely
instructions in the same proportion as those shares for which we received voting
instructions. Should the
53
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applicable federal securities laws, regulations, or interpretations thereof
change so as to permit us to vote shares of the Funds in our own right, we may
elect to do so.
The Sage Fixed Interest Account A. The Fixed Account is a separate
investment account under state insurance law. We maintain it separate from our
General Account and separate from any other separate account that we may have.
We own the assets in the Fixed Account, and also offer the Fixed Account with
our variable annuity contracts. Assets equal to the reserves and other
liabilities of the Fixed Account will not be charged with liabilities that arise
from any other business that we conduct. Thus, the Fixed Account represents
pools of assets that provide an additional measure of assurance that Owners will
receive full payment of benefits under the Contracts. We may transfer to our
General Account assets that exceed the reserves and other liabilities of the
Fixed Account. Notwithstanding the foregoing, our obligations under (and values
and benefits under) the Fixed Account do not vary as a function of the
investment performance of the Fixed Account. Owners and Beneficiaries with
rights under the Contracts do not participate in the investment gains or losses
of the assets of the Fixed Account. These gains or losses accrue solely to us.
We retain the risk that the value of the assets in the Fixed Account may fall
below the reserves and other liabilities that we must maintain in connection
with our obligations under the Fixed Account. In such an event, we will transfer
assets from our General Account to the Fixed Account to make up the difference.
We are not required to register the Fixed Account as an investment company under
the 1940 Act.
Modification
When permitted by applicable law, we may modify the Contracts as
follows:
. deregister the Variable Account under the 1940 Act;
. operate the Variable Account as a management company under the
1940 Act if it is operating as a unit investment trust;
. operate the Variable Account as a unit investment trust under the
1940 Act if it is operating as a managed separate account;
. restrict or eliminate any voting rights of Owners, or other
persons who have voting rights as to the Variable Account;
. combine the Variable Account with other separate accounts; and
. combine a Variable Sub-Account with another Variable Sub-Account.
We also reserve the right, subject to applicable law, to make additions
to, deletions from, or substitutions of shares of a Fund that are held by the
Variable Account (shares of the new Fund and may have higher fees and charges
than the Fund it replaced and not all Funds may be available to all Classes of
Contracts) and to establish additional Variable Sub-Accounts or eliminate
Variable Sub-Accounts, if marketing, tax, or investment conditions so warrant.
Subject to any required regulatory approvals, we reserve the right to transfer
assets of a Variable Sub-Account that we determine to be associated with the
class of Contracts to which the Contract belongs, to another separate account or
to another separate account sub-account.
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If the actions we take result in a material change in the underlying
investments of a Variable Sub-Account in which you are invested, we will notify
you of the change. You may then make a new choice of Variable Sub-Accounts.
Distribution of the Contracts
Sage Distributors, Inc. ("Sage Distributors"), acts as the distributor
(principal underwriter) of the Contracts. Sage Distributors is a Delaware
corporation registered as a broker-dealer under the Securities Exchange Act of
1934, and is a member of the National Association of Securities Dealers, Inc.
(the "NASD"). Sage Distributors is a wholly owned subsidiary of Sage Insurance
Group Inc. We compensate Sage Distributors for acting as principal underwriter
under a distribution agreement. We offer the Contracts on a continuous basis,
and do not anticipate discontinuing their sale. The Contracts may not be
available in all states.
The Contracts are sold by broker-dealers through their registered
representatives who are also appointed and licensed as insurance agents of Sage
Life. These broker-dealers receive commissions for selling Contracts calculated
as a percentage of purchase payments (up to a maximum of 8.5%). Broker-dealers
who meet certain productivity and profitability standards may be eligible for
additional compensation.
Experts
Ernst & Young LLP, independent auditors, have audited our financial
statements as of December 31, 1999 and 1998, and for the three years in the
period ended December 31, 1999, as set forth in their report, which is included
in this Prospectus. We included our financial statements in this Prospectus in
reliance on their report, given on their authority as experts in accounting and
auditing.
Legal Proceedings
Sage Life and its subsidiaries, as of the date of this Prospectus, are
not involved in any lawsuits. However, our direct and indirect parent companies,
like other companies, are involved in lawsuits. In some lawsuits involving
insurers, substantial damages have been sought and/or material settlement
payments have been made. Although the outcome of any litigation cannot be
predicted with certainty, we believe that at the present time there are no
pending or threatened lawsuits that are reasonably likely to have a material
adverse impact on the Variable Account, the Fixed Account, the General Account,
or Sage Life.
Reports to Contract Owners
We maintain records and accounts of all transactions involving the
Contracts, the Variable Account, and the Fixed Account at our Customer Service
Center. Each year, or more often if required by law, we will send you a report
showing information about your Contract for the period covered by the report. We
will also send you an annual and a semi-annual report for each Fund underlying a
Variable Sub-Account in which you are invested as required by the 1940 Act. In
addition, when you make purchase payments, or if you make transfers or
withdrawals, we will send you a confirmation of these transactions.
Assignment
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You may assign your Contract at any time during the Insured's lifetime.
No assignment will be binding on us unless we receive Satisfactory Notice. We
will not be liable for any payments made or actions we take before we accept the
assignment. An absolute assignment will revoke the interest of any revocable
Beneficiary. We are not responsible for the validity of any assignment. An
assignment may be a taxable event.
The Owner
You are the Owner of the Contract. You are also the Insured unless you
named another Insured in the application. You have the rights and options
described in the Contract while the Insured is living and the Contract is in
force. One or more people may own the Contract.
The Beneficiary
We pay the Death Proceeds to the primary Beneficiary. If the primary
Beneficiary dies before the Insured, we pay the Death Proceeds to the Contingent
Beneficiary, if any. If there is no surviving Beneficiary, we pay the Death
Proceeds to the Owner's estate.
You may name one or more persons as primary Beneficiary or Contingent
Beneficiary. We will assume any Death Proceeds are to be paid in equal shares to
the multiple surviving Beneficiaries, unless you tell us otherwise.
You have the right to change Beneficiaries. However, if you designate
the primary Beneficiary as irrevocable, you may need the consent of that
Beneficiary to exercise the rights and options under your Contract.
Change of Owner or Beneficiary
During your lifetime and while your Contract is in force you can
transfer ownership of your Contract or change the Beneficiary. To make any of
these changes, you must send us Satisfactory Notice. If accepted, any change in
Owner or Beneficiary will take effect on the date you signed the notice. Any of
these changes will not affect any payment made or action we took before our
acceptance. A change of Owner may be a taxable event.
Misstatement And Proof of Age, Sex, or Survival
We may require proof of age, sex, or survival of any person on whose
age, sex, or survival any payments depend. If the age or sex of the Insured has
been misstated, the benefits will be those that the initial purchase payment and
any additional purchase payments would have provided for the correct age and
sex.
Incontestability
We will not contest the payment of the Death Proceeds based upon the
initial purchase payment after the Contract has been in force during the
Insured's lifetime for two years from the Issue Date.
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For any increase in Insurance Amount requiring evidence of
insurability, we will not contest payment of the Death Proceeds based on such an
increase after it has been in force during the Insured's lifetime for two year
from its effective date.
Suicide
If the Insured dies by suicide, while sane or insane, within two years
from the Issue Date, we will not pay the Death Proceeds normally payable on the
Insured's death. Instead, we will limit the death benefit to the Account Value
as of the date we receive proof of death. We will otherwise calculate Death
Proceeds in the usual manner.
If the Insured dies by suicide, while sane or insane, within two years
of any date we receive and accept an additional purchase payment, any amount of
death benefit that would not be payable except for the fact the additional
purchase payment was made will be limited to the amount of such payment.
Authority to Make Agreements
One of our officers must sign all agreements we make. No other person,
including an insurance agent or registered representative, can change the terms
of your Contract or make changes to it without our consent.
Participation
The Contract does not participate in the surplus or profits of the
Company, and the Company does not pay dividends on the Contracts.
Safekeeping of Account Assets
We hold the title to the assets of the Variable Account. We keep the
assets physically segregated and hold them separate and apart from our General
Account assets and from the assets in any other separate account.
We maintain records of all purchases and redemptions of Fund shares
held by each of the Variable Sub-Accounts.
Lloyd's of London has issued a fidelity bond in the amount of
approximately $10 million per occurrence covering our directors, officers, and
employees.
Legal Matters
All matters relating to Delaware law pertaining to the Contracts,
including the validity of the Contracts and our authority to issue the
Contracts, have been passed upon by James F. Bronsdon, our Vice President, Legal
and Compliance. Sutherland Asbill & Brennan LLP has provided advice on certain
matters relating to the federal securities laws.
Financial Statements
No financial statements are presented for the Variable Account because
the Variable Account has yet to commence operations.
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We have included audited financial statements for Sage Life for the
years ended December 31, 1999, 1998 and 1997 in this Prospectus. You should
consider these financial statements only as bearing on the ability of Sage Life
to meet its obligations under the Contracts. You should not consider them as
bearing on the investment performance of the assets held in the Variable
Account.
================================================================================
12. HOW CAN I MAKE INQUIRIES?
================================================================================
You may make inquiries about your Contract by writing to us at our
Customer Service Center, by calling us at 877-835-7243 (Toll Free), or by
contacting one of our authorized registered representatives.
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HYPOTHETICAL ILLUSTRATIONS OF CONTRACT VALUES
================================================================================
To show you how the Contract works, we have included some hypothetical
illustrations for the following Insureds: a male issue age 45, a female issue
age 55, and a male issue age 65. These illustrations show how Account Values,
Surrender Values and death benefits under a Contract vary over time assuming the
following circumstances:
. An initial purchase payment of $10,000 allocated entirely to
Variable Sub-Accounts and remaining there for the entire period;
. The Insured is in good health, does not smoke, and qualifies under
our simplified underwriting program;
. There are no additional purchase payments, no withdrawals, no
charges for supplemental benefits; and
. The Funds earn gross (that is, before deductions for investment
management fees and other operating expenses of the Funds) annual
rates of return of 0%, 6%, and 12%.
It is important to understand that the illustrations assume a level
rate of return for all years. The values under a Contract would be different
from those shown if the hypothetical returns averaged 0%, 6%, or 12% but
fluctuated over and under those averages throughout the years shown.
The illustrations also reflect an average daily charge equal to an
annual charge of 0.86% of the average daily net assets of the Funds for
investment management fees and other operating expenses. We calculated these
fees based on an average of the expense ratios of each of the Funds (in some
cases, we estimated those fees) for the last year of operations. Taking into
account this average charge, the net annual rates of return for the Variable
Sub-Accounts are 0.86%, 5.14% and 11.14%, respectively. The average daily
charge for the Fund expenses, reflects voluntary expense agreements between
certain of the Funds and their investment managers. These expense agreements
could terminate at any time. See "What Are The Expenses Under A Contract?" If
these agreements terminate, the values shown on the following pages would
be less.
The illustrations also reflect the Monthly Deduction Amount and other
applicable charges for the hypothetical Insured. These include the Asset-Based
Charges and the cost of insurance charges that we deduct on each Monthly
Processing Date, and any annual administration charge that we deduct on a
58
<PAGE>
Contract Anniversary. Our current charges and the higher guaranteed charges we
have the contractual right to charge are reflected in separate illustrations on
each of the following pages. All the illustrations reflect the fact that no
charges for Federal or state income taxes are currently made against the
Variable Account.
Each illustration also has a column labeled "Payments Accumulated at 5%
Interest Per Year." This column shows the amount that would accumulate if the
initial purchase payment was invested to earn interest, after taxes, of 5% per
year, compounded annually.
