<PAGE> 1
As filed with the Securities and Exchange Commission on January 28, 1999
File No. 333-43329
File No. 811-08581
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No. _____ [ ]
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 4 [X]
THE SAGE VARIABLE ANNUITY 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) 324-6338
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
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the Registration Statement.
Title of Securities: Interests in a separate account under flexible payment
deferred combination fixed and variable annuity contracts.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant files a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) AND 495(a)
Showing location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information required by Form N-4
PART A
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ---------------- ------------------
<S> <C>
1. Cover Page .................................. Cover Page
2. Definitions .................................. Index of Terms
3. Synopsis ..................................... Fee Table; Profile
4. Condensed Financial Information............... How is Contract Performance Presented?
5. General
(a) Depositor............................. What other information should I know?
(b) Registrant............................ What other information should I know?
(c) Portfolio Company..................... What are my investment options?
(d) Fund Prospectus....................... Cover Page
(e) Voting Rights......................... What other information should I know?
(f) Administrators........................ What other information should I know?
6. Deductions and Expenses
(a) General .............................. What are the expenses under a Contract?
(b) Sales Load %.......................... Fee Table; Example
(c) Special Purchase Plan................. What are the expenses under a Contract?
(d) Commissions........................... What other information should I know?
(e) Fund Expenses ........................ Fee Table; Example
(f) Expenses - Registrant................. Fee Table; What are the expenses under a Contract?
(g) Organizational Expenses............... N/A
7. Contracts
(a) Persons with Rights................... What are the Contracts?; What are my income payment
options?; How do I purchase a Contract?; How do I
access my money?; What other information should I know?
(b) (i) Allocation of Purchase Payments What are my investment options?
(ii) Transfers What are my investment options?
(iii) Exchanges....................... N/A
(c) Changes .............................. What other information should I know?
(d) Inquiries ............................ What are my investment options?; What other information
should I know?
8. Annuity Period.................................. What are my income payment options?
9. Death Benefit................................... Does the Contract have a death benefit?
</TABLE>
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<TABLE>
<S> <C>
10. Purchase and Contract Value
(a) Purchases............................ How do I purchase a Contract?
(b) Valuation............................. What are my investment options?
(c) Daily Calculation.................... What are my investment options?
(d) Underwriter........................... What other information should I know?
11. Redemptions
(a) By Owners............................ How do I access my money?
By Annuitant........................ What are my income payment options?
(b) Texas OR.............................. N/A
(c) Check Delay........................... How do I access my money?
(d) Lapse................................. N/A
(e) Free Look............................. What other information should I know?
12. Taxes.......................................... How will my Contract be taxed?
13. Legal Proceedings.............................. What other information should I know?
14. Table of Contents for the Statement of
Additional Information....................... Table of Contents of the Statement of Additional Information
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PART B CAPTION
- ---------------- --------------
<S> <C>
15. Cover Page.................................... Cover Page
16. Table of Contents............................. Table of Contents
17. General Information and History............... N/A
18. Services
(a) Fees and Expenses of Registrant....... N/A
(b) Management Contracts.................. N/A
(c) Custodian ............................ N/A
Independent Accountant........... Experts
(d) Assets of Registrant.................. N/A
(e) Affiliated Person..................... N/A
(f) Principal Underwriter................. Distribution of the Contracts
19. Purchase of Securities Being Offered Distribution of the Contracts
Offering Sales Load....................... N/A
20. Underwriters.................................. Distribution of the Contracts
21. Calculation of Performance Data............... Calculation of Historical Performance Data
22. Annuity Payments.............................. Income Payment Provisions
23. Financial Statements.......................... Financial Statements
</TABLE>
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PART C
OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PART C CAPTION
- ---------------- --------------
<S> <C> <C>
24. Financial Statements and Exhibits............. Financial Statements and Exhibits
(a) Financial Statements.................. (a) Financial Statements
(b) Exhibits.............................. (b) Exhibits
25. Directors and Officers of the Depositor....... Directors and Officers of the Depositor.
26. Persons Controlled By or Under Common... Persons Controlled By or Under
Control with the Depositor or Registrant... Common Control with the Depositor or Registrant
27. Number of Contract Owners..................... Number of Contract Owners
28. Indemnification............................... Indemnification
29. Principal Underwriters........................ Principal Underwriter
30. Location of Accounts and Records.............. Location of Books and Records
31. Management Services........................... Management Services
32. Undertakings.................................. Undertakings and Representations
Signature Page ............................ Signatures
</TABLE>
<PAGE> 6
PROFILE DATED _________________________, 1999
FLEXIBLE PAYMENT DEFERRED COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
Issued By
THE SAGE VARIABLE ANNUITY ACCOUNT A AND
SAGE LIFE ASSURANCE OF AMERICA, INC.
THIS PROFILE IS A SUMMARY OF SOME IMPORTANT POINTS THAT YOU
SHOULD KNOW AND CONSIDER BEFORE PURCHASING A CONTRACT. THE
CONTRACT IS MORE FULLY DESCRIBED IN THE FULL PROSPECTUS THAT
ACCOMPANIES THIS PROFILE. PLEASE READ THAT PROSPECTUS CAREFULLY.
"We," "us," "our", "Sage Life" or the "Company" refer to Sage Life Assurance of
America, Inc. "You" and "your" refer to the Owner of a Contract.
1. WHAT ARE THE CONTRACTS?
The fixed and variable annuity Contract offered by Sage Life Assurance
of America, Inc. is a contract between you, the Owner, and us, Sage Life, an
insurance company.
We designed the Contract for use in your long-term financial and
retirement planning. It provides a means for allocating amounts on a
tax-deferred basis to our Variable Account and Fixed Account.
INVESTMENT FLEXIBILITY. Through our Variable Account you can invest
in up to 33 different investment portfolios (each a "Fund"). These Funds,
listed in Section 4, 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 1, 2, 3, 4, 5, 7, and 10 years. 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 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 or retirement 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 the Fixed and
Variable Accounts are considered separate investment accounts of Sage Life.
This provides you with an important safety feature: the assets supporting your
allocations to these Accounts cannot be charged with liabilities arising out of
any other business we may conduct.
The Contract also provides you with other important features,
including a death benefit, access to your money, and income plan options.
ACCESS TO AMOUNTS INVESTED. The Contract provides access to your
investment should you need it. During the savings, or Accumulation Phase, your
investment grows tax free until withdrawn. You decide how much to take and
when to take it (certain restrictions apply after the Accumulation Phase).
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. Amounts you surrender or withdraw may be
subject to a surrender charge, and a Market Value Adjustment (positive or
negative) may apply if you take the amount from the Fixed Account.
PROTECTION FOR YOUR BENEFICIARIES. The Contract also provides a death
benefit feature to protect your family should you die during the Accumulation
Phase. In the event of your untimely death, the Beneficiary of your choice
will never receive less than you have invested in the Contract, and may even
receive more. Your Beneficiary will decide how he or she wishes to receive the
death benefit.
INCOME PAYMENTS. The payout, or Income Phase, of your Contract begins
when you inform us you want to start receiving regular income payments under the
various income plans we offer. The amount you accumulated during the
Accumulation Phase determines the amount of income payments you receive during
the Income Phase. You can use your Account Value to provide income payments that
are guaranteed, or income payments that vary with underlying investment
performance, or a combination of both. The income payments can be for life,
which means you can't outlive them!
A portion of each income payment is ordinarily considered a return of
your investment in the Contract. So, only the portion in excess of this amount
is taxed as income!
2. WHAT ARE MY INCOME PAYMENT OPTIONS?
Once the Income Phase of your Contract begins, we apply your Account
Value to provide you with regular income payments.
You can tailor your income to meet your needs by choosing from five
different income plans described below. In explaining the income plans, we are
assuming that you designate yourself as the Annuitant. Of course, you always
can designate someone other than yourself as Annuitant.
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Income Plan 1 - Life Annuity: You will receive payments for your life.
Income Plan 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.
Income Plan 3 - Joint and Last Survivor Life Annuity: Payments will be
made as long as either you or a second person you select (such
as your spouse) is alive.
Income Plan 4 - Payments for a Specified Period Certain: You will
receive payments for the number of years you select. However,
if you die before the end of that period, your Beneficiary
will receive the payments for the remainder of the guaranteed
certain period.
Income Plan 5 - Annuity Plan: You can use your Account Value to
purchase any other income plan we offer at the time you want to
begin receiving regular income payments for which you and the
Annuitant are eligible.
You tell us how much of your Account Value to apply to fixed income
payments and to variable income payments. During the Income Phase, you still
have all of the investment choices you had prior to beginning income payments.
However, we currently limit transfers among your investment choices.