Upon request, we will furnish you a personalized illustration based
upon the proposed Insured's individual circumstances. Such illustrations will
reflect the current cost of insurance charges and the guaranteed maximum cost of
insurance charges and may assume different hypothetical rates of return than
those shown in the following illustrations.
The investment rates of return we have chosen to use in the
illustrations are hypothetical only, and you should understand that they do not
represent actual past or future rates of return. The actual rates of return
under a Contract may be more or less than the hypothetical rates of return in
the illustrations.
59
<PAGE>
Modified Single Payment Combination Fixed and Variable Life Insurance
Male Nonsmoker $10,000 Initial Purchase Payment
Issue Age 45 $34,078 Initial Insurance Amount
<TABLE>
<CAPTION>
Current Charges Basis
Assumed Gross Annual Investment Assumed Gross Annual Investment Assumed Gross Annual Investment
Return of 0.00% (-0.86% Net) Return of 6.00% (5.14% Net) Return of 12.00% (11.14% Net)
Payments
End of Accumulated
Contract at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,684 8,744 34,078 10,270 9,330 34,078 10,856 9,916 34,078
2 11,025 9,338 8,398 34,078 10,505 9,565 34,078 11,741 10,801 34,078
3 11,576 9,004 8,164 34,078 10,748 9,908 34,078 12,703 11,863 34,078
4 12,155 8,681 7,941 34,078 10,996 10,256 34,078 13,746 13,006 34,078
5 12,763 8,367 7,727 34,078 11,252 10,612 34,078 14,879 14,239 34,078
6 13,401 8,064 7,524 34,078 11,514 10,974 34,078 16,109 15,569 34,078
7 14,071 7,770 7,430 34,078 11,784 11,444 34,078 17,444 17,104 34,078
8 14,775 7,485 7,485 34,078 12,060 12,060 34,078 18,893 18,893 34,078
9 15,513 7,248 7,248 34,078 12,385 12,385 34,078 20,510 20,510 34,078
10 16,289 7,019 7,019 34,078 12,719 12,719 34,078 22,265 22,265 34,955
11 17,103 6,831 6,831 34,078 13,128 13,128 34,078 24,291 24,291 36,437
12 17,959 6,648 6,648 34,078 13,550 13,550 34,078 26,502 26,502 38,693
13 18,856 6,470 6,470 34,078 13,985 13,985 34,078 28,914 28,914 41,058
14 19,799 6,297 6,297 34,078 14,434 14,434 34,078 31,548 31,548 43,537
15 20,789 6,128 6,128 34,078 14,898 14,898 34,078 34,427 34,427 46,133
16 21,829 5,964 5,964 34,078 15,376 15,376 34,078 37,577 37,577 48,850
17 22,920 5,804 5,804 34,078 15,870 15,870 34,078 41,010 41,010 52,493
18 24,066 5,649 5,649 34,078 16,380 16,380 34,078 44,752 44,752 56,388
19 25,270 5,498 5,498 34,078 16,906 16,906 34,078 48,833 48,833 60,552
20 26,533 5,351 5,351 34,078 17,449 17,449 34,078 53,283 53,283 65,005
25 33,864 4,671 4,671 34,078 20,437 20,437 34,078 82,375 82,375 95,555
30 43,219 4,079 4,079 34,078 23,937 23,937 34,078 127,527 127,527 136,454
35 55,160 3,561 3,561 34,078 28,036 28,036 34,078 198,428 198,428 208,349
</TABLE>
We emphasize that the assumed gross annual investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future gross annual investment rates of
return. Actual gross annual rates of return may be more or less than those
shown and will depend on a number of factors, including investment allocations
made to the Sub-Accounts. The death benefit, Account Values and Surrender
Values for a Contract would be different from those shown if the actual gross
annual rates of return averaged 0%, 6% and 12% over a period of years, but
varied above or below that average during the period. They would also be
different if you take a loan or withdrawal during the period of time
illustrated. No representation can be made that those assumed gross annual rates
of return can be achieved for any one year or sustained over any period of
time.
Modified Single Payment Combination Fixed and Variable Life Insurance
Male Nonsmoker $10,000 Initial Purchase Payment
Issue Age 45 $34,078 Initial Insurance Amount
<TABLE>
<CAPTION>
Maximum Charges Basis
Assumed Gross Annual Investment Assumed Gross Annual Investment Assumed Gross Annual Investment
Return of 0.00% (-0.86% Net) Return of 6.00% (5.14% Net) Return of 12.00% (11.14% Net)
Payments
End of Accumulated
Contract at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,623 8,683 34,078 10,210 9,270 34,078 10,797 9,857 34,078
2 11,025 9,206 8,266 34,078 10,378 9,438 34,078 11,619 10,679 34,078
3 11,576 8,788 7,948 34,078 10,541 9,701 34,078 12,510 11,670 34,078
4 12,155 8,367 7,627 34,078 10,701 9,961 34,078 13,478 12,738 34,078
5 12,763 7,942 7,302 34,078 10,854 10,214 34,078 14,532 13,892 34,078
6 13,401 7,512 6,972 34,078 11,001 10,461 34,078 15,678 15,138 34,078
7 14,071 7,072 6,732 34,078 11,139 10,799 34,078 16,925 16,585 34,078
8 14,775 6,623 6,623 34,078 11,266 11,266 34,078 18,286 18,286 34,078
9 15,513 6,198 6,198 34,078 11,421 11,421 34,078 19,814 19,814 34,078
10 16,289 5,756 5,756 34,078 11,562 11,562 34,078 21,485 21,485 34,078
11 17,103 5,322 5,322 34,078 11,746 11,746 34,078 23,432 23,432 35,148
12 17,959 4,863 4,863 34,078 11,917 11,917 34,078 25,564 25,564 37,323
13 18,856 4,377 4,377 34,078 12,071 12,071 34,078 27,890 27,890 39,604
14 19,799 3,860 3,860 34,078 12,207 12,207 34,078 30,431 30,431 41,995
15 20,789 3,309 3,309 34,078 12,322 12,322 34,078 33,208 33,208 44,499
16 21,829 2,718 2,718 34,078 12,413 12,413 34,078 36,246 36,246 47,120
17 22,920 2,080 2,080 34,078 12,472 12,472 34,078 39,558 39,558 50,634
18 24,066 1,386 1,386 34,078 12,496 12,496 34,078 43,168 43,168 54,391
19 25,270 627 627 34,078 12,476 12,476 34,078 47,103 47,103 58,408
20 26,533 - - - 12,405 10,405 34,078 51,396 51,396 62,703
25 33,864 - - - 10.980 10,980 34,078 79,334 79.334 92,028
30 43,219 - - - 6,067 6,067 34,078 122,636 122,636 131,220
35 55,160 - - - - - 34,078 190,817 190,817 200,357
</TABLE>
We emphasize that the assumed gross annual investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future gross annual investment rates of
return. Actual gross annual rates of return may be more or less than those
shown and will depend on a number of factors, including investment allocations
made to the Sub-Accounts. The death benefit, Account Values and Surrender
Values for a Contract would be different from those shown if the actual gross
annual rates of return averaged 0%, 6% and 12% over a period of years, but
varied above or below that average during the period. They would also be
different if you take a loan or withdrawal during the period of time
illustrated. No representation can be made that those assumed gross annual
rates of return can be achieved for any one year or sustained over any period of
time.
60
<PAGE>
Modified Single Payment Combination Fixed and Variable Life Insurance
Female Nonsmoker $10,000 Initial Purchase Payment
Issue Age 55 $29,068 Initial Insurance Amount
<TABLE>
<CAPTION>
Current Charges Basis
Assumed Gross Annual Investment Assumed Gross Annual Investment Assumed Gross Annual Investment
Return of 0.00% (-0.86% Net) Return of 6.00% (5.14% Net) Return of 12.00% (11.14% Net)
Payments
End of Accumulated
Contract at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,684 8,744 29,068 10.270 9,330 29,068 10,856 9,916 29,068
2 11,025 9,338 8,398 29,068 10,505 9,565 29,068 11,741 10,801 29,068
3 11,576 9,004 8,164 29,068 10,748 9,908 29,068 12,703 11,863 29,068
4 12,155 8,681 7,941 29,068 10,996 10,256 29,068 13,746 13,006 29,068
5 12,763 8,367 7,727 29,068 11,252 10,612 29,068 14,879 14,239 29,068
6 13,401 8,064 7,524 29,068 11,514 10.974 29,068 16,109 15,569 29,068
7 14,071 7,770 7,430 29,068 11,784 11,444 29,068 17,444 17,104 29,068
8 14,775 7,485 7,485 29,068 12,060 12,060 29,068 18,893 18,893 29,068
9 15,513 7,248 7,248 29,068 12,385 12,385 29,068 20,510 20,510 29,068
10 16,289 7,019 7,019 29,068 12,719 12,719 29,068 22,274 22,274 29,068
11 17,103 6,831 6,831 29,068 13,128 13,128 29,068 24,339 24,339 29,207
12 17,959 6,648 6,648 29,068 13,550 13,550 29,068 26,616 26,616 31,673
13 18,856 6,470 6,470 29,068 13,985 13,985 29,068 29,103 29,103 34,341
14 19,799 6,297 6,297 29,068 14,434 14,434 29,068 31,820 31,820 37,229
15 20,789 6,128 6,128 29,068 14,898 14,898 29,068 34,788 34,788 40,354
16 21,829 5,964 5,964 29,068 15,376 15,376 29,068 38,030 38,030 43,734
17 22,920 5,804 5,804 29,068 15,870 15,870 29,068 41,580 41,580 46,985
18 24,066 5,649 5,649 29,068 16,380 16,380 29,068 45,470 45,470 50,472
19 25,270 5,498 5,498 29,068 16,906 16,906 29,068 49,737 49,737 54,213
20 26,533 5,351 5,351 29,068 17,449 17,449 29,068 54,424 54,424 58,233
25 33,864 4,671 4,671 29,068 20,437 20,437 29,068 85,350 85,350 89,618
30 43,219 4,079 4,079 29,068 23,937 23,937 29,068 132,557 132,557 139,185
35 55,160 3,561 3,561 29,068 28,036 28,036 29,438 204,911 204,911 215,156
</TABLE>
We emphasize that the assumed gross annual investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future gross annual investment rates of
return. Actual gross annual rates of return may be more or less than those
shown and will depend on a number of factors, including investment allocations
made to the Sub-Accounts. The death benefit, Account Values and Surrender Values
for a Contract would be different from those shown if the actual gross annual
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average during the period. They would also be different if you
take a loan or withdrawal during the period of time illustrated. No
representation can be made that those assumed gross annual rates of return can
be achieved for any one year or sustained over any period of time.
Modified Single Payment Combination Fixed and Variable Life Insurance
Female Nonsmoker $10,000 Initial Purchase Payment
Issue Age 55 $29,068 Initial Insurance Amount
<TABLE>
<CAPTION>
Maximum Charges Basis
Assumed Gross Annual Investment Assumed Gross Annual Investment Assumed Gross Annual Investment
Return of 0.00% (-0.86% Net) Return of 6.00% (5.14% Net) Return of 12.00% (11.14% Net)
Payments
End of Accumulated
Contract at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,597 8,657 29,068 10,184 9,244 29,068 10.771 9,831 29,068
2 11,025 9,153 8,213 29,068 10,324 9,384 29,068 11,565 10,625 29,068
3 11,576 8,709 7,869 29,068 10,462 9,622 29,068 12,431 11,591 29,068
4 12,155 8,263 7,523 29,068 10,597 9,857 29,068 13,377 12,367 29,068
5 12,763 7,815 7,175 29,068 10,727 10,087 29,068 14,410 13,770 29,068
6 13,401 7,362 6,822 29,068 10,852 10,312 29,068 15,538 14,998 29,068
7 14,071 6,900 6,900 29,068 10,969 10,629 29,068 16,772 16,432 29,068
8 14,775 6,424 6,424 29,068 11,072 11,072 29,068 18,122 18,122 29,068
9 15,513 5,968 5,968 29,068 11,201 11,201 29,068 19,644 19,644 29,068
10 16,289 5,488 5,488 29,068 11,312 11,312 29,068 21,314 21,314 29,068
11 17,103 5,008 5,008 29,068 11,461 11,461 29,068 23,270 23,270 29,068
12 17,959 4,496 4,496 29,068 11,593 11,593 29,068 25,438 25,438 30,272
13 18,856 3,951 3,951 29,068 11,705 11,705 29,068 27,815 27,815 32,822
14 19,799 3,370 3,370 29,068 11,798 11,798 29,068 30,412 30,412 35,582
15 20,789 2,746 2,746 29,068 11,866 11,866 29,068 33,249 33,249 38,568
16 21,829 2,070 2,070 29,068 11,904 11,904 29,068 36,347 36,347 41,799
17 22,920 1,327 1,327 29,068 11,901 11,901 29,068 39,740 39,740 44,907
18 24,066 496 496 29,068 11,844 11,844 29,068 43,459 43,459 48,239
19 25,270 - - - 11,718 11,718 29,068 47,537 47,537 51,815
20 26,533 - - - 11,507 11,507 29,068 52,016 52,016 55,657
25 33,864 - - - 8,466 8,466 29,068 81,575 81,575 85,653
30 43,219 - - - - - - 126,658 126,658 132,991
35 55,160 - - - - - - 193,217 193,217 202,878
</TABLE>
We emphasize that the assumed gross annual investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future gross annual investment rates of
return. Actual gross annual rates of return may be more or less than those
shown and will depend on a number of factors, including investment allocations
made to the Sub-Accounts. The death benefit, Account Values and Surrender
Values for a Contract would be different from those shown if the actual gross
annual rates of return averaged 0%, 6% and 12% over a period of years, but
varied above or below that average during the period. They would also be
different if you take a loan or withdrawal during the period of time
illustrated. No representation can be made that those assumed gross annual
rates of return can be achieved for any one year or sustained over any period of
time.
61
<PAGE>
Male Nonsmoker $10,000 Initial Purchase Payment
Issue Age 65 $18,552 Initial Insurance Amount
<TABLE>
<CAPTION>
Current Charges Basis
Assumed Gross Annual Investment Assumed Gross Annual Investment Assumed Gross Annual Investment
Return of 0.00% (-0.86% Net) Return of 6.00% (5.14% Net) Return of 12.00% (11.14% Net)
Payments
End of Accumulated
Contract at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,684 8,744 18,552 10,270 9,330 18,552 10,856 9,916 18,552
2 11,025 9,338 8,398 18,552 10,505 9,565 18,552 11,741 10,801 18,552
3 11,576 9,004 8,164 18,552 10,748 9,908 18,552 12,703 11,863 18,552
4 12,155 8,681 7,941 18,552 10,996 10,256 18,552 13,746 13,006 18,552
5 12,763 8,367 7,727 18,552 11,252 10,612 18,552 14,879 14,239 18,552
6 13,401 8,064 7,524 18,552 11,514 10,974 18,552 16,109 15,569 18,552
7 14,071 7,770 7,430 18,552 11,784 11,444 18,552 17,444 17,104 19,711
8 14,775 7,485 7,485 18,552 12,060 12,060 18,552 18,893 18,893 20,971
9 15,513 7,248 7,248 18,552 12,385 12,385 18,552 20,518 20,518 22,364
10 16,289 7,019 7,019 18,552 12,719 12,719 18,552 22,298 22,298 23,859
11 17,103 6,831 6,831 18,552 13,128 13,128 18,552 24,377 24,377 25,595
12 17,959 6,648 6,648 18,552 13,550 13,550 18,552 26,640 26,640 27,972
13 18,856 6,470 6,470 18,552 13,985 13,985 18,552 29,104 29,104 30,559
14 19,799 6,297 6,297 18,552 14,434 14,434 18,552 31,783 31,783 33,372
15 20,789 6,128 6,128 18,552 14,898 14,898 18,552 34,694 34,694 36,429
16 21,829 5,964 5,964 18,552 15,376 15,376 18,552 37,856 37,856 39,748
17 22,920 5,804 5,804 18,552 15,870 15,870 18,552 41,301 41,301 43,366
18 24,066 5,649 5,649 18,552 16,380 16,380 18,552 45,060 45,060 47,313
19 25,270 5,498 5,498 18,552 16,906 16,906 18,552 49,162 49,162 51,620
20 26,533 5,351 5,351 18,552 17,449 17,449 18,552 53,636 53,636 56,318
25 33,864 4,671 4,671 18,552 20,437 20,437 21,459 82,913 82,913 87,059
30 43,219 4,079 4,079 18,552 23,931 23,981 24,221 128,406 128,406 129,690
35 55,160 3,561 3,561 18,552 28,127 28,127 28,409 198,772 198,772 200,760
</TABLE>
We emphasize that the assumed gross annual investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future gross annual investment rates of
return. Actual gross annual rates of return may be more or less than those
shown and will depend on a number of factors, including investment allocations
made to the Sub-Accounts. The death benefit, Account Values and Surrender
Values for a Contract would be different from those shown if the actual gross
annual rates of return averaged 0%, 6% and 12% over a period of years, but
varied shown above or below that average during the period. They would also be
different if you take a loan or withdrawal during the period of time
illustrated. No representation can be made that those assumed gross annual
rates of return can be achieved for any one year or sustained over any period of
time.
62
<PAGE>
Modified Single Payment Combination Fixed and Variable Life Insurance
Male Nonsmoker $10,000 Initial Purchase Payment
Issue Age 65 $18,552 Initial Insurance Amount
<TABLE>
<CAPTION>
Current Charges Basis
Assumed Gross Annual Investment Assumed Gross Annual Investment Assumed Gross Annual Investment
Return of 0.00% (-0.86% Net) Return of 6.00% (5.14% Net) Return of 12.00% (11.14% Net)
Payments
End of Accumulated
Contract at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,503 8,563 18,552 10,092 10,092 18,552 10,682 9,742 18,552
2 11,025 8,942 8,002 18,552 10,125 10,125 18,552 11,380 10,440 18,552
3 11,576 8,352 7,512 18,552 10,136 10,136 18,552 12,145 11,305 18,552
4 12,155 7,728 6,988 18,552 10,122 10,122 18,552 12,989 12,249 18,552
5 12,763 7,061 6,421 18,552 10,078 10,078 18,552 13,925 13,285 18,552
6 13,401 6,343 5,803 18,552 9,998 9,998 18,552 14,969 14,429 18,552
7 14,071 5,560 5,220 18,552 9,874 9,874 18,552 16,145 15,805 18,552
8 14,775 4,696 4,696 18,552 9,695 9,695 18,552 17,469 17,469 19,391
9 15,513 3,772 3,772 18,552 9,493 9,493 18,552 18,972 18,972 20,679
10 16,289 2,725 2,725 18,552 9,213 9,213 18,552 20,618 20,618 22,061
11 17,103 1,542 1,542 18,552 8,889 8,889 18,552 22,540 22,540 23,667
12 17,959 178 178 18,552 8,456 8,456 18,552 24,633 24,633 25,865
13 18,856 - - - 7,892 7,892 18,552 26,911 26,911 28,256
14 19,799 - - - 7,169 7,169 18,552 29,388 29,388 30,857
15 20,789 - - - 6,245 6,245 18,552 32,080 32,080 33,684
16 21,829 - - - 5,063 5,063 18,552 35,003 35,003 36,754
17 22,920 - - - 3,542 3,542 18,552 38,174 38,174 40,082
18 24,066 - - - 1,569 1,569 18,552 41,607 41,607 43,687
19 25,270 - - - - - - 45,319 45,319 47,585
20 26,533 - - - - - - 49,328 49,328 51,795
25 33,864 - - - - - - 74,475 74,475 78,198
30 43,219 - - - - - - 113,346 113,346 114,480
35 55,160 - - - - - - 173,532 173,532 175,267
</TABLE>
We emphasize that the assumed gross annual investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future gross annual investment rates of
return. Actual gross annual rates of return may be more or less than those
shown and will depend on a number of factors, including investment allocations
made to the Sub-Accounts. The death benefit, Account Values and Surrender
Values for a Contract would be different from those shown if the actual gross
annual rates of return averaged 0%, 6% and 12% over a period of years, but
varied shown above or below that average during the period. They would also be
different if you take a loan or withdrawal during the period of time
illustrated. No representation can be made that those assumed gross annual
rates of return can be achieved for any one year or sustained over any period of
time.
63
<PAGE>
================================================================================
Part II
Additional Information
================================================================================
History and Business
Ownership. Sage Life was incorporated under the laws of the state of
Delaware in 1981. The Company is authorized to write general life insurance and
fixed and variable annuity contracts in all states except New York, and also is
licensed to conduct variable life insurance business in all but five states.
Fidelity Mutual Life Insurance Company, a Pennsylvania insurer, sponsored
the Company's formation in 1981 under the name of Fidelity Standard Life
Insurance Company ("Fidelity Life"). Security First Life Insurance Company
("Security First") of Los Angeles, California acquired Fidelity Life in December
1984. In January 1997, Sage Insurance Group Inc. ("Sage Insurance Group")
(formerly Finplan Investment Corp.), a Delaware corporation and a wholly owned
indirect subsidiary of Sage Group Limited ("Sage Group"), a South African
corporation and the Company's ultimate parent, acquired Fidelity Life. The
Company changed to its present name in September 1997. In December 1998, Sage
Insurance Group formed a new company, Sage Life Holdings of America, Inc.
("Sage Life Holdings"), to act as the new immediate parent of the Company. The
transaction is discussed more fully in the section below entitled "Holding
Company Structure and Background."
Prior Business Operations. As a Security First subsidiary, the Company
specialized in the marketing of annuities qualifying under Section 403(b) of the
Code. Under an assumption reinsurance agreement, Fidelity Life's annuity
business was irrevocably transferred to Security First in January 1997 except
for a small number of contracts. During 1998, Security First assumption
reinsured all of the remaining annuity business of Fidelity Life. Security
First is now a subsidiary of The Metropolitan Life Insurance Company.
Holding Company Structure and Background. We are an indirect, wholly owned
subsidiary of Sage Insurance Group, which is a holding company for us and
affiliated entities conducting life and annuity insurance business in the United
States. We also are an indirect, wholly owned subsidiary of Sage Group Limited
("Sage Group"), a corporation quoted on the Johannesburg Stock Exchange. Sage
Group is a holding company with a thirty-year history of extensive operating
experience in mutual funds, life assurance and investment management. Sage Group
has directly and indirectly engaged in insurance marketing activities in the
United States since 1977 through its financial interests in Independent
Financial Marketing Group Inc., a financial planning and bank insurance
marketing company. Sage Group sold its interest in Independent Financial
Marketing Group in March 1996 to the Liberty Financial Companies of Boston.