We will allocate the amount of Account Value you apply to provide
fixed income payments to the Fixed Account. The amount of each income payment
is guaranteed and remains level throughout the period you select.
We will allocate the amount of Account Value 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.
3. HOW DO I PURCHASE A CONTRACT?
In most cases, you may purchase a Contract with $5,000 or more.
For tax-qualified Contracts (like IRAs) we require only $2,000, but,
of course, for rollovers you always have the flexibility to invest more.
In addition, subject to limitations for tax-qualified Contracts, you
can add $250 or more to your Contract at any time during the Accumulation
Phase.
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4. WHAT ARE MY INVESTMENT OPTIONS?
There are 40 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 investment 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 following 33 Funds that are described in the
prospectuses for the Trusts:
- 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. Stock 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(TM)
[ ] MFS Growth With Income Series
[ ] MFS High Income Series
[ ] MFS Research Series
[ ] MFS Total Return Series
[ ] MFS Value Series
- Morgan Stanley Universal Funds, Inc.
[ ] Global Equity Portfolio
[ ] Mid Cap Value Portfolio
[ ] Value Portfolio
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- Oppenheimer Variable Account Funds
[ ] Oppenheimer Bond Fund
[ ] Oppenheimer Growth Fund
[ ] Oppenheimer Small Cap Growth Fund
- Sage Life Investment Trust
[ ] EAFE 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
These Funds do not provide any performance guarantees, and therefore,
their values can increase or decrease depending upon investment performance.
Through our Fixed Account, you can choose to have your money invested
in one or more of 7 different periods for which we will guarantee your
principal and a rate of interest when your investment is left in the Fixed
Account for the entire period of the guarantee. You currently can choose
periods of 1, 2, 3, 4, 5, 7, and 10 years. However, if you decide to surrender
your Contract, or transfer or access amounts before the end of a period you
have chosen, we ordinarily will apply a Market Value Adjustment, which may be
positive or negative depending upon current interest rates.
5. 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 - We deduct Asset-Based Charges for mortality and
expense risks and for certain administrative costs monthly from the amounts you
allocate to the Variable Account. These charges are equal on an annual basis to
1.40% of Variable Account Value, decreasing to 1.25% after the seventh Contract
Year.
Surrender Charge - During the first seven Contract Years only, we
ordinarily will deduct a surrender charge when you surrender your Contract or
withdraw money in excess of the Free Withdrawal Amount. The maximum applicable
percentage is 7% in the first Contract Year, and declines to 0% in the eighth
Contract Year. We calculate the surrender charge as a percentage of the
purchase payment(s) you surrender or withdraw.
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Purchase Payment Tax Charge - During the first seven Contract Years
only, we will deduct any state premium tax that we incur if you surrender your
Contract or begin receiving regular income payments. This tax charge ranges
from 0% to 3.5% depending upon the state. We currently do not intend to deduct
this charge on or after the eighth Contract Year.
Fund Fees and Expenses - There are also Fund fees and expenses that
are based on the average daily value of your money invested in the Funds.
These charges range on an annual basis from 0.55% to 1.25%, depending upon the
Fund.
Sage Life's business strategy is to reward our long-term customers.
So, as you can see, after the seventh Contract Year we
eliminate the Annual Administration Charge
eliminate Surrender Charges
eliminate the Purchase Payment Tax Charge, if any
reduce Asset-Based Charges
This means more of your investment is working for you!
The following chart is designed to help you understand expenses under the
Contract.
<TABLE>
<CAPTION>
Examples of
Total Annual Total Expenses
Insurance Total Annual Total Annual Paid at the End
Fund Charges Fund Charges Charges of 1 Year
---- ------------ ------------ ------- ---------
<S> <C> <C> <C> <C>
AIM VARIABLE INSURANCE
FUNDS, INC.:
AIM V.I. Government
Securities Fund 1.53% 0.87% 2.40% $25
AIM V.I. Growth and
Income Fund 1.53% 0.69% 2.22% $23
AIM V.I. International
Equity Fund 1.53% 0.93% 2.46% $25
AIM V.I. Value Fund 1.53% 0.70% 2.23% $23
THE ALGER AMERICAN FUND:
Alger American MidCap
Growth Portfolio 1.53% 0.84% 2.37% $24
Alger American Income
and Growth Portfolio 1.53% 0.74% 2.27% $23
</TABLE>
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<TABLE>
<CAPTION>
Total Examples of
Annual Total Total Expenses
Insurance Total Annual Annual Paid at the End
Fund Charges Fund Charges Charges of 1 Year
---- ------- ------------ ------- ---------
<S> <C> <C> <C> <C>
Alger American Small
Capitalization Portfolio 1.53% 0.89% 2.42% $25
LIBERTY VARIABLE INVESTMENT TRUST:
Colonial High Yield Securities
Fund, Variable Series 1.53% 0.80% 2.33% $24
Colonial Small Cap Value Fund,
Variable Series 1.53% 1.00% 2.53% $26
Colonial Strategic Income Fund,
Variable Series 1.53% 0.80% 2.33% $24
Colonial U.S. Stock Fund,
Variable Series 1.53% 0.94% 2.47% $25
Liberty All-Star Equity Fund,
Variable Series 1.53% 1.00% 2.53% $26
Newport Tiger Fund,
Variable Series 1.53% 1.25% 2.78% $29
Stein Roe Global Utilities
Fund, Variable Series 1.53% 0.83% 2.36% $24
STEINROE VARIABLE INVESTMENT TRUST:
Stein Roe Growth Stock
Fund, Variable Series 1.53% 0.71% 2.24% $23
Stein Roe Balanced Fund,
Variable Series 1.53% 0.66% 2.19% $23
MFS VARIABLE INSURANCE TRUST:
MFS Growth With
Income Series 1.53% 1.00% 2.53% $26
MFS High Income Series 1.53% 1.00% 2.53% $26
MFS Research Series 1.53% 0.88% 2.41% $25
MFS Total Return Series 1.53% 1.00% 2.53% $26
MFS Value Series 1.53% 1.00% 2.53% $26
MORGAN STANLEY UNIVERSAL FUNDS, INC.:
Global Equity Portfolio 1.53% 1.15% 2.68% $28
Mid Cap Value Portfolio 1.53% 1.05% 2.58% $27
Value Portfolio 1.53% 0.85% 2.38% $24
</TABLE>
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<TABLE>
<CAPTION>
Total Examples of
Annual Total Total Expenses
Insurance Total Annual Annual Paid at the End
Fund Charges Fund Charges Charges of 1 Year
---- ------- ------------ ------- ---------
<S> <C> <C> <C> <C>
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Oppenheimer Bond Fund 1.53% 0.78% 2.31% $24
Oppenheimer Growth Fund 1.53% 0.75% 2.28% $23
Oppenheimer Small Cap
Growth Fund 1.53% 0.83% 2.36% $24
SAGE LIFE INVESTMENT TRUST:
EAFE Equity Index Fund 1.53% 0.90% 2.43% $25
S&P 500 Equity Index
Fund 1.53% 0.55% 2.08% $21
Money Market Fund 1.53% 0.65% 2.18% $22
T. ROWE PRICE EQUITY SERIES, INC.:
T. Rowe Price Equity
Income Portfolio 1.53% 0.85% 2.38% $24
T. Rowe Price Mid-Cap
Growth Portfolio 1.53% 0.85% 2.38% $24
T. Rowe Price Personal Strategy
Balanced Portfolio 1.53% 0.90% 2.43% $25
</TABLE>
Below is an explanation of what we included in each column of the
chart:
The column "Total Annual Insurance Charges" shows the sum
of the Asset-Based Charges and the Annual Administration
Charge (for purposes of the chart, we assume the average
Account Value is $30,000 and the Annual Administration
Charge to be 0.13% of the value of an average Contract).
The column "Total Annual Fund Charges" shows the fees and
expenses for each Fund.
A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its fees. Effective May 1, 1998, the Funds reimburse AIM in an amount up
to 0.25% of the average net asset value of each Fund, for expenses incurred in
providing, or assuring that participating insurance companies provide, certain
administrative services. Currently, the fee only applies to the average net
asset value of each Fund in excess of the net asset value of each Fund as
calculated on April 30, 1998.
Liberty Variable Investment Trust's Colonial High Yield Securities
Fund and Colonial SmallCap Value Fund did not commence Operations until 1998.
The figures shown are based on estimates for the current fiscal year. The
charges shown for Colonial Strategic Income Fund and Liberty All-Star Equity
Fund during 1997 reflect the fact that the Funds' investment adviser agreed to
reimburse the Colonial Strategic Income Fund and Liberty All-Star Equity Fund
for certain expenses incurred by each Fund. Without such reimbursements, the
expenses for the Colonial Strategic Income Fund and Liberty All-Star Equity
Fund would have been 0.82% and 1.45%, respectively.