On December 1, 1998, Sage Group entered into a letter of intent with Swiss
Re Life and Health America, Inc. ("Swiss Re"). Swiss Re is an indirect
subsidiary of Swiss Reinsurance Company, Switzerland, one of the world's largest
reinsurance groups. This agreement contemplates two transactions: (1) that Sage
Life will enter into a reinsurance agreement with Swiss Re or its affiliate,
Life Reassurance Corporation of America ("LRCA"); and (2) that Swiss Re or
LRCA would make an investment in Sage Life Holdings, our immediate parent. The
reinsurance agreement has not been finalized. However, we anticipate that we
will enter into the reinsurance agreement with LRCA by the end of the second
quarter of 2000. As to the investment in Sage Life Holdings, on December 31,
1998, LRCA did invest $12.5 million in non-voting, non-redeemable,
cumulative
64
<PAGE>
preferred stock of Sage Life Holdings, which at that point became our immediate
parent and a wholly-owned subsidiary of Sage Insurance Group. We anticipate
that, during the second quarter of 2000, LRCA will exchange part of its
preferred stock for a voting interest of not more that 9.9% in Sage Life
Holdings with a retroactive effective date of April 1999. The arrangements
contemplated by the agreement may be subject to regulatory approval.
Selected Financial Data. We cannot compare our historical financial
results for the calendar year 1996 and all prior years, to the results for the
years 1997, 1998 and 1999 due to the substantial change in our business
operations. We effectively disposed of all in-force business existing as of
December 31, 1996 and, therefore, on January 1, 1997, had no insurance
liabilities under any of our policies other than the small number of policies
that were not 100% assumption reinsured to our former parent company. We
subsequently novated these insurance liabilities during 1998. Effectively,
therefore, since January 1997, we became comparable to a new company that had
not yet begun its business activities.
We present the following selected financial data as of December 31, 1999,
1998 and 1997 and for the years then ended, taken from our audited financial
statements. Please read the information below along with the financial
statements, including related notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" we included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
=====================================================================================
Selected Financial Data
(in thousands)
Year ended Year ended Year ended
December 31, December 31, December 31,
1999 1998 1997
<S> <C> <C> <C>
Income Statement Data:
Revenues:
Net investment income $ 1,290 $ 1,244 $ 989
Administrative service fees 38 - -
Annuity charges and fees 1 - -
Total revenues 1,329 1,244 989
Benefits and Expenses:
Salaries and benefits expenses 972 742 497
Development expenses 3,828 - -
Insurance expenses and taxes 721 522 518
Amortization expenses 235 549 326
Total benefits and expenses 5,756 1,813 1,341
Loss before cumulative effect adjustment (4,427) (569) (352)
Cumulative effect adjustment (4,269) - -
Net loss $(8,696) $ (569) $ (352)
Balance Sheet Data:
Total Assets $31,737 $36,542 $36,689
Total Liabilities $ 234 $ 70 $ 3,486
Stockholder's Equity $31,503 $36,472 $33,203
======================================================================================
</TABLE>
65
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Introduction. The following discussion highlights the significant factors
that influence our operations. Please read this discussion along with our
financial statements and the related notes included in this Prospectus.
History and Business Overview. Sage Insurance Group acquired the Company
on December 31, 1996, and since that date, we have prepared for the
recommencement of our insurance underwriting and marketing activities, and, on a
limited basis, began those activities in 1999. (Before the acquisition of the
Company, all new business production and marketing ended in October 1996.) We
totally reengineered our products, systems and administration since the change
of ownership. All of our current senior management are experienced in the
insurance industry (either in the United States or in South Africa). We
recruited most of them since January 1997. Our ongoing business strategy is to
focus on the development, underwriting, and marketing of variable insurance
products. Our obligations under these contracts are supported by (1) variable
accounts -- determined by the value of investments held in separate accounts,
and (2) fixed accounts -- backed by investments held in separate accounts. We
may not use the assets of these separate accounts that equal the reserves and
other liabilities supporting the contracts to which they relate, to pay any of
our other obligations or creditors. During February 1999, we began to market,
on a limited basis, our new variable insurance products. Our initial marketing
focus has been to distribute the contracts through banks and third-party
marketing organizations working closely with banks. We anticipate that, over
the long-term, our distribution channels will expand to include wirehouses,
regional broker-dealers, and financial planners.
Results of Operations. Net loss for 1999 was $8.7 million, compared to
losses of $.6 million in 1998 and $.4 million in 1997. The large increase in
losses for 1999 is due to the adoption of Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 required the Company
to charge to expense all start-up costs incurred, as well as write-off any
unamortized capitalized development costs on January 1, 1999. The development
costs incurred during 1999 of $3.8 million and the write-off of unamortized
capitalized development costs of $4.3 million produced an additional $8.1
million of losses over the prior year results.
As the Company continued in the development phase during most of 1999,
revenues continued to be derived primarily from investment income earned on
Company investments. Net investment income earned during 1999 was $1.3 million,
compared to $1.2 million and $1.0 million in 1998 and 1997, respectively. The
Company's investments consist entirely of U.S. Government securities and highly
rated corporate bonds. Investment yields of 5.4%, 5.1% and 4.9% were earned in
1999, 1998 and 1997, respectively. The Company's other sources of income are
administrative service fees and Contract charges and fees. Administrative
service fees are asset-based charges that the Company receives on Contract Owner
funds invested with various investment fund managers. Contract charges and fees
are both asset-based fees and flat annual per-Contract fees charged to each
Contract Owner. As the Company broadens its distribution of products during
2000, these Contract charges and fees are anticipated to become a major source
of revenue. The Contract charges and fees earned during 1999 were minimal as
there were a very limited number of Contracts issued during the year.
With the adoption of SOP 98-5, the Company's primary expenses during 1999
were those non-recurring expenses incurred in the development of products and
systems. Expenses incurred for development costs in 1999 were $3.8 million.
Prior to 1999, these expenses were capitalized and amortized over fifteen years.
As these expenses are no longer amortized, amortization expenses decreased to
$.2 million in 1999 from $.5 million in 1998. The amortization expenses for
1999 relate entirely to the goodwill associated with the purchase of the
Company. Salaries and benefits expenses for 1999 were $1.0 million, compared to
$.7 million and $.5 million in 1998 and 1997, respectively. Insurance expenses
and taxes were $.2 million, $.5 million and $.3 million in 1999, 1998 1997,
respectively. These overhead expenses include rent, professional fees, office
expenses and statutory filing fees.
The Company has no federal income tax expenses for each of the three years
ended December 31, 1999. The Company has a net operating loss carryforward of
approximately $10.3 million at the end of 1999.
Liquidity and Capital Resources. Since the beginning of 1997, we have
needed money primarily to develop our insurance products and related
infrastructure, and to fund our daily operations. We have met our cash needs
through interest income and capital contributions from Sage Insurance Group.
During 2000, we expect our cash needs to substantially increase due to our
expanded underwriting and marketing activities. We still anticipate that we
will be unable to meet all of our liquidity requirements in the coming year
without additional capital. However, Sage Insurance Group will continue to
provide capital to us for our non-recurring costs associated with new products
and business development during the year. In addition, as discussed previously,
LRCA, an indirect subsidiary of Swiss Reinsurance Corporation, has made an
equity investment in our parent company that will provide an additional source
of funds to us for new business expenses.
We also expect to enter into a coinsurance reinsurance arrangement with
LRCA that will provide an additional source of cash for operations. Our future
marketing efforts could be hampered in the unlikely event that Swiss Re, LRCA,
Sage Insurance Group and/or their affiliates are unwilling to commit additional
funding.
Segment Information. We currently plan to conduct our business as a single
segment, and anticipate that this segment will eventually include all of the
following products:
. Combination fixed and variable deferred annuities;
. Combination fixed and variable immediate annuities; and
. Combination fixed and variable life insurance products.
Reinsurance. As discussed above in Holding Company Structure and
Background, we expect to enter into a coinsurance reinsurance arrangement with
LRCA, pursuant to which LRCA will reinsure a significant portion of our
liabilities under our variable insurance contracts with a retroactive effective
date of February 1, 1999. This arrangement will provide additional capacity for
growth of our variable insurance business.
In addition, we have entered into a reinsurance arrangement that reinsures
certain mortality risks associated with the guaranteed minimum death benefit and
accidental death benefit features of the Contracts. We intend to use only
highly rated reinsurance companies to reinsure these risks.
Reinsurance does not relieve us from our obligations to Owners. We remain
primarily liable to our Owners to the extent that any reinsurer does not meet
its obligations under the reinsurance agreements.
Reserves. The insurance laws and regulations under which we operate
obligate us to carry on our books, as liabilities, actuarially determined
reserves to meet our obligations on outstanding Contracts. We base our reserves
involving life contingencies on mortality tables in general use in the United
States. Where applicable, we compute our reserves to equal amounts which,
together with interest on such reserves computed annually at certain assumed
rates, will be sufficient to meet our Contract obligations at their maturities
or in the event of the Owner's death. In the financial statements included in
this Prospectus, all reserves have been determined in accordance with generally
accepted accounting principles. At December 31, 1999 we held $93 thousand of
reserves in our Separate Account. As previously noted, all of Fidelity Life's
existing annuity business has been irrevocably transferred to Security First,
resulting in no remaining contract obligations at December 31, 1998.
Investments. Our General Account cash and invested assets of $24.1
million, $25.5 million and $25.3 million at December 31, 1999, 1998 and 1997,
respectively, was invested entirely in investment grade securities and money
market funds. It is our stated policy to refrain from investing in securities
having speculative characteristics. Our entire portfolio is classified as
available-for sale, and is reported at fair value, with resulting unrealized
gains or losses included as a separate component of stockholder's equity.
Dividend Restrictions. We are subject to state regulatory restrictions
that limit the maximum amount of dividends payable. Subject to certain net
income carryforward provisions described below, we must obtain approval of the
Insurance Commissioner of the State of Delaware to pay, in any 12-month period,
"extraordinary" dividends which are defined as those in excess of the greater of
10% of surplus in regard to shareholders as of the prior year-end and statutory
net income less realized capital gains for such prior year. We may pay
dividends only out of unassigned surplus. In addition, we must provide notice to
the Insurance Commissioner of the State of Delaware of all dividends and other
distributions to shareholders within five business days after declaration and at
least ten days prior to payment. At December 31, 1999 we could not pay a
dividend to Sage Life Holdings without prior approval from state regulatory
authorities as we currently do not have earned surplus. We did not pay a
dividend to Sage Life Holdings.
Competition. We are engaged in a business that is highly competitive due
to the large number of stock and mutual life insurance companies as well as
other entities marketing insurance products comparable to our products. There
are approximately 1,600 stock, mutual, and other types of insurers in the life
insurance business in the United States, a substantial number of which are
significantly larger than we are. We are unique in that we are one of the few
life insurers confining its activities to the marketing of separate account
variable insurance products.
Transactions with Sage Insurance Group, Inc. In 1997, the Company entered
into a Cost Sharing Agreement with Sage Insurance Group, the parent of Sage Life
Holdings, to share the personnel costs, office rent and equipment costs. These
costs are allocated between the companies based upon the estimated time worked,
square footage of space utilized and upon monitored usage of the equipment,
respectively. Pursuant to this agreement, the Company has received $.9 million
and $.2 million from Sage Insurance Group for the years ended December 31, 1999
and 1998, respectively. The Company paid Sage Insurance Group $.1 million for
the period ended December 31, 1997. At December 31, 1999 the amount due from
Sage Insurance Group relating to this agreement was $.6 million. There was no
amount due at December 31, 1998. In addition, Sage Insurance Group provides
funds to the Company to meet various operating expenses. As these amounts are
paid back to Sage Insurance Group at the end of each quarter, no amounts
remained payable at December 31, 1999 and 1998.
All non-recurring development costs of the Company are paid by Sage
Insurance Group or its parent, Sage Group, and treated as capital contributions.
The amount of development costs paid for by affiliated companies at December 31,
1999 , 1998 and 1997 were $7.1 million, $3.3 million and $1.5 million,
respectively.
Employees. Due to our business strategy of outsourcing our primary
administrative and investment functions to organizations that specialize in
these areas, the number of full time personnel we employ is limited. The
Company had 27, 14 and 8 full time employees at December 31, 1999, 1998, and
1997, respectively.
State Regulation. We are subject to the laws of the State of Delaware
governing insurance companies and to the regulations of the Delaware Department
of Insurance (the "Insurance Department"). We file a detailed financial
statement in the prescribed form (the "Statement") with the Insurance Department
each year covering our operations for the preceding year and our financial
condition as of the end of that year. Regulation by the Insurance Department
means that the Insurance Department may examine us and our books and records to
determine, among other things, whether contract liabilities and reserves as we
state them are correct. The Insurance Department, under the auspices of the
National Association of Insurance Commissioners ("NAIC"), will periodically
conduct a full examination of our operations.
In addition, we are subject to regulation under the insurance laws of all
jurisdictions in which we operate. The laws of the various jurisdictions
establish supervisory agencies with broad administrative powers with respect to
various matters, including licensing to transact business, overseeing trade
practices, licensing agents, approving contract forms, establishing reserve
requirements, fixing maximum interest rates on life insurance contract loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. We must file the Statement with supervisory agencies in
each of the jurisdictions in which we do business, and our operations and
accounts are subject to examination by these agencies at regular intervals.
The NAIC has adopted several regulatory initiatives designed to improve the
surveillance and financial analysis regarding the solvency of insurance
companies in general. These initiatives include the development and
implementation of a risk-based capital formula for determining adequate levels
of capital and surplus. Insurance companies are required to calculate their
risk-based capital in accordance with this formula and to include the results in
their Statements. We anticipate that these standards will have no significant
effect upon us.
Further, many states regulate affiliated groups of insurers like us and our
affiliates, under insurance holding company legislation. Under such laws,
inter-company transfers of assets and dividend payments from insurance
subsidiaries may be subject to prior notice or approval, depending on the size
of the transfers and payments in relation to the financial positions of the
companies involved.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for contract owner losses
incurred when other insurance companies have become insolvent. Most of these
laws provide that an assessment may be excused or deferred if it would threaten
an insurer's own financial strength.
Although the federal government ordinarily does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Our insurance products are subject to various federal
securities laws and regulations. In addition, current and proposed federal
measures that may significantly affect the insurance business include:
. regulation of insurance company solvency,
. employee benefit regulation,
. tax law changes affecting the taxation of insurance companies, and
. tax treatment of insurance products and its impact on the relative
desirability of various personal investment vehicles.
63
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Position held with the Other Principal Positions
Name (Age) Company/Year Commenced During Past Five Years
- ---------- ---------------------- ----------------------
<S> <C> <C>
Ronald S. Scowby/(1)/ Director, 1/97 to present; Chairman and Trustee, Sage Life
Age 61 Chairman, 2/98 to present Investment Trust, 7/98 to present;
Director, Sage Life Assurance Company
of New York, 5/98 to present; Deputy
Chairman 2/98 to present, President,
1/97 to 2/98, Director, 1/97 to
present, Sage Insurance Group Inc.;
Director, Sage Advisors, Inc., 1/98 to
12/99; President, Chief Executive
Officer, Sage Life Assurance of America
Inc., 1/97-2/98; Director, Sage
Distributors, Inc., 1/98 to 12/99;
Director, President, Chief Executive
Officer, Sage Management Services
(USA), Inc., 6/96 to 12/99; Owner,
Sheldon Scowby Resources 7/95-6/96.
Robin I. Marsden/(1)/ Director, 1/97 to present; Director and President, Sage Life
Age 34 President and Chief Executive (Bermuda) Ltd., 1/2000 to present;
Officer, 2/98 to present President and Trustee, Sage Life
Investment Trust, 7/98 to present;
Director, Sage Life Assurance Company
of New York, 5/98 to present; Director,
President, Sage Advisors, Inc., 1/98 to
present; Director, Sage Distributors,
Inc., 1/98 to present; Director, 1/97
to present, President and Chief
Executive Officer, 2/98 to present,
Sage Insurance Group, Inc.; Chief
Investment Officer, Sage Life Holdings,
Ltd., 11/94 to 1/98; and
Executive-Strategic Developments, Sage
Group Ltd., 11/94 to 1/98.
H. Louis Shill/(2)/ Director, 1/97 to Director, Sage Life Assurance Company
Age 69 present of New York, 5/98 to present; Chairman,
Sage Life Assurance of America, Inc.,
1/97 to 2/98; Chairman, Sage Insurance
Group, Inc., 1/97 to present; Founder,
Chairman, Sage Group Limited, 1965 to
present.
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Position held with the Other Principal Positions
Name (Age) Company/Year Commenced During Past Five Years
- ---------- ---------------------- ----------------------
<S> <C> <C>
Paul C. Meyer/(3)/ Director, 1/97 to Director, Sage Life Assurance Company
Age 47 present of New York, 5/98 to present; Partner,
Rogers & Wells, 1986 to present.
Richard D. Starr/(4)/ Director, 1/97 to Director, Sage Life Assurance Company
Age 55 present of New York, 5/98 to present;
President, First Interstate Securities,
1/95 to 12/95; Chairman & Chief
Executive Officer, Financial
Institutions Group, Inc., 10/78 to
present.
Mitchell R. Katcher/(1)/ Director, 12/97 to present; Senior Director, Chief Financial Officer and
Age 46 Executive Vice President, Chief Chief Actuary, Sage Life (Bermuda),
Financial Officer, Chief Actuary Ltd., 1/2000 to present; Vice
5/97 to present President, Sage Life Investment Trust,
7/98 to present; Director, Sage Life
Assurance Company of New York, 5/98 to
present; Director, Treasurer, Sage
Advisors, Inc., 1/98 to present;
Director, Sage Distributors, Inc., 1/98
to present; Treasurer, 7/97 to present,
Senior Executive Vice President, 12/97
to present, Sage Insurance Group, Inc.;
Executive Vice President, Golden
American Life Insurance Company,
7/93-2/97.
Meyer Feldberg/(5)/ Director, 1/2000 to present Dean/Professor, Columbia University
Age 58 Graduate School of Business, 7/89 to
present; Director, 1/2000 to present,
Sage Life Assurance Company of New York
and Sage Insurance Group, Inc.
</TABLE>
________________
/(1)/ The principal business address of these persons is 300 Atlantic Street,
Stamford, CT 06901.
/(2)/ Mr. Shill's principal business address is Sage Centre, 10 Fraser Street,
Johannesburg, South Africa 2000.
/(3)/ Mr. Meyer's principal business address is 200 Park Avenue, New York, N.Y.
10166.
/(4)/ Mr. Starr's principal business address is 22507 SE 47th Place, Issaquah,
WA 98029.
/(5)/ Dr. Feldberg's principal business address is Columbia University
Graduate School of Business, Uris Hall, Room 101, 3022 Broadway, New York,
NY 10027.
67
<PAGE>
Audited Financial Statements
Sage Life Assurance of America, Inc.
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
Sage Life Assurance of America, Inc.
Audited Financial Statements
Years ended December 31, 1999, 1998 and 1997
Contents
Report of Independent Auditors...............................................1
Audited Financial Statements
Balance Sheets...............................................................2
Statements of Operations.....................................................3
Statements of Stockholder's Equity...........................................4
Statements of Cash Flows.....................................................5
Notes to Financial Statements................................................6
<PAGE>
Report of Independent Auditors
Board of Directors
Sage Life Assurance of America, Inc.
We have audited the accompanying balance sheets of Sage Life Assurance of
America, Inc. as of December 31, 1999 and 1998, and the related statements of
operations, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sage Life Assurance of America,
Inc. as at December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
February 24, 2000
F-1
<PAGE>
Sage Life Assurance of America, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31
1999 1998
------------------ ------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities available for sale, at fair value (amortized
cost: 1999-$17,296,410 and 1998-$12,967,022) $ 16,179,750 $ 12,992,917
Short-term investments 5,972,494 10,975,402
------------------ ------------------
Total investments 22,152,244 23,968,319
Cash and cash equivalents 1,979,985 1,531,165
Accrued investment income 226,234 203,425
Receivable from affiliates 671,270 -
Deferred income taxes 376,461 -
Goodwill 6,228,146 6,565,134
Development costs - 4,269,488
Other assets 9,231 5,000
Separate account assets 93,009 -
------------------ ------------------
Total assets $ 31,736,580 $ 36,542,531
================== ==================
Liabilities and stockholder's equity
Liabilities:
Accrued expenses $ 140,426 $ 61,670
Deferred income taxes - 8,804
Separate account liabilities 93,009 -
------------------ ------------------
Total liabilities 233,435 70,474
Stockholder's equity:
Common stock, $2,500 par value, 1,000 shares authorized,
issued and outstanding 2,500,000 2,500,000
Additional paid-in capital 39,351,096 34,875,727
Retained deficit (9,617,174) (920,760)
Accumulated other comprehensive (loss) income (730,777) 17,090
------------------ ------------------
Total stockholder's equity 31,503,145 36,472,057
------------------ ------------------
Total liabilities and stockholder's equity $ 31,736,580 $ 36,542,531
================== ==================
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
Sage Life Assurance of America, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues
Investment income $ 1,290,196 $ 1,243,522 $ 989,494
Administrative service fees 37,671 - -
Policy charges and fees 861 - -
--------------- --------------- ---------------
Total revenues 1,328,728 1,243,522 989,494
Expenses
Salaries and benefits expenses 972,052 741,979 497,426
Development expenses 3,827,887 - -
Amortization expense 234,468 548,818 325,406
General and administrative expenses 721,247 521,699 518,448
--------------- --------------- ---------------
Total expenses 5,755,654 1,812,496 1,341,280
Loss before cumulative effect adjustment (4,426,926) (568,774) (351,786)
Cumulative effect adjustment for change in
accounting for development costs (4,269,488) - -
--------------- --------------- ---------------
Net loss $(8,696,414) $ (568,974) $ (351,786)
=============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
Sage Life Assurance of America, Inc.