The charges shown for MFS Variable Insurance Trust's Growth with Income
Series, High Income Series, Total Return Series and Value Series during 1997
reflect the fact that
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<PAGE> 14
the Fund's investment adviser agreed to reimburse MFS Variable Insurance Trust's
Growth with Income Series, High Income Series, Total Return Series and Value
Series for certain expenses incurred by each Fund. Without such
reimbursements, the expenses for the MFS Variable Insurance Trust's Growth with
Income Series, High Income Series, Total Return Series and Value Series would
have been 1.45%, 1.55%, 1.29%, and 3.41%, respectively.
The charges shown for Morgan Stanley Universal Funds, Inc. during 1997
reflect the fact that the Fund's investment advisers agreed to reimburse the
Global Equity Portfolio, Mid Cap Value Portfolio, and Value Portfolio for
certain expenses incurred by each Fund. Without such reimbursements, the
expenses for the Global Equity Portfolio, MidCap Value Portfolio, and Value
Portfolio would have been 2.43%, 2.13% and 1.87%, respectively.
Oppenheimer Variable Account Fund's Small Cap Growth Fund did not
commence operations until 1998. The figures shown are based on estimates for
the current fiscal year.
Sage Life Investment Trust has not commenced operations. The charges
shown are based on estimates and reflect the fact that the Trust's investment
adviser agrees to reimburse each Fund for certain expenses. Without such
reimbursements, the expenses of Sage Life Investment Trust's EAFE Equity Index
Fund, S&P 500 Equity Index Fund, and Money Market Fund would be 1.07%, .72% and
..82%, respectively.
The column "Total Annual Charges" shows the sum of "Total Annual
Insurance Charges" and "Total Annual Fund Charges."
The next column shows you examples of the charges, in dollars, you
could pay under a Contract for each $1,000 you invested. The example assumes
that your Contract earns 5% annually before charges.
For more information about expenses under a Contract, please refer to
the "Fee Table" in the full Prospectus that accompanies this Profile.
6. HOW WILL MY CONTRACT BE TAXED?
During the Accumulation Phase, your earnings are not taxed unless you
take them out. If you take money out, earnings come out first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you also may
be charged a 10% federal tax penalty on the withdrawn earnings.
Income payments during the Income Phase are considered partly a return
of your original investment. That part of each payment is not taxable as
income. However, once you have recovered all of your original investment,
income payments will then be fully taxable.
Special tax rules apply to withdrawals from a new type of IRA called
the Roth IRA.
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<PAGE> 15
7. HOW DO I ACCESS MY MONEY?
There are a number of ways to withdraw money from your Contract. You
can tailor your income to meet your near-term or lifelong liquidity needs.
During the Accumulation Phase, if you want to take money out of your
Contract, you can choose among several different options.
You can withdraw some of your money.
You can surrender your Contract and take all of your money.
You can take withdrawals using our systematic partial withdrawal
program.
You can apply your Account Value to an Income Plan.
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, the
Contract does provide a Free Withdrawal Amount, an amount not subject to a
surrender charge, that is equal to your cumulative earnings, or if greater, 10%
of total purchase payments you have invested. In addition, if you take the
amount from the Fixed Account, a Market Value Adjustment ordinarily will apply.
If you are younger than 59 1/2 when you take money out, you may owe a 10%
federal tax penalty in addition to the income tax that will apply to the extent
that you have gain in your Contract. Please remember that withdrawals will
reduce your death benefit.
Once you start receiving regular income payments and if you selected
the "payments for a specified period certain" income plan, you may request a
withdrawal.
8. HOW IS CONTRACT PERFORMANCE PRESENTED?
Because our Variable Sub-Accounts have not been in operation for more
than a year, we cannot show you how the Funds performed in the Variable
Account. When they have been in operation for a year or more, we will show you
the Funds' performance using standard methods prescribed by the SEC.
Please remember that the performance data represents past performance.
Amounts you invest in the Variable Account will fluctuate daily based on
underlying Fund investment performance, so the value of your investment may
increase or decrease.
9. DOES THE CONTRACT HAVE A DEATH BENEFIT?
Your Contract provides two different types of death benefits for your
Beneficiary. There is the basic death benefit and the accidental death
benefit.
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BASIC DEATH BENEFIT. We will pay the basic death benefit to the
Beneficiary of your choice in the event of your untimely death prior to the
Income Phase. This provides comfort knowing your Beneficiary will receive the
greatest of the following:
the current Account Value on the date we receive proof of death;
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); or
the highest anniversary value on or before you reach age 80.
The highest anniversary value is equal to the greatest anniversary
value attained in the following manner. When we receive proof of death, we
will calculate an anniversary value for each Contract Anniversary prior to the
date of the Owner's death, but not beyond the Owner's attained age 80. An
anniversary value for a Contract Anniversary is equal to (1) the Account Value
on that Contract Anniversary, (2) increased by the dollar amount of any
purchase payments made since the Contract Anniversary, and (3) reduced
proportionately by any withdrawals (including any associated surrender charge
and Market Value Adjustment incurred) taken since that Contract Anniversary.
(By proportionately, we take the percentage by which the withdrawal decreases
the Account Value and we reduce the sum of (1) and (2) by that percentage.)
ACCIDENTAL DEATH BENEFIT. The Contract also provides an accidental
death benefit during the Accumulation Phase at no additional cost. If you die
as a direct result of an accident before reaching age 81, we will pay an
additional death benefit to the Beneficiary of your choice. This additional
benefit is equal to 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.
10. WHAT OTHER INFORMATION SHOULD I KNOW?
The Contract has several additional features available to you at no
additional charge:
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 and send you a refund equal to your Account Value
plus any charges we have deducted on or before the date we received the
returned Contract, or if required by the law of your state, your initial
purchase payment (less any withdraws previously taken). In the states where we
are required to return purchase payment less withdrawals, if you allocated
amounts
11
<PAGE> 17
to the Variable Account, we will temporarily allocate those amounts to the
Money Market Fund until the Free Look Period expires.
DOLLAR-COST AVERAGING PROGRAM: Under our optional Dollar-Cost
Averaging Program, you may choose to transfer a set dollar amount
systematically from the Money Market Fund 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 proven investment technique 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 strategy to help
meet your long-term or retirement goals. Due to the effect of interest that
continues to be paid on the amount remaining in the Money Market Fund 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 quarterly basis. Money invested in the Fixed Account
is not part of this program.
WAIVER OF SURRENDER CHARGE RIDER: This rider, which is automatically
included in your Contract at no additional cost, 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, or if you have a terminal
illness. Certain restrictions apply, and this feature may not be available in
all states.
11. 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 1290 Silas Deane Highway, Wethersfield, CT 06109.
12
<PAGE> 18
PROSPECTUS DATED ___________, 1999
FLEXIBLE PAYMENT DEFERRED COMBINATION FIXED AND VARIABLE ANNUITY
CONTRACTS
ISSUED BY
THE SAGE VARIABLE ANNUITY ACCOUNT A AND
SAGE LIFE ASSURANCE OF AMERICA, INC.
<TABLE>
<S> <C>
Executive Office: Customer Service Center:
300 Atlantic Street 1290 Silas Deane Highway
Stamford, CT 06901 Wethersfield, CT 06109
Telephone: (877) 835-7243 (Toll Free)
</TABLE>
UNLESS OTHERWISE INDICATED, THIS PROSPECTUS DESCRIBES THE OPERATION OF
THE CONTRACTS BEFORE THE INCOME DATE. DEFINITIONS OF CERTAIN TERMS USED IN
THIS PROSPECTUS MAY BE FOUND BY REFERRING TO THE INDEX OF TERMS.
This Prospectus describes flexible payment deferred combination fixed
and variable annuity contracts offered by Sage Life Assurance of America, Inc.
We designed the Contracts for use in your long-term financial and retirement
planning, and are available for individuals and groups. The Contracts provide a
means for investing 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 any additional
purchase payments.
You may allocate purchase payments and transfer Account Value to our
Variable Account and also to our Fixed Account within certain limits. We
divided the Variable Account into 33 Sub-Accounts.
Each Variable Sub-Account invests in a corresponding Fund of AIM
Variable Insurance Funds, Inc., The Alger American Fund, Liberty Variable
Investment Trust, SteinRoe Variable Investment Trust, MFS(R) Variable Insurance
Trust(TM), Morgan Stanley Universal Funds, Inc., Oppenheimer Variable Account
Funds, Sage Life Investment Trust, or T. Rowe Price Equity Series, Inc.
(collectively, the "Trusts"). The accompanying prospectuses describe each of
the Funds, including the risks of investing in each Fund, and provide other
information about the Trusts.