Statements of Stockholder's Equity
<TABLE>
<CAPTION>
Accumulated
Other
Additional Retained Comprehensive
Common Stock Paid-In Capital Deficit (Loss) Income Total
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 2,500,000 $ 15,505,508 - - $ 18,005,508
Net loss $ (351,786) (351,786)
Change in unrealized gain on
investments, net of taxes $ 48,706 48,706
------------------
Comprehensive income (303,080)
Additional capital contributions 15,500,000 15,500,000
--------------------------------------------------------------------------------------------------
Balance at January 1, 1998 2,500,000 31,005,508 (351,786) 48,706 33,202,428
Net loss (568,974) (568,974)
Change in unrealized gain on
investments, net of taxes (31,616) (31,616)
------------------
Comprehensive income (600,590)
Additional capital contributions 3,870,219 3,870,219
--------------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,500,000 34,875,727 (920,760) 17,090 36,472,057
Net loss (8,696,414) (8,696,414)
Change in unrealized loss on
investments, net of taxes (747,867) (747,867)
------------------
Comprehensive income (9,444,281)
Purchase price adjustment (102,518) (102,518)
Additional capital contributions 4,577,887 4,577,887
--------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 2,500,000 $ 39,351,096 $ (9,617,174) $ (730,777) $ 31,503,145
==================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
Sage Life Assurance of America, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Operating activities
Net loss $ (8,696,414) $ (568,974) $ (351,786)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization expense 234,468 548,818 325,406
Cumulative effect adjustment for change in
accounting for development costs 4,269,488 - -
Changes in:
Accrued investment income (22,809) (145,386) (29,638)
Receivable from affiliates (671,270) (128,425) 128,425
Other assets (4,231) 6,443 (11,443)
Accrued expenses 78,756 (118,772) 116,216
---------------- ---------------- ----------------
Net cash (used in) provided by operating activities (4,812,012) (406,296) 177,180
Investing activities
Purchase of fixed maturity securities (4,319,964) (10,295,783) -
Proceeds from sales, maturities and repayments of
fixed maturity securities - 849,153 42,941
Net sales of short-term investments 5,002,909 10,555,486 (15,507,987)
---------------- ---------------- ----------------
Net cash provided by (used in) investing activities 682,945 1,108,856 (15,465,046)
Financing activities
Development costs paid by parent 3,827,887 - -
Capital contribution from the parent 750,000 600,000 15,500,000
---------------- ---------------- ----------------
Net cash provided by financing activities 4,577,887 600,000 15,500,000
---------------- ---------------- ----------------
Increase in cash and cash equivalents 448,820 1,302,560 212,134
Cash and cash equivalents at beginning of year 1,531,165 228,605 16,471
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 1,979,985 $ 1,531,165 $ 228,605
================ ================ ================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Sage Life Assurance of America, Inc.
Notes to Financial Statements
December 31, 1999 and 1998
1. Nature of Operations and Significant Accounting Policies
Organization and Operation
Sage Life Assurance of America, Inc. (the "Company") is a wholly-owned
subsidiary of Sage Life Holdings of America, Inc. ("SLHA"), which is a
wholly-owned indirect subsidiary of Sage Group Limited, a South African company.
Description of Business
Sage Life Assurance of America, Inc. (the "Company"), which is domiciled in
Delaware, is a wholly-owned subsidiary of Sage Life Holdings of America, Inc.,
which is a wholly-owned indirect subsidiary of Sage Group Limited (Sage Group),
a South African company.
The Company is in the process of developing and preparing to market variable
annuity and variable life insurance products. The sale of these products began
on a limited basis in the first quarter of 1999. The Company has mutually agreed
to enter into a coinsurance reinsurance arrangement with Swiss Re Life & Health
America (Swiss Re), pursuant to which Swiss Re will reinsure a significant
portion of the liabilities under the variable insurance contracts.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less from the date of purchase to be cash equivalents. Cash and
cash equivalents are carried at cost, which approximates fair value.
Investments
The Company has classified all of its fixed maturity investments as
available-for-sale. Those investments are carried at fair value and changes in
unrealized gains and losses are reported as a component of stockholder's equity,
net of applicable deferred income taxes. Fair values are determined by quoted
market prices.
Short-term investments are carried at cost, which approximates fair value.
Realized gains and losses on disposal of investments are determined by the
specific identification method and are included in revenues.
F-6
<PAGE>
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Separate Accounts
The separate account assets and liabilities reported in the accompanying balance
sheet represent funds that are separately administered, principally for the
benefit of certain policyholders who bear the investment risk. The separate
account assets and liabilities, as reported as of December 31, 1999, are carried
at fair value, based on quoted market prices. Revenues and expenses related to
the separate account assets and liabilities, to the extent of benefits paid or
provided to the separate account policyholders, are excluded from the amounts
reported in the accompanying statements of operations.
Policy Liabilities
The Company has no policy liabilities in its General Account at December 31,
1999 and 1998. All policy liabilities are in the Separate Account and are
comprised of all payments received plus credited interest, less accumulated
policyholder charges, assessments and withdrawals related to annuities of a
nonguaranteed return nature.
Goodwill
Goodwill represents the excess of the fair value of assets exchanged over the
net assets acquired. Goodwill is being amortized on a straight-line basis over
thirty years. The carrying value of goodwill is regularly reviewed for
indications of impairment in value, which, in the view of management, is other
than temporary. Accumulated amortization at December 31, 1999 and December 31,
1998 was $703,403 and $468,935, respectively.
Development Costs
Pursuant to the adoption of Statement of Position 98-5, "Reporting on the Costs
of Start-Up Activities", (SOP 98-5), the Company is required to charge to
expense all start-up costs incurred. In addition, the Company was required to
write-off any unamortized capitalized development costs on January 1, 1999.
Development costs incurred for the year ended December 31, 1999 charged to
expense were $3,827,887. The one time write-off of the unamortized capitalized
development costs was $4,269,488.
Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires that management makes estimates and assumptions
that affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Income Taxes
Income taxes are accounted for using the liability method. Using this method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
F-7
<PAGE>
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Reclassifications
Certain reclassifications have been made to prior year's financial statement
amounts to conform to the 1999 presentation.
2. Investments
Investments in fixed maturity securities as of December 31 consist of the
following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------------------
1999
- ----
<S> <C> <C> <C> <C>
U.S. Government Obligations $ 9,260,132 $ 12,577 $ 641,663 $ 8,631,046
Corporate Obligations 8,036,278 - 487,574 7,548,704
-----------------------------------------------------------------------
$17,296,410 $ 12,577 $ 1,129,237 $16,179,750
=======================================================================
1998
- ----
U.S. Government Obligations $ 9,356,479 $ 89,549 $ 54,974 $ 9,391,054
Corporate Obligations 3,610,543 4,282 12,962 3,601,863
=======================================================================
$12,967,022 $ 93,831 $ 67,936 $12,992,917
=======================================================================
</TABLE>
The amortized cost and fair value of fixed maturity securities by contractual
maturity at December 31, 1999 are summarized below. Actual maturities will
differ from contractual maturities because certain borrowers have the right to
call or prepay obligations.
Amortized Fair
Cost Value
----------------------------------
Due in one year or less $ 2,550,942 $ 2,563,519
Due after one year through five years 5,129,073 4,896,658
Due after five years through ten years 9,616,395 8,719,573
----------------------------------
Total $17,296,410 $16,179,750
==================================
F-8
<PAGE>
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
2. Investments (continued)
Investment income by major category of investment for the years ended December
31, 1999 and 1998 is summarized as follows:
1999 1998 1997
----------------------------------------------------
Bonds $ 907,068 $ 261,781 $ 255,778
Short-term investments 438,951 787,873 720,556
Cash and cash equivalents 22,416 239,700 49,035
----------------------------------------------------
Total investment income 1,368,435 1,289,354 1,025,369
Investment expenses 78,239 45,832 35,875
----------------------------------------------------
Net investment income $1,290,196 $1,243,522 $ 989,494
====================================================
At December 31, 1999 and 1998, investment securities with an amortized cost of
$6,602,056 and $6,678,745, respectively, and a fair value of $5,960,476 and
$6,623,770, respectively, are held by trustees in various amounts in accordance
with the statutory requirements of certain states in which the Company is
licensed to conduct business.
3. Income Taxes
The Company files a separate life insurance company Federal income tax return
and will continue to do so through the year 2001. Beginning in the year 2002,
the Company will be included in the consolidated Federal income tax return of
Sage Holdings (U.S.A.), Inc. and its subsidiaries.
The provision for income taxes varies from the amount which would be computed
using the federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Pre-tax loss $(8,696,414) $ (568,974) $ (351,786)
Application of the federal statutory tax rate - 34% (2,956,781) (193,451) (119,607)
Change in valuation allowance 2,907,523 193,451 119,532
Other 49,258 - (75)
----------------------------------------------------
Total income tax provision $ - $ - $ -
====================================================
</TABLE>
F-9
<PAGE>
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
3. Income Taxes (continued)
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 3,501,308 $ 1,967,528
Unrealized loss on depreciation of investments 376,461 -
-------------------------------------
Total deferred tax assets 3,877,769 1,967,528
Deferred tax liabilities:
Unrealized gain on appreciation of investments - (8,804)
Amortization of goodwill and development costs (261,185) (1,634,928)
Other (19,617) (19,617)
-------------------------------------
Total deferred tax liabilities (280,802) (1,663,349)
Valuation allowance for deferred tax assets (3,220,506) (312,983)
-------------------------------------
Net deferred tax asset (liability) $ 376,461 $ (8,804)
=====================================
</TABLE>
Based upon the lack of historical operating results and the uncertainty of
operating earnings in the future, management has determined that it is not more
likely than not that the deferred tax assets will be fully recognized.
Accordingly, a valuation allowance has been recorded.
The Company has a separate company net operating loss carryforward of
approximately $10.3 million as of December 31, 1999, of which $4.7 million
expires in the year 2019, $3.7 million which expires in 2018 and $1.9 million
which expires in the year 2012.
4. Retained Deficit and Dividend Restrictions
Statutory-basis net (loss) income and surplus of the Company are as follows:
1999 1998 1997
----------------------------------------------------------
Net (loss) income $ (389,023) $ 27,002 $ 51,133
Surplus 23,473,747 23,109,097 25,017,752
The Company is subject to state regulatory restrictions that limit the maximum
amount of dividends payable. Subject to certain net income carryforward
provisions as described below, the Company must obtain approval of the Insurance
Commissioner of the State of Delaware in order to pay, in any 12-month period,
"extraordinary" dividends which are defined as those in excess of the greater of
10% of surplus as regards policyholders as of the prior year-end and statutory
net income less realized capital gains for such prior year. Dividends may be
paid by the Company only out of earned surplus. In addition, the Company must
provide notice to the Insurance Commissioner of the State of Delaware of all
dividends and other distributions to stockholders within five business days
after declaration and at least ten days prior to payment. At December 31, 1999,
the Company could not pay a dividend to SLHA without prior approval from state
regulatory authorities as the Company currently does not have earned surplus.
F-10
<PAGE>
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
5. Related Party Transactions
In 1997, the Company entered into a Cost Sharing Agreement with Sage Insurance
Group, Inc. (SIGI), the parent of SLHA, to share the personnel costs, office
rent and equipment costs. These costs are allocated between the companies based
upon the estimated time worked, square footage of space utilized and upon
monitored usage of the equipment, respectively. Pursuant to this agreement, the
Company has received $903,757 and $151,348 from SIGI for the years ended
December 31, 1999 and 1998, respectively. The Company paid SIGI $76,048 for the
year ended December 31, 1997. At December 31, 1999 the amount due from SIGI
relating to this agreement was $594,432. There was no amount due at December 31,
1998. In addition, SIGI provides funds to the Company to meet various operating
expenses. As these amounts are paid back to SIGI at the end of each quarter, no
amounts remained payable at December 31, 1999 and 1998.
All non-recurring development costs of the Company are paid by SIGI or its
parent, Sage Group Limited, and treated as capital contributions. The amount of
development costs paid for by affiliated companies at December 31, 1999, 1998
and 1997 were $7,098,106, $3,270,219 and $1,504,558, respectively.