Your Account Value will vary daily as a function of 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 guarantee a minimum fixed rate of
interest for specified periods of time on the amounts you allocate to the Fixed
Account. However, amounts withdrawn, surrendered, transferred, or applied to an
income plan from the Fixed Account ordinarily will be subject to a Market Value
Adjustment, which may increase or decrease such amounts. The Contracts provide
additional benefits, including five income plan options, a death benefit upon
any Owner's death before the Income Date, and optional programs including
dollar-cost averaging, asset allocation, automatic portfolio rebalancing, and
systematic partial withdrawals.
<PAGE> 19
This Prospectus sets forth basic information about the Contracts, the
Variable Account, and the Fixed Account that you should know before purchasing
a Contract. You should read the Prospectus carefully and retain it for future
reference.
The Statement of Additional Information contains more information about
the Contracts and the Variable Account, is dated the same as this Prospectus,
and is incorporated herein by reference. The Table of Contents for the
Statement of Additional Information is on page ____ of this Prospectus. It has
been filed with the Securities and Exchange Commission. You may obtain a copy
of the Statement of Additional Information free of charge by contacting our
Customer Service Center at the address or phone number shown above. You may
also obtain a copy of the Prospectus and Statement of Additional Information by
accessing the Securities and Exchange Commission's website at
http://www.sec.gov.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS
PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUS FOR EACH OF THE
TRUSTS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
VARIABLE ANNUITY 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.
<PAGE> 20
TABLE OF CONTENTS
Index of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fee Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. What are the Contracts? . . . . . . . . . . . . . . . . . . . . . . . . . .
2. What are my Income Payment Options? . . . . . . . . . . . . . . . . . . . .
3. How do I Purchase a Contract? . . . . . . . . . . . . . . . . . . . . . . .
Initial Purchase Payment . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of a Contract . . . . . . . . . . . . . . . . . . . . . . . . .
Free Look Right to Cancel Contract . . . . . . . . . . . . . . . . . . .
Making Additional Purchase Payments . . . . . . . . . . . . . . . . . .
4. What are my Investment Options? . . . . . . . . . . . . . . . . . . . . . .
Purchase Payments Allocations . . . . . . . . . . . . . . . . . . . . .
Variable Sub-Account Investment Options . . . . . . . . . . . . . . . .
Fixed Account Investment Options . . . . . . . . . . . . . . . . . . . .
Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . . .
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Transfers . . . . . . . . . . . . . . . . . . . . . . . . . .
Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar-Cost Averaging Program . . . . . . . . . . . . . . . . . . . . .
Asset Allocation Program . . . . . . . . . . . . . . . . . . . . . . . .
Automatic Portfolio Rebalancing Program . . . . . . . . . . . . . . . .
Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Account Value . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulation Unit Value . . . . . . . . . . . . . . . . . . . . . . . .
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Account Value . . . . . . . . . . . . . . . . . . . . . . . . . .
5. What are the Expenses under a Contract?
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual Administration Charge . . . . . . . . . . . . . . . . . . . . . .
Transfer Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-Based Charges . . . . . . . . . . . . . . . . . . . . . . . . . .
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6. How will my Contract be Taxed?
Tax Status of the Contract . . . . . . . . . . . . . . . . . . . . . . .
Tax Treatment of Annuities . . . . . . . . . . . . . . . . . . . . . . .
Taxation of a Non-Qualified Contract . . . . . . . . . . . . . . . . . .
Taxation of a Qualified Contract . . . . . . . . . . . . . . . . . . . .
Other Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . .
i
<PAGE> 21
7. How do I access my Money?
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Systematic Partial Withdrawal Program . . . . . . . . . . . . . . . . .
IRA Partial Withdrawal Program . . . . . . . . . . . . . . . . . . . . .
Requesting Payments . . . . . . . . . . . . . . . . . . . . . . . . . .
8. How is Contract Performance Presented?
9. Does the Contract have a Death Benefit?
Basic Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . .
Accidental Death Benefit . . . . . . . . . . . . . . . . . . . . . . . .
Proof of Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10. What Other Information Should I Know?
Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of the Contacts . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reports to Contract Owners . . . . . . . . . . . . . . . . . . . . . . .
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Owner, Beneficiary, or Annuitant . . . . . . . . . . . . . . .
Misstatement and Proof of Age, Sex, or Survival . . . . . . . . . . . .
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Authority to Make Agreements . . . . . . . . . . . . . . . . . . . . . .
Preparing for the Year 2000 . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .
11. How Can I Make Inquiries?
12. Additional Information about Sage Life Assurance of America, Inc.
History and Business . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . .
Transactions with Sage Insurance Group . . . . . . . . . . . . . . . . .
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS OF SAGE LIFE ASSURANCE OF AMERICA, INC.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
APPENDIX A
APPENDIX B
ii
<PAGE> 22
INDEX OF TERMS
We have tried to make this Prospectus as readable and understandable as
possible. However, for you to understand how the Contracts work, we have had
to use 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 during the Accumulation Phase. It is equal to the sum of the Variable
Account Value and Fixed Account Value.
Accumulation Phase - The Accumulation Phase is the period during which you
accumulate savings under your Contract.
Accumulation Unit - An Accumulation Unit is the unit of measure we use before
the Income Date to keep track of the value of each Variable Sub-Account.
Annuitant - The Annuitant is the natural person whose age determines the
maximum Income Date and the amount and duration of income payments involving
life contingencies. The Annuitant may also be the person to whom any payment
will be made starting on the Income Date.
Asset-Based Charges - The Asset-Based Charges are charges for mortality and
expense risks and for administrative costs assessed monthly against the assets
of the Variable Account. After the Income Date, these charges are called
Variable Sub-Account Charges and are deducted daily from the assets of the
Variable Account.
Beneficiary - The Beneficiary is the person or persons to whom we pay a death
benefit if any Owner dies before the Income Date.
Business Day - A Business Day is any day the New York Stock Exchange ("NYSE")
is open for trading and we are open for business, 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.
Code - The Code is the Internal Revenue Code of 1986, as amended.
Contracts - The Contracts are flexible payment deferred combination fixed and
variable annuity contracts offered by us, Sage Life Assurance of America, Inc.
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
1
<PAGE> 23
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 date an individual Contract or a
certificate for a group Contract is issued at our Customer Service Center.
Contract Year - A Contract Year is each and every consecutive twelve-month
period beginning on the Contract Date and the anniversaries thereof.
Customer Service Center - The Customer Service Center is where we provide
service to you. The administrator of our center is Financial Administration
Services, Inc. The mailing address and telephone number of the Customer
Service Center are shown on the first page of this Prospectus.
Excess Withdrawal - An Excess Withdrawal is a withdrawal of Account Value that
exceeds the Free Withdrawal Amount.
Executive Office - The Executive Office is our main office. The mailing
address of our Executive Office is shown on the first page of this Prospectus.
Expiration Date - The Expiration Date is the last day in a Guarantee Period.
In the Contract, this is referred to as the "Expiry Date."
Fixed Account - The Fixed Account is The Sage Fixed Interest Account A. It is
a separate investment account of ours under state insurance law (but is not
required to be nor has it been registered under the federal securities laws)
into which purchase payments may be invested or Account Value may be
transferred. In certain states, we refer to the Fixed Account as the Interest
Account.
Fixed Account Value - The Fixed Account Value is the sum of the value of each
Fixed Sub-Account on a Business Day during the Accumulation Phase.
Fixed Sub-Account - A Fixed Sub-Account is established when a purchase payment
is invested or an amount is transferred to the Fixed Account. Each Fixed
Sub-Account is credited with a Guaranteed Interest Rate for a specified
Guarantee Period.
Free Withdrawal Amount - The Free Withdrawal Amount is the maximum amount that
can be withdrawn within a Contract Year during the Accumulation Phase without
being subject to a surrender charge.
Fund - A Fund is an investment portfolio in which a Variable Sub-Account
invests.
2
<PAGE> 24
General Account - The General Account consists of all our assets other than
those held in any separate investment accounts.
Guaranteed Interest Rate - A Guaranteed Interest Rate is the effective annual
interest rate that we will credit for a specified Guarantee Period for amounts
allocated to a Fixed Sub-Account. The Guaranteed Interest Rate will never be
less than the minimum shown in your Contract.
Guarantee Period - A Guarantee Period is a period of years for which a
specified effective annual interest rate (Guaranteed Interest Rate) is
guaranteed by us. Interest is credited daily at a rate to yield the declared
annual Guaranteed Interest Rate.
Income Date - The Income Date is the date you select for your income payments
to begin.
Income Phase - The Income Phase starts on the Income Date and is the period
during which you receive income payments.
Income Unit - An Income Unit is the unit of measure we use to calculate the
amount of income payments under a variable income plan option.