6. Impact of Year 2000 (unaudited)
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expenses related to this effort were not materials. The Company is not aware of
any material problems resulting from Year 2000 issues, either with its products,
its internal systems, or the products and services of third parties. The
Company will continue to monitor its mission critical computer applications and
those of its suppliers and vendors throughout the year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
F-11
<PAGE>
================================================================================
Appendix A
================================================================================
MARKET VALUE ADJUSTMENT
We will apply a Market Value Adjustment to amounts surrendered, withdrawn,
transferred or applied to an income plan when taken from a Fixed Sub-Account
more than 30 days before its Expiration Date. We apply a Market Value
Adjustment separately to each Fixed Sub-Account. Surrender charges also may
apply.
For a surrender, withdrawal, transfer, borrowed amount or amount applied to
an income plan, we will calculate the Market Value Adjustment by applying the
factor below to the total amount (including any applicable surrender charge)
that must be surrendered, withdrawn, transferred, borrowed or applied to an
income plan in order to provide the amount requested.
[(1+I)/(1+J+.0025)]/(N/365)/ - 1
Where
. I is the Index Rate for a maturity equal to the Fixed Sub-Account's
Guarantee Period at the time that we established the Sub-Account;
. J is the Index Rate for a maturity equal to the time remaining (rounded
up to the next full year) in the Fixed Sub-Account's Guarantee Period,
at the time of surrender, withdrawal, transfer, loan, or application to
an income plan; and
. N is the remaining number of days in the Guarantee Period at the time of
calculation.
We will apply Market Value Adjustments as follows:
If the Market Value Adjustment is negative, we first deduct it from any
remaining value in the Fixed Sub-Account. We then deduct any remaining negative
Market Value Adjustment from the amount you surrender, withdraw, transfer,
borrow, or apply to an income plan.
If the Market Value Adjustment is positive, we add it to any remaining value in
the Fixed Sub-Account or the amount you surrender. If you withdraw, transfer,
borrow, or apply to an income plan the full amount of the Fixed Sub-Account, we
add the Market Value Adjustment to the amount you withdraw, transfer, borrow,
or apply to an income plan.
A-1
<PAGE>
MVA EXAMPLES
Example #1: Surrender -- Example of a Negative Market Value Adjustment
- -------------------------------------------------------------------------
Assume you invest $100,000 in a Fixed Sub-Account with a Guarantee Period of ten
years, with a Guaranteed Interest Rate of 7.5% and an Index Rate ("I") of 7.0%
based on the U.S. Treasury Constant Maturity Series at the time we established
the Sub-Account. You request a surrender three years into the Guarantee Period,
the Index Rate based on the U.S. Treasury Constant Maturity Series for a seven-
year Guarantee Period ("J") is 8.0% at the time of the surrender, no prior
transfers, loans or withdrawals affecting this Fixed Sub-Account have been made,
and no surrender charge is applicable.
Calculate the Market Value Adjustment
1. The Account Value of the Fixed Sub-Account on the date of surrender is
$124,230 ($100,000 x 1.075/3/)
2. N = 2,555 (365 x 7)
3. Market Value Adjustment = $124,230 x {[(1.07)/(1.0825)]/2555/365/ -1) = -
$9,700
Therefore, the amount paid on full surrender is $114,530 ($124,230 - $9,700).
Example #2: Surrender -- Example of a Positive Market Value Adjustment
- -------------------------------------------------------------------------
Assume you invest $100,000 in a Fixed Sub-Account with a Guarantee Period of ten
years, with a Guaranteed Interest Rate of 7.5% and an Index Rate ("I") of 7.0%
based on the U.S. Treasury Constant Maturity Series at the time we established
the Sub-Account. You request a surrender three years into the Guarantee Period,
the Index Rate based on the U.S. Treasury Constant Maturity Series for a seven-
year Guarantee Period ("J") is 6.0% at the time of the surrender, no prior
transfers, loans or withdrawals affecting this Fixed Sub-Account have been made,
and no surrender charge is applicable.
Calculate the Market Value Adjustment
1 The Account Value of the Fixed Sub-Account on the date of surrender is
[$124,230] ($100,000 x 1.075/3/)
2. N = 2,555 (365 x 7)
3. Market Value Adjustment = $124,230 x {[(1.07)/(1.0625)]/2555/365/ -1) = +
$6,270
Therefore, the amount paid on full surrender is $130,500 ($124,230 + $6,270).
Example #3: Withdrawal -- Example of a Negative Market Value Adjustment
- --------------------------------------------------------------------------
Assume you invest $200,000 in a Fixed Sub-Account with a Guarantee Period of ten
years, with a Guaranteed Interest Rate of 7.5% and an Index Rate ("I") of 7.0%
based on the U.S. Treasury Constant Maturity Series at the time we established
the Sub-Account. You request a withdrawal of $100,000 three years into the
Guarantee Period, the Index Rate based on the U.S. Treasury Constant Maturity
Series for
A-2
<PAGE>
a seven-year Guarantee Period ("J") is 8.0% at the time of withdrawal, no prior
transfers, loans or withdrawals affecting this Fixed Sub-Account have been made
and no surrender charge is applicable.
Calculate the Market Value Adjustment
1. The Account Value of the Fixed Sub-Account on the date of withdrawal is
$248,459 ($200,000 x 1.075/3/).
2. N = 2,555 (365 x 7)
3. Market Value Adjustment = $100,000 x {[(1.07)/(1.0825)]/2555/365/ -1) = -
$7,808
Therefore, the amount of the withdrawal paid is $100,000, as requested. The
Fixed Sub-Account will be reduced by the amount of the withdrawal paid
($100,000) and by the Market Value Adjustment ($7,808), for a total reduction in
the Fixed Sub-Account of $107,808.
Example #4: Withdrawal - Example of a Positive Market Value Adjustment
- ------------------------------------------------------------------------
Assume you invest $200,000 in a Fixed Sub-Account with a Guarantee Period of ten
years, with a Guaranteed Interest Rate of 7.5% and an initial Index Rate ("I")
of 7.0% based on the U.S. Treasury Constant Maturity Series at the time we
established the Sub-Account. You request a withdrawal of $100,000 three years
into the Guarantee Period, the Index Rate based on the U.S. Treasury Constant
Maturity Series for a seven-year Guarantee Period ("J") is 6.0% at the time of
the withdrawal, no prior transfers, loans or withdrawals affecting this Fixed
Sub-Account have been made, and no surrender charge is applicable.
Calculate the Market Value Adjustment
1. The Account Value of the Fixed Sub-Account on the date of withdrawal is
$248,459 ($200,000 x 1.075/3/)
2. N = 2,555 (365 x 7)
3. Market Value Adjustment = $100,000 x {[(1.07)/(1.0625)]/2555/365/ - 1) = +
$5,047
Therefore, the amount of the withdrawal paid is $100,000, as requested. The
Fixed Sub-Account will be reduced by the amount of the withdrawal paid
($100,000) and increased by the amount of the Market Value Adjustment ($5,047),
for a total reduction of $94,953.
A-3
<PAGE>
================================================================================
Appendix B
DOLLAR-COST AVERAGING PROGRAM
Below is an example of how the Dollar-Cost Averaging Program works.
Assume that the Dollar-Cost Averaging Program has been elected and that
$24,000 is invested in a DCA Fixed Sub-Account with a Guarantee Period of two
years and an annual Guaranteed Interest Rate of 6.0%.
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Beginning Beginning of Month Dollar Cost Averaging Amount Dollar Interest Credited End of Month
of Month Account Value Monthly Factor Cost Averaged For Month Account Value
- -------- ------------------ ----------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1 24,000 - - 117 24,117
2 24,117 1 / 24 1,005 112 23,224
3 23,224 1 / 23 1,010 108 22,323
4 22,323 1 / 22 1,015 104 21,412
5 21,412 1 / 21 1,020 99 20,492
6 20,492 1 / 20 1,025 95 19,562
7 19,562 1 / 19 1,030 90 18,622
8 18,622 1 / 18 1,035 86 17,673
9 17,673 1 / 17 1,040 81 16,715
10 16,715 1 / 16 1,045 76 15,746
11 15,746 1 / 15 1,050 72 14,768
12 14,768 1 / 14 1,055 67 13,780
13 13,780 1 / 13 1,060 62 12,782
14 12,782 1 / 12 1,065 57 11,774
15 11,774 1 / 11 1,070 52 10,756
16 10,756 1 / 10 1,076 47 9,727
17 9,727 1 / 9 1,081 42 8,688
18 8,688 1 / 8 1,086 37 7,639
19 7,639 1 / 7 1,091 32 6,580
20 6,580 1 / 6 1,097 27 5,510
21 5,510 1 / 5 1,102 21 4,429
22 4,429 1 / 4 1,107 16 3,338
23 3,338 1 / 3 1,113 11 2,236
24 2,236 1 / 2 1,118 5 1,124
25 1,124 1 / 1 1,124 - -
</TABLE>
Note:
Column(3)=Column(1) x Column(2)
Column(5)=Column(1) - Column(3)+Column(4)
B-1
================================================================================
<PAGE>
Part C
Other Information
Undertaking to File Reports
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
Rule 484 Undertaking
Sage Life's Articles of Incorporation provide that a director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except that (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which would involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any personal benefit. Notwithstanding the foregoing, the
Articles provide that if the Delaware General Corporation Law is amended to
authorize further limitations of the liability of a director or a corporation,
then a director of the Company, in addition to circumstances in which a director
is not personally liable as set forth in the preceding sentence, shall be held
free from liability to the fullest extent permitted by the Delaware General
Corporation Law as amended.
Sage Life's Bylaws provide that the Company shall indemnify its officers,
directors, employees and agents to the extent permitted by the General
Corporation Law of Delaware.
Further, Section 145 of Delaware General Corporation Law provides that a
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit, or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had a reasonable cause to believe that his conduct was not unlawful.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In
PC-1
<PAGE>
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Representation Pursuant to Section 26(e)(2)(A)
Sage Life Assurance of America, Inc. hereby represents that the fees and
charges deducted under the modified single payment combination fixed and
variable life insurance contracts described in this registration statement, in
the aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Sage Life Assurance of
America, Inc.
Contents of Registration Statement
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of the information shown in the prospectus with
the items of Form N-8B-2. N/A
The prospectus consisting of 81 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484(b) under the Securities Act of 1933.
The representation pursuant to Section 26(e)(2)(A).
The signatures.