Market Value Adjustment - A Market Value Adjustment is a positive or negative
adjustment that may apply to a surrender, withdrawal, or transfer, and to
amounts applied to an income plan from a Fixed Sub-Account before the end of
its Guarantee Period.
Net Asset Value - The Net Asset Value is the price of one share of a Fund.
Owner - The Owner is 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 authorized by
you, in a form satisfactory to us, received at our Customer Service Center.
Surrender Value - The Surrender Value is the amount you receive upon surrender
of your Contract before the Income Date.
Valuation Period - The Valuation Period is the period between one calculation
of an Accumulation Unit value and the next calculation. Normally, we calculate
Accumulation Units once each Business Day, but we can delay this calculation if
an emergency exists, making disposal of or fair valuation of assets in the
Variable Account not reasonably practicable, or if the SEC permits such
deferral.
Variable Account - The Variable Account is The Sage Variable Annuity Account A.
It is a separate investment account of ours under the federal securities laws
into which purchase payments may be invested or Account Value may be
transferred.
3
<PAGE> 25
Variable Account Value - The Variable Account Value is the sum of the value of
each Variable Sub-Account on a Business Day during the Accumulation Phase.
Variable Sub-Account - A Variable Sub-Account is a division of the Variable
Account that invests in shares of a particular Fund.
Variable Sub-Account Charges - Variable Sub-Account Charges are Asset-Based
Charges that are deducted daily from the assets of the Variable Account after
the Income Date.
"We", "us", "our", "Sage Life" or the "Company" is Sage Life Assurance of
America, Inc.
"You" or "your" is the Owner of a Contract. You are entitled to exercise all
rights under a Contract. However, if you designate an irrevocable beneficiary,
you may need the consent of that beneficiary before you exercise your rights
under your Contract. Your death before the Income Date initiates payment of
the death benefit.
4
<PAGE> 26
FEE TABLE
The purpose of this Fee Table is to assist you in understanding the expenses
that you will pay directly or indirectly when you invest in the Contract.
TRANSACTION EXPENSES
Sales Load Imposed on Purchases (as a percentage of purchase
payments) . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Surrender Charge(1) (as a percentage of purchase payments withdrawn or
surrendered.)
<TABLE>
<CAPTION>
Applicable Applicable Surrender
Contract Year Charge Percentage
<S> <C>
1 7%
2 7%
3 6%
4 5%
5 4%
6 3%
7 1%
8 and thereafter 0%
</TABLE>
<TABLE>
<S> <C>
Transfer Charge(2) . . . . . . . . . . . . . . . . . . . . . . $ 0
Annual Administration Charge
Contract Years 1-7(3) . . . . . . . . . . . . . . . . . . . $40
After Contract Year 7 . . . . . . . . . . . . . . . . . . . $ 0
</TABLE>
In addition, the amount of any state and local taxes levied by any governmental
entity on purchase payments may be deducted from your Account Value when such
taxes are incurred. We reserve the right to defer the collection of this
charge and deduct it against your Account Value on the surrender of a Contract,
on an Excess Withdrawal, or on application of Account Value to provide income
payments. We refer to this as the Purchase Payment Tax Charge.
VARIABLE ACCOUNT ANNUAL EXPENSES(4) (deducted monthly as a percentage of the
Variable Account Value)
<TABLE>
<CAPTION>
Contract Years
--------------
1 - 7 8 +
----- ---
<S> <C> <C>
Mortality and Expense Risk Charge 1.25% 1.10%
Asset-Based Administrative Charge 0.15% 0.15%
----- -----
Total Asset-Based Charges 1.40% 1.25%
</TABLE>
5
<PAGE> 27
Fund Charges. The fees and expenses for each of the Funds (as a percentage of
net assets) for the year ended December 31, 1997 are set forth in the following
table. For more information on these fees and expenses, see the prospectuses
for the Trusts that accompany this Prospectus.
FUND ANNUAL EXPENSES (as a percentage of average daily net assets of a Fund)
<TABLE>
<CAPTION>
Management Fees Other Expenses
(after fee waiver (after reimbursement- Total
Fund as applicable) as applicable) Expenses
---- -------------- -------------- --------
<S> <C> <C> <C>
AIM VARIABLE INSURANCE
FUNDS, INC.:
AIM V.I. Government
Securities Fund 0.50% 0.37% 0.87%(5)
AIM V.I. Growth and
Income Fund 0.63% 0.06% 0.69%(5)
AIM V.I. International
Equity Fund 0.75% 0.18% 0.93%(5)
AIM V.I. Value Fund 0.62% 0.08% 0.70%(5)
THE ALGER AMERICAN FUND:
Alger American MidCap
Growth Portfolio 0.80% 0.04% 0.84%
Alger American Income and
Growth Portfolio 0.625% 0.115% 0.74%
Alger American Small
Capitalization Portfolio 0.85% 0.04% 0.89%
LIBERTY VARIABLE INVESTMENT TRUST:
Colonial High Yield Securities
Fund, Variable Series 0.60% 0.20% 0.80%(6)
Colonial Small Cap Value Fund,
Variable Series 0.80% 0.20% 1.00%(6)
Colonial Strategic Income Fund,
Variable Series 0.65% 0.15% 0.80%(7)
Colonial U.S. Stock Fund,
Variable Series 0.80% 0.14% 0.94%
Liberty All-Star Equity Fund,
Variable Series 0.80% 0.20% 1.00%(7)
</TABLE>
6
<PAGE> 28
<TABLE>
<CAPTION>
Other
Management Fees Expenses (after
(after fee waiver reimbursement- Total
Fund as applicable) as applicable) Expenses
---- -------------- -------------- --------
<S> <C> <C> <C>
Newport Tiger Fund,
Variable Series 0.90% 0.35% 1.25%
Stein Roe Global Utilities
Fund, Variable Series 0.65% 0.18% 0.83%
STEINROE VARIABLE INVESTMENT TRUST:
Stein Roe Growth Stock
Fund, Variable Series 0.65% 0.06% 0.71%
Stein Roe Balanced Fund,
Variable Series 0.60% 0.06% 0.66%
MFS VARIABLE INSURANCE TRUST:
MFS Growth With Income Series 0.75% 0.25%(7) 1.00%(8)
MFS High Income Series 0.75% 0.25%(7) 1.00%(8)
MFS Research Series 0.75% 0.13% 0.88%
MFS Total Return Series 0.75% 0.25%(7) 1.00%(8)
MFS Value Series 0.75% 0.25%(7) 1.00%(8)
MORGAN STANLEY UNIVERSAL FUNDS, INC.:
Global Equity Portfolio 0.00% 1.15% 1.15%(9)
Mid Cap Value Portfolio 0.00% 1.05% 1.05%(9)
Value Portfolio 0.00% 0.85% 0.85%(9)
OPPENHEIMER VARIABLE FUNDS:
Oppenheimer Bond Fund 0.73% 0.05% 0.78%
Oppenheimer Growth Fund 0.73% 0.02% 0.75%
Oppenheimer Small Cap
Growth Fund 0.75% 0.08% 0.83%(10)
SAGE LIFE INVESTMENT TRUST:
EAFE Equity Index Fund 0.73% 0.17% 0.90%(11)
S&P 500 Equity Index Fund 0.38% 0.17% 0.55%(11)
Money Market Fund 0.48% 0.17% 0.65%(11)
T. ROWE PRICE EQUITY SERIES, INC.:
T. Rowe Price Equity
Income Portfolio 0.85% 0.00% 0.85%
</TABLE>
7
<PAGE> 29
<TABLE>
<CAPTION>
Other
Management Fees Expenses (after
(after fee waiver reimbursement- Total
Fund as applicable) as applicable) Expenses
---- -------------- -------------- --------
<S> <C> <C> <C>
T. Rowe Price Mid-Cap
Growth Portfolio 0.85% 0.00% 0.85%
T. Rowe Price Personal Strategy
Balanced Portfolio 0.90% 0.00% 0.90%
</TABLE>
- ----------------------------
1/ You may withdraw a portion of your Account Value without incurring a
surrender charge. This amount is called the Free Withdrawal Amount and is equal
to the greater of (i) 10% of your total purchase payments less all prior
withdrawals (including any associated surrender charge and Market Value
Adjustment incurred) in that Contract Year, or (ii) cumulative earnings (i.e.,
the excess of the Account Value on the date of withdrawal over unliquidated
purchase payments).
2/ Currently, there is no transfer charge. However, we reserve the right
to charge up to $25 for the 13th and each subsequent transfer during a Contract
Year.
3/ We waive the Annual Administration Charge if the Account Value is at
least $50,000 on the date of deduction.
4/ We call the Asset-Based Charges Variable Sub-Account Charges and deduct
them on a daily basis after the Income Date. See "What are the Expenses under
the Contract?" on page __.
5/ A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its fees. Effective May 1, 1998, the Funds reimburse AIM in an amount up
to 0.25% of the average net asset value of each Fund, for expenses incurred in
providing, or assuring that participating insurance companies provide, certain
administrative services. Currently, the fee only applies to the average net
asset value of each Fund in excess of the net asset value of each Fund as
calculated on April 30, 1998.
6/ Liberty Variable Investment Trust's Colonial High Yield Securities Fund
and Colonial Small Cap Value Fund did not commence operations until 1998. The
figures shown are based on estimates for the current fiscal year.
7/ Without reimbursements, the total expenses for Liberty Variable
Investment Trust's Colonial Strategic Income Fund and Liberty All-Star Equity
Fund during 1997 would have been 0.82% and 1.45%, respectively.
8/ Without reimbursements, the other expenses and total expenses for MFS
Variable Insurance Trust's Growth with Income Series, High Income Series, Total
Return Series and Value Series during 1997 would have been .35% and 1.10%, .40%
and 1.15%, .27% and 1.02%, and 1.33% and 2.08%, respectively.
9/ Without reimbursements, the total expenses for of Morgan Stanley
Universal Funds, Inc.'s Global Equity Portfolio, Mid Cap Value Portfolio, Value
Portfolio would have been 2.43%, 2.13%, and 1.87%, respectively.
8
<PAGE> 30
10/ Oppenheimer Variable Account Fund's Small Cap Growth Fund did not
commence operations until 1998. The figures shown are based on estimates for
the current fiscal year.
11/ These Funds have not commenced operations. The figures shown
are based on estimates. Without reimbursements, the total expenses of Sage
Life Investment Trust's EAFE Equity Index Fund, S&P 500 Equity Index Fund, and
Money Market Fund would be 1.07%, .72%, and .82%, respectively.
EXAMPLES
The purpose of the following examples is to demonstrate the expenses
that you would pay on a $1,000 investment in the Variable Account. We
calculate the examples based on the fees and charges shown in the tables above.
For a more complete description of these expenses, see "What are the Expenses
under a Contract?" beginning on page __ of this Prospectus, and see the
prospectuses for the Trusts. The Examples assume that the average Account
Value is $30,000, and that you have invested all your money in the Variable
Account.
You should not consider the Examples a representation of past or future
expenses. Actual expenses may be greater or less than those shown. In
addition, we do not reflect Purchase Payment Tax Charges. These charges may
apply depending on the state where the Contract is sold. You might also incur
transfer fees if you make more than twelve transfers in a Contract Year. See
"Transfer Charge," page _. The assumed 5% annual rate of return is
hypothetical. You should not consider it to be a representation of past or
future annual returns, which may be greater or less than this assumed rate.
You would pay the following expenses on a $1,000 initial purchase
payment, assuming a 5% annual return on assets and the charges listed
in the Fee Table above.
<TABLE>
<CAPTION>
1. If you surrender 2. If you do not surrender
your Contract at the your Contract at the
Fund end of each time end of each time
- ---- period period
1 Year 3Years 1 Year 3 Years
------ ------ ------ -------
<S> <C> <C> <C> <C>
AIM VARIABLE INSURANCE
FUNDS, INC.:
AIM V.I. Government $95 $138 $25 $78
Securities Fund
AIM V.I. Growth and $93 $132 $23 $72
Income Fund
AIM V.I. International $95 $140 $25 $80
Equity Fund
AIM V.I. Value Fund $93 $132 $23 $72
</TABLE>
9
<PAGE> 31
<TABLE>
<CAPTION>
1. If you surrender 2. If you do not surrender
your Contract at the your Contract at the
end of each time end of each time
Fund period period
----
1 Year 3Years 1 Year 3 Years
------ ------ ------ -------
<S> <C> <C> <C> <C>
THE ALGER AMERICAN FUND:
Alger American MidCap $94 $137 $24 $77
Growth Portfolio
Alger American Income and $93 $134 $23 $74
Growth Portfolio
Alger American Small $95 $138 $25 $78
Capitalization Portfolio
LIBERTY VARIABLE INVESTMENT TRUST:
Colonial High Yield $94 $136 $24 $76
Securities Fund, Variable Series
Colonial Small Cap Value $96 $142 $26 $82
Fund, Variable Series
Colonial Strategic Income $94 $136 $24 $76
Fund, Variable Series
Colonial U.S. Stock Fund, $95 $140 $25 $80
Variable Series
Liberty All-Star Equity Fund, $96 $142 $26 $82
Variable Series
Newport Tiger Fund, $99 $150 $29 $90
Variable Series
Stein Roe Global Utilities $94 $136 $24 $76
Fund, Variable Series
STEINROE VARIABLE INVESTMENT TRUST:
Stein Roe Growth Stock $93 $133 $23 $73
Fund, Variable Series
Stein Roe Balanced Fund, $93 $131 $23 $71
Variable Series
MFS VARIABLE INSURANCE TRUST:
MFS Growth With Income $96 $142 $26 $82
Series
MFS High Income Series $96 $142 $26 $82
MFS Research Series $95 $138 $25 $78
</TABLE>
10
<PAGE> 32
<TABLE>
<CAPTION>
1. If you surrender 2. If you do not surrender
your Contract at the your Contract at the
Fund end of each time end of each time
---- period period
1 Year 3Years 1 Year 3 Years
------ ------ ------ -------
<S> <C> <C> <C> <C>
MFS Total Return Series $96 $142 $26 $82
MFS Value Series $96 $142 $26 $82
MORGAN STANLEY UNIVERSAL FUNDS, INC.:
Global Equity Portfolio $98 $147 $28 $87
Mid Cap Value Portfolio $97 $144 $27 $84
Value Portfolio $94 $137 $24 $77
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Oppenheimer Bond Fund $94 $135 $24 $75
Oppenheimer Growth Fund $93 $134 $23 $74
Oppenheimer Small Cap $94 $136 $24 $76
Growth Fund
SAGE LIFE INVESTMENT TRUST:
EAFE Equity Index Fund $95 $139 $25 $79
S&P 500 Equity Index Fund $91 $127 $21 $67
Money Market Fund $92 $131 $22 $71
T. ROWE PRICE EQUITY SERIES, INC.:
T. Rowe Price Equity $94 $137 $24 $77
Income Portfolio
T. Rowe Price Mid-Cap $94 $137 $24 $77
Growth Portfolio
T. Rowe Price Personal $95 $139 $25 $79
Strategy Balanced Portfolio
</TABLE>
1. WHAT ARE THE CONTRACTS?
The Contracts are flexible payment deferred combination fixed and
variable annuity Contracts offered by us, Sage Life Assurance of America, Inc.
Throughout this Prospectus, the term "Contracts" refers to individual
Contracts, group Contracts, and certificates for group Contracts. We designed
the Contracts for use in long-term financial and retirement planning. They
provide a means for investing amounts on a tax-deferred basis in our Variable
Account and our Fixed Account.
Under the terms of the Contracts, we promise to pay you (or the
Annuitant, if the Owner is other than an individual) regular income payments
after the Income Date. Until the
11
<PAGE> 33
Income Date, you may make additional purchase payments under the Contract, and
will ordinarily not be taxed on increases in the value of your Contract as long
as you do not take distributions. When you use the Contract in connection with
tax-qualified retirement plans, federal income taxes may be deferred on your
purchase payments, as well as on increases in the value of your Contract. See
"How will my Contract be Taxed?" on page ___. The Contracts may not be
available in all states.
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." Purchase payments allocated to a Variable
Sub-Account will be invested solely in a Fund, as you direct. Your Account
Value in a Variable Sub-Account will vary according to the investment
performance of the corresponding Fund. Depending on market conditions, your
value in each Variable Sub-Account could increase or decrease. No minimum
value is guaranteed. The total of the values in the Variable Sub-Accounts is
called the Variable Account Value.
You can also allocate purchase payments to our Fixed Account. See
"Fixed Account Investment Option, " page ___. The Fixed Account includes Fixed
Sub-Accounts to which we credit fixed rates of interest for the Guarantee
Periods you select. We currently offer Guarantee Periods with durations of 1,
2, 3, 4, 5, 7, and 10 years. If any amount allocated or transferred remains in
a Guarantee Period until the Expiration Date, its value will be equal to the
amount originally allocated or transferred, multiplied, on an annually
compounded basis, by its Guaranteed Interest Rate. Any surrender, withdrawal,
transfer, or amount applied to an income plan from a Fixed Sub-Account before
its Expiration Date ordinarily will be subject to a Market Value Adjustment
that may increase or decrease the value of the Fixed Sub-Account (or portion
thereof) being surrendered, withdrawn, transferred, or applied to an income
plan. See "Market Value Adjustment" page _____.