Written consents of the following persons:
James F. Bronsdon
Ralph Gorter
Sutherland Asbill & Brennan LLP
Ernst & Young LLP
PC-2
<PAGE>
The following exhibits
1 A. (1) Resolution of the Board of Directors of Sage Life Assurance
of America, Inc. establishing The Sage Variable Life Account
A./1//
1 A. (2) Not applicable.
1 A. (3)(a) Form of Distribution Agreement with Sage Distributors, Inc.
and Form of Selling Agreement./3//
1 A. (3)(b) N/A
1 A. (4) None
1 A. (5)(a)(i) Form of Individual Contract. (Form MSPVL1-9906)./1//
1 A. (5)(a)(ii) Form of Individual Contract with Interest Account (Form
MSPVL1-9906 VT)./1//
1 A. (5)(a)(iii) Form of Individual Contract with Market Value Adjustment
with Floor (Form MSPVL1-9906-OR)./1//
1 A. (5)(a)(iv) Form of Individual Contract without Market Value Adjustment
(Form MSPVL1-9906 WA)./1//
1 A. (5)(a)(v) Form of Group Contract (Form MSPVL1-MGC-9906)./1//
1 A. (5)(a)(vi) Form of Group Certificate (Form MSPVL1-C-9906)./1//
1 A. (5)(a)(vii) Form of Individual Certificate of Insurance Coverage (Form
MSPVL-CIC-9811)./1//
1 A. (5)(a)(viii) Form of Group Temporary Insurance Certificate (Form TIA-
MSPVL-C-9806)./1//
1 A. (5)(b)(i) Form of Individual Accelerated Death Benefit Rider (Form
MSPVL-ACCDB-9801)./1//
1 A. (5)(b)(ii) Form of Group Accelerated Death Benefit Rider (Form MSPVL-C-
ACCDB-9801)./1//
1 A. (5)(b)(iii) Form of Individual Accidental Death Benefit Rider (Form
MSPVL-ADB-9801)./1//
1 A. (5)(b)(iv) Form of Group Accidental Death Benefit Rider (Form MSPVL-C-
ADB-9801)./1//
1 A. (5)(b)(v) Form of Individual Waiver of Surrender Charge Rider (Form
MSPVL-WSC-9801)./1//
1 A. (5)(b)(vi) Form of Group Waiver of Surrender Charge Rider (Form MSPVL -
(-WSC-9801)./1//
1 A. (6)(a) Articles of Incorporation of the Company./2//
1 A. (6)(b) By-Laws of the Company./2//
1 A. (7) None.
PC-3
<PAGE>
1 A. (8)(i) Form of Participation Agreement with AIM Variable Insurance
Funds, Inc./3//
1 A. (8)(ii) Form of Participation Agreement with The Alger American
Fund./3//
1 A. (8)(iii) Form of Participation Agreement with Liberty Variable
Investment./4//
1 A. (8)(iv) Form of Participation Agreement with MFSa Variable Insurance
Trust./3//
1 A. (8)(v) Form of Participation Agreement with Morgan Stanley
Universal Funds, Inc./4//
1 A. (8)(vi) Form of Participation Agreement with Oppenheimer Variable
Account Funds./4//
1 A. (8)(vii) Form of Participation Agreement with Sage Life Investment
Trust./3//
1 A. (8)(viii) Form of Participation Agreement with SteinRoe Variable
Investment Trust./4//
1 A. (8)(ix) Form of Participation Agreement with T. Rowe Price Equity
Series, Inc./4/
1 A. (9)(i) Service Agreement with Financial Administrative Services,
Inc./4//
1 A. (9)(ii) Service Agreement with PMSI./1//
1 A. (10)(a)(i) Form of Individual Contract Application - Part I. (Form AP-
MSPVL - 9806)/1//
1 A. (10)(a)(ii) Form of Individual Contract Application - Part II. (Form AP
II- MSPVL -9806)/1//
1 A. (10)(b)(i) Form of Group Certificate Application - Part I. (Form AP-
MPVL-C-9806)/1//
1 A. (10)(b)(ii) Form of Group Certificate Application - Part II.(Form AP II-
MSPVL - C-9806)/1//
2. Opinion and Consent of James F. Bronsdon.*
3. (i) Consent of Sutherland Asbill & Brennan LLP.*
(ii) Consent of Ernst & Young LLP.*
4. Not applicable.
5. Not applicable.
6. Opinion and Consent of Ralph Gorter.*
7. Consolidated memorandum describing certain procedures, filed
pursuant to Rule 6e-2(b)(12)(ii) and Rule 6e-
3(T)(b)(12)(iii)./1//
8. (i) Power of Attorney for Ronald S. Scowby./ 4//
(ii) Power of Attorney for H. Louis Shill./5//
(iii) Power of Attorney for Paul C. Meyer./8//
PC-4
<PAGE>
(iv) Power of Attorney for Richard D. Starr./8//
(v) Power of Attorney for Robin I. Marsden./7//
(vi) Power of Attorney for Mitchell R. Katcher./5//
(vii) Power of Attorney for Paul C. Meyer, Ronald S. Scowby, Meyer
Feldberg, Richard D. Starr, and H. Louis Shill./9//
*Filed herewith.
- -----------------------
/1// This exhibit was previously filed in Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6 dated September 21, 1999 (File No. 333-
78581), and is incorporated herein by reference.
/2// This exhibit was previously filed in the Registration Statement on From N-4
dated December 24, 1997 (File No. 333-43329), and is incorporated herein by
reference.
/3// This exhibit was previously filed in Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (File No. 333-43329) dated December 31, 1998,
and is incorporated herein by reference.
/4// This exhibit was previously filed in Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-4 (File No. 333-43329) dated January 28, 1999,
and is incorporated herein by reference.
/5// This exhibit was previously filed in Pre-Effective Amendment No. 2 to the
Registration Statement filed on Form N-4 (File No. 333-44751) dated February 10,
1999, and is incorporated herein by reference.
/6// This exhibit was previously filed in Pre-Effective Amendment No. 1 to the
Registration Statement filed on Form N-4 (file No. 333-44751) dated January 12,
1999, and is incorporated herein by reference.
/7// This exhibit was previously filed in Post-Effective Amendment No. 1 to the
Registration Statement filed on Form N-4 (File No. 333-43329) dated February 26,
1999, and is incorporated herein by reference.
/8// This exhibit was previously filed in the Registration Statement filed on
Form S-6 (File No. 333-78581) dated May 17, 1999, and is incorporated herein by
reference.
/9// This exhibit was previously filed in Post-Effective Amendment No. 3 to the
Registration Statement on Form N-4 (File No. 333-43329) dated February 29, 2000,
and is incorporated herein by reference.
PC-5
<PAGE>
Signatures
As required by the Securities Act of 1933, the registrant certifies that
this post-effective amendment meets all the requirements for effectiveness under
paragraph (b) of Rule 485, and accordingly has caused the Registration Statement
be signed on its behalf, in the City of Stamford, in the State of Connecticut,
on this 26th day of April, 2000.
The Sage Variable Life Account A (Registrant)
By: Sage Life Assurance of America, Inc.
Attest:
/s/ James F. Bronsdon By: /s/ Robin I. Marsden
- --------------------- ----------------------------------------------
Robin I. Marsden
Director, President, Chief Executive
Officer
By: Sage Life Assurance of America, Inc.
(Depositor)
Attest:
/s/ James F. Bronsdon By: /s/ Robin I. Marsden
- --------------------- ----------------------------------------------
Robin I. Marsden
Director, President, Chief Executive
Officer
<PAGE>
As required by the Securities Act of 1933, this Post-Effective Amendment to
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Ronald S. Scowby* Chairman April 26, 2000
----------------------
Ronald S. Scowby
/s/ H. Louis Shill* Director April 26, 2000
-----------------------
H. Louis Shill
/s/ Paul C. Meyer* Director April 26, 2000
----------------------
Paul C. Meyer
/s/ Richard D. Starr* Director April 26, 2000
-----------------------
Richard D. Starr
/s/ Mitchell R. Katcher Director, April 26, 2000
------------------------
Mitchell R. Katcher Senior Executive Vice
President, Chief Financial
Officer, Chief Actuary
/s/ Meyer Feldberg* Director April 26, 2000
-------------------
Meyer Feldberg
*By: /s/ Mitchell R. Katcher
------------------------
Mitchell R. Katcher
As Attorney-In-Fact pursuant to a Power of Attorney dated below.
Director Date
- -------- ----
Meyer Feldberg February 28, 2000
Ronald S. Scowby February 24, 2000
H. Louis Shill February 25, 2000
Paul C. Meyer February 23, 2000
Richard D. Starr February 25, 2000
<PAGE>
EXHIBIT LIST
<TABLE>
<S> <C>
2 Opinion and Consent of James F. Bronsdon
3(i) Consent of Sutherland Asbill & Brennan LLP
3(ii) Consent of Ernst & Young LLP
6 Opinion and Consent of Ralph Gorter
</TABLE>
<PAGE>
EXHIBIT 2
April 26, 2000
Board of Directors
Sage Life Assurance of America, Inc.
300 Atlantic Street
Stamford, CT 06901
To The Board Of Directors:
In my capacity as Vice President, Legal and Compliance of Sage Life
Assurance of America, Inc. (the "Company"), a Delaware corporation, I have
supervised the preparation of Post-Effective Amendment No. 1 to the registration
statement for certain modified single payment combination fixed and variable
life insurance contracts ("Contracts") to be filed by the Company with the
Securities and Exchange Commission under the Securities Act of 1933 and the
Investment Company Act of 1940.
I am of the following opinion:
1. The Company has been duly organized under the laws of the State of
Delaware and is a validly existing corporation.
2. The variable life insurance contracts, when issued in accordance with
the prospectus contained in the aforesaid registration statement and
upon compliance with applicable local law, will be legal and binding
obligations of the Company in accordance with their terms.
3. The Account is duly created and validly existing as separate accounts
of the Company pursuant to Delaware law.
4. The assets held in the Account equal to the reserves and other contract
liabilities with respect to the Account will not be chargeable with
liabilities arising out of any other business the Company may conduct.
In arriving at the foregoing opinion, I have made such examination of law
and examined such records and other documents as in my judgment are necessary or
appropriate.
<PAGE>
Board of Directors
April 26, 2000
Page 2
I hereby consent to the filing of this opinion as an exhibit to the
aforesaid registration statement and to the reference to me under the caption
"Legal Matters" in the Statement of Additional Information contained in said
registration statement.
Very truly yours,
/s/ James F. Bronsdon
--------------------------------
James F. Bronsdon
Legal and Compliance
<PAGE>
[SUTHERLAND ASBILL & BRENNAN LLP]
EXHIBIT 3(i)
STEPHEN E ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Legal Matters"
included in Post-Effective Amendment No. 1 to the Registration Statement on Form
S-6 for certain modified single payment combination fixed and variable life
insurance policies issued through The Sage Variable Life Account A of Sage Life
Assurance of America, Inc. (File No. 333-78581). In giving this consent, we do
not admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
SUTHERLAND ASBILL & BRENNAN LLP
/s/ Stephen E. Roth
----------------------
Stephen E. Roth, Esq.
Washington, D.C.
April 26, 2000
<PAGE>
CONSENT OF ERNST & YOUNG LLP
Exhibit 3(ii)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Prospectus and to the use of our report dated February 24, 2000, with respect to
the financial statements of Sage Life Assurance of America, Inc. included in the
Post-Effective Amendment No. 1 to the Registration Statement (Form S-6,
No. 333-78581) and related Prospectus for the registration of its variable
life insurance policies.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Stamford, Connecticut
May 1, 2000
<PAGE>
Exhibit 6
ACTUARIAL OPINION AND CONSENT FOR S-6
Gentlemen:
This opinion is furnished in connection with the registration by Sage Life
Assurance of America, Inc. of certain modified single payment combination fixed
and variable life insurance contracts ("Contracts") under the Securities Act of
1933. The prospectus included in Post-Effective Amendment No. 1 to Registration
Statement No. 333-78581 on Form S-6 describes the Contracts. I have provided
actuarial advice concerning the preparation of the Registration Statement and
the preparation of the Contract form described in the Registration Statement and
Exhibits thereto.
In my professional opinion, the illustration of death benefits, account
values, and surrender values included in the prospectus, based on the
assumptions stated in the illustrations, are consistent with the provisions of
the Contracts. The rate structure of the Contracts has not be designed so as to
make the relationship between purchase payments and benefits, as shown in the
illustrations, appear more favorable to a prospective purchaser of a Contract
than at ages or classes not shown.
I hereby consent to the uses of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the heading
"Experts" in the prospectus.
Sincerely,
/s/ Ralph Gorter
- --------------------------------
Ralph Gorter, FSA, MAAA
Vice President and Actuary
April 26, 2000