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
"Transfers," page __.
Sage Life may offer other variable annuity 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. WHAT ARE MY INCOME PAYMENT OPTIONS?
You choose the Income Date or other agreed upon date when you want
regular income payments to begin. The Income Date you choose must be on or
before the first calendar month following the Annuitant's 95th birthday. We
reserve the right to require that your Income Date be at least two years after
the Contract Date. After you choose the Income Date, you select an income plan
from the list below, and indicate whether you want your
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<PAGE> 34
income payments to be fixed or variable or a combination of fixed and variable.
You must give Satisfactory Notice of your choices at least 30 days prior to the
Income Date, and you must have at least $5,000 of Account Value to apply to a
variable or fixed income option.
On the Income Date, the Account Value under the Contract (adjusted for
any Market Value Adjustment, if applicable) 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. If you have not chosen an income plan by the
Income Date, a "life annuity with 10 years certain" (described below) will be
used.
The available income plans are:
- INCOME PLAN 1 - LIFE ANNUITY. An amount payable
during the lifetime of the Annuitant terminating with the last
payment preceding the death of the Annuitant.
- INCOME PLAN 2 - LIFE ANNUITY WITH 10 OR 20 YEARS
CERTAIN. An amount payable during the lifetime of the
Annuitant with the guarantee that payments be made for a
minimum of 10 or 20 years, as elected.
- INCOME PLAN 3 - JOINT AND LAST SURVIVOR LIFE ANNUITY.
An amount payable during the joint lifetime of the Annuitant
and a designated second person, and thereafter during the
remaining lifetime of the survivor, ceasing with the last
payment prior to the death of the survivor.
- INCOME PLAN 4 - PAYMENTS FOR A SPECIFIED PERIOD
CERTAIN. An amount payable for the number of years selected
which may be from 5 to 30 years.
- INCOME PLAN 5 - ANNUITY PLAN. An amount can be used
to purchase any other income plan we offer on the Income Date
for which you and the Annuitant are eligible.
Your first income payment, whether fixed or variable, will be based on
the amount of proceeds applied under the income plan you have selected and on
the "annuity purchase rates" based on the Annuitant's age and sex, and if
applicable upon the age and sex of a second designated person. The annuity
purchase rate we apply will never be lower than the rate shown in your
Contract.
If you told us you want fixed income payments, the amount of each income
payment is guaranteed and remains level throughout the period you selected.
If you told us you want variable income payments, the amount of each
payment will vary
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<PAGE> 35
according to the investment performance of the Funds you selected.
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. You currently 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 positive investment
performance.)
For example, if you select 3%, this means that if the investment
performance, after expenses, of your Funds is less than 3%, then the dollar
amount of your variable income payment will decrease. Conversely, if the
investment performance, after expenses, of your funds is greater than 3%,
then the dollar amount of your income payments will increase.
If you told us that you want a life annuity, it is possible that you
could only receive one payment.
Your income payments will be made monthly, unless you choose quarterly,
semi-annual or annual payments by giving us Satisfactory Notice at least 30
days prior to the Income Date. Payments start on the Income Date. 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. Also, if on
the Income Date, the Account Value is less than $5,000, we may pay the
Surrender Value on that date in one sum.
3. HOW DO I PURCHASE A CONTRACT?
INITIAL PURCHASE PAYMENT. Contracts may be purchased for use in
connection with tax-qualified plans ("Qualified Contracts"), or may be
purchased on a non-tax qualified basis ("Non-Qualified Contracts"). To
purchase a Contract, you and the Annuitant you selected may not be more than 85
years old on the Contract Date. A minimum initial purchase payment is required
depending on whether you are purchasing a Non-Qualified or Qualified Contract,
as shown in the following table:
<TABLE>
<CAPTION>
Minimum Initial Purchase Payment Required
<S> <C>
Non-Qualified Contract $5,000
Qualified Contract $2,000
</TABLE>
ISSUANCE OF A CONTRACT. Once we receive your initial purchase payment
and your application at our Customer Service Center, we will usually issue your
Contract within two Business Days. However, if you did not give us all the
information we need, we will try to contact you to get the additional needed
information. If we cannot complete the application within five Business Days,
we will either send your money back or obtain your permission to keep your
money until we receive the necessary information. Your Contract 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 expires 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. You will
receive a refund of your Account Value plus any charges we have deducted on or
before the date we receive your returned Contract at our Customer Service
Center, or if required by the law of your state, your initial purchase payment
(less any withdraws previously taken). In those latter states where this
requirement exists, amounts you allocate to the Variable Account will be
temporarily allocated to the Money Market Fund until the Free Look Period
expires. See "What are my Investment Options," page ___.
14
<PAGE> 36
MAKING ADDITIONAL PURCHASE PAYMENTS. You may make additional purchase
payments of $250 or more at any time before the Income Date, subject to the
following conditions. We will accept additional purchase payments under a
Non-Qualified Contract until the earlier of the year in which you attain age 85
or the year in which the Annuitant attains age 85. We will accept additional
purchase payments under a Qualified Contract until the year in which you attain
70 1/2, except contributions to a Roth IRA or rollover contributions may be
made until the year in which you attain age 85. You must obtain our prior
approval before you make a purchase payment that causes the Account Value of
all annuities that you maintain with us to exceed $1,000,000. We will credit
any purchase payment received after the Contract Date to your Contract as of
the Business Day on which we receive it at our Customer Service Center.
Purchase payments received on other than a Business Day will be deemed received
on the next following Business Day.
In addition, if you have not made a purchase payment for more than two
years and your Account Value is less than $2,000 on a Contract Anniversary, we
may cancel your Contract and pay you the Surrender Value as though you had
surrendered by giving you written notice at your address of record. However,
you will be allowed 61 days from the date of that notice to submit an
additional purchase payment in an amount sufficient to maintain your Account
Value at $2,000 or more. If we have not received the required additional
purchase payment by the end of this period, we may cancel your Contract.
4. WHAT ARE MY INVESTMENT OPTIONS?
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 allocation
percentage must be a whole number.
We may, however, require that an initial purchase payment allocated to
a Variable Sub-Account be temporarily invested in the Money Market Fund 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 your initial purchase payment was temporarily
allocated to the Money Market Fund by us, we will transfer the value of what is
in the Money Market Fund to the Variable Sub-Account(s) you specified in your
application. Solely for the purpose of processing transfers from the Money
Market Fund, we will deem the Free Look Period to end 15 days after the
Contract Date. This transfer from the Money Market Fund to the Variable
Sub-Accounts upon the expiration of the Free Look Period does not count as a
transfer for any other purposes under the Contract.
15
<PAGE> 37
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.
Amounts you allocate to the Variable Account reflect the investment performance
of the Funds. You bear the investment gain or loss of investing in the Funds.
Not every fund may be available in every state or in every market.
AIM VARIABLE INSURANCE FUNDS, INC.
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 U.S. Government.
AIM V.I. GROWTH AND INCOME FUND. This Fund seeks to provide growth of
capital, with current income as a secondary objective. The Fund seeks to
achieve its objective by generally investing at least 65% of its net assets in
stocks of companies believed by the management to have the potential for above
average growth in revenues and earnings.
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, the issuers of which are considered by the
Fund's investment adviser 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 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 markets generally. Income is a secondary objective.
AIM Advisors, Inc. advises the AIM Variable Insurance Funds, Inc.
THE ALGER AMERICAN FUND
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO. This Fund seeks long-term
capital appreciation by investing in a diversified, actively managed portfolio
of equity securities, primarily of companies with total market capitalization
within the range included in the S&P MidCap 400 Index.
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO. This Fund seeks to provide
a high level of dividend income through investments in equity securities.
Capital appreciation is a secondary objective of this Fund.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO. This Fund seeks
long-term capital appreciation through investment primarily in equity
securities that, at the time of purchase, have total market capitalization
within the range of companies included in the Russell 2000 Growth Index or the
S&P SmallCap 600 Index.
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<PAGE> 38
Fred Alger Management, Inc. advises The Alger American Fund.
LIBERTY VARIABLE INVESTMENT TRUST
COLONIAL HIGH YIELD SECURITIES FUND, VARIABLE SERIES ("High Yield
Securities Fund"). This Fund seeks high 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 ("Small Cap Value
Fund"). This Fund seeks long-term growth by investing primarily in smaller
capitalization equity securities.
COLONIAL STRATEGIC INCOME FUND, VARIABLE SERIES ("Strategic Income
Fund"). 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. STOCK FUND, VARIABLE SERIES ("U.S. Stock Fund"). This
Fund seeks long-term growth by investing primarily in large capitalization
equity securities.
LIBERTY ALL-STAR EQUITY FUND, VARIABLE SERIES ("All-Star Fund"). 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 ("Tiger Fund"). 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, China and the Philippines).
STEIN ROE GLOBAL UTILITIES FUND, VARIABLE SERIES ("Global Utilities
Fund"). This Fund seeks current income and long-term growth of capital. The
Global Utilities Fund normally invests at least 65% of its total assets in U.S.
and foreign equity and debt securities of companies engaged in the manufacture,
production, generation, transmission, sale or distribution of electricity,
natural gas or other types of energy, or water or other sanitary services, and
companies engaged in telecommunication, including telephone, telegraph,
satellite, microwave and other communications media.
Liberty Advisory Services Corp. (formerly "Keyport Advisory Services
Corp.") provides investment management and advisory services to the Liberty
Variable Investment Trust. Colonial Management Associates, Inc. subadvises the
High Yield Securities Fund, the U.S. Stock Fund, the Small Cap Value Fund, and
the Strategic Income Fund. Stein Roe & Farnham Incorporated subadvises the
Global Utility Fund. Newport Fund Management, Inc. subadvises the Tiger Fund.
Liberty Asset Management Company subadvises the All-Star Fund.
17
<PAGE> 39
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(TM)
MFS GROWTH WITH INCOME SERIES. This Fund seeks to provide reasonable
current income and long-term growth of capital and income. Under normal market
conditions, the MFS Growth with Income Series will invest at least 65% of its
assets in equity securities of companies that are believed to have long-term
prospects for growth and income.
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. Fixed income
securities offering the high current income sought by the High Income Series
normally include those fixed income securities which offer a current yield
above that generally available on debt securities in the three highest rating
categories by recognized rating agencies (commonly known as "junk bonds" if
rated below the four highest categories of recognized rating agencies). See
the prospectus for the Trust for more information.
MFS RESEARCH SERIES. This Fund seeks to provide long-term growth of
capital and future income. The MFS Research Series' policy is to invest a
substantial proportion of its assets in equity securities of companies believed
to possess better than average prospects for long-term growth.
MFS TOTAL RETURN SERIES. This Fund seeks primarily to provide
above-average income (compared to a portfolio invested entirely in equity
securities) consistent with the prudent employment of capital, and secondarily
to provide a reasonable opportunity for growth of capital and income.
MFS VALUE SERIES. This Fund seeks capital appreciation. Dividend
income, if any, is a consideration incidental to the Fund's objective of
capital appreciation.
Massachusetts Financial Services Company advises the MFS(R) Variable
Insurance Trust.(TM)
18
<PAGE> 40
MORGAN STANLEY UNIVERSAL FUNDS, INC.
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.
MID CAP VALUE PORTFOLIO. This Fund seeks above-average total return
over a market cycle of three to five years by investing in common stocks and
other equity securities of issuers with equity capitalizations in the range of
companies represented in the S&P MidCap 400 Index.
VALUE PORTFOLIO. This Fund seeks above-average return over a market
cycle of three to five years by investing primarily in a diversified portfolio
of common stocks and other equity securities that are deemed by the Fund's
investment adviser to be relatively undervalued based on various measures such
as price/earnings ratios and price/book ratios.
Morgan Stanley Asset Management 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. 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 GROWTH FUND. This Fund seeks to achieve capital
appreciation by investing in securities of well-known, established companies.
OPPENHEIMER SMALL CAP GROWTH FUND. This Fund seeks capital
appreciation. Current income is not an objective. In seeking its investment
objective, the Fund emphasizes investments in securities of "growth type"
companies with market capitalizations of less than $1 billion, including common
stocks, preferred stocks, convertible securities, rights, warrants and options,
in proportions which may vary from time to time.
Oppenheimer Funds, Inc. manages Oppenheimer Variable Account Funds.
SAGE LIFE INVESTMENT TRUST
EAFE 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.
19
<PAGE> 41
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 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 and also long-term capital appreciation.
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO. This Fund seeks to provide
long-term capital appreciation by investing primarily in common stocks of
medium-sized (mid-cap) growth companies.
T. ROWE PRICE PERSONAL STRATEGY BALANCED PORTFOLIO. The Fund seeks to
provide the highest total return over time consistent with an emphasis on both
capital appreciation and income. The Personal Strategy Balanced Portfolio
invests in a diversified portfolio of stocks, bonds, and money market
securities.
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 the investment objectives and policies 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
20
<PAGE> 42
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 whose Account Values are allocated to the
Variable Account, and owners of other contracts whose contract values are
allocated 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 pursuant to which the adviser or distributor
pays us a fee ordinarily based upon an annual percentage 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. The Trusts' prospectuses should be read carefully before any
decision is made concerning the allocation of 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. Each Fixed Sub-Account is guaranteed an interest rate (the
"Guaranteed Interest Rate") for a period of time (a "Guarantee Period"). A
Guaranteed Interest Rate is established on the date that an allocation is made
to the Fixed Sub-Account.
We have no specific formula for establishing the Guaranteed Interest
Rates for the different Guarantee Periods. The determination made will be
influenced by, but not necessarily correspond to, 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. These
amounts will be invested 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
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<PAGE> 43
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
Association, 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, 5, 7, and 10 years. We may offer different Guarantee
Periods in the future. Not all Guarantee Periods may be available in all
states. Any Guarantee Period you select cannot be longer than the number of
full years remaining until your Income Date.
We will notify you at least thirty days prior to an Expiration Date of
a Fixed Sub-Account in which you are invested of your options for renewal. Your
options are:
1. 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 or
extending beyond the Income Date, as of day the previous Fixed
Sub-Account expires. If such Guarantee Period is not
currently available, your value will be transferred to the
next shortest Guarantee Period. If there is no shorter
Guarantee Period, we will transfer your value to the Money
Market option.
2. Elect a new Guarantee Period(s) from among those
offered by us as of the day the previous Fixed Sub-Account
expires.
3. Elect to transfer the value of the Fixed Sub-Account
to one or more Variable Sub-Accounts.
Any amounts surrendered, withdrawn, transferred or applied to an income
plan 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:
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<PAGE> 44
- - Transfers from specially designated Fixed Sub-Accounts made
automatically under our Dollar Cost Averaging Program, and
- - Withdrawals of interest earned made automatically under our Systematic
Partial Withdrawal Program.
In addition, we currently waive any Market Value Adjustment on
withdrawals taken to satisfy IRS minimum distribution requirements in relation
to your Contract.
MARKET VALUE ADJUSTMENT. A Market Value Adjustment reflects the
change in interest rates since a Fixed Sub-Account was established. 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 the Fixed Sub-Account was established, 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 the Fixed Sub-Account was established, the Market Value
Adjustment will be positive.
We will apply a Market Value Adjustment as follows:
For a surrender, withdrawal, transfer, or amount applied to an income
plan, the Market Value Adjustment will be calculated on the total amount
(including any applicable surrender charge) that must be surrendered,
withdrawn, transferred or applied to an income plan 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 applied to an
income plan.
- If the Market Value Adjustment is positive, it increases any
remaining value in the Fixed Sub-Account. In the case of
surrender, or if the full amount of the Fixed Sub-Account is
withdrawn, transferred or applied to an income plan, the
Market Value Adjustment increases the amount surrendered,
withdrawn, transferred, or applied to an income plan.
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,
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<PAGE> 45
transferred, or applied to an income plan from the Fixed Sub-Account in order
to provide the amount you requested.
N/365
[(1+I)/(1+J+.0025)] - 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, straight-line interpolation
between the Index Rate for the next highest and next lowest maturities will be
used 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 Washington, state insurance law requires
that the Market Value Adjustment be computed by multiplying the amount being
surrendered, withdrawn, transferred, or applied to an income plan, 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
Guarantee Interest Rate for the Guarantee Period, and G equals the initial
number of days in the Guarantee Period.
Examples of how the Market Value Adjustment works are shown in Appendix
A.
TRANSFERS. Prior to the Income Date and while the Annuitant is living,
you may transfer Account Value from and among the Variable and Fixed
Sub-Accounts at any time. However, in certain states, you may not transfer
Account Value until after the end of the Free Look Period. See "What are my
Investment Options?, " page __. The minimum amount of Account Value that may
be transferred from a Variable Sub-Account or a Fixed 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 Variable Sub-Accounts and/or Fixed
Sub-Accounts from which and to which transfers are to be made. 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 Variable or Fixed
Sub-Accounts.
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<PAGE> 46
A transfer ordinarily will take effect on the Business Day Satisfactory
Notice is received at our Customer Service Center. Requests received on other
than a Business Day will be deemed 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, each transfer request
will be considered one transfer, regardless of the number of Variable or Fixed
Sub-Accounts affected by the transfer.
After the Income Date, 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 Account. We reserve the right to limit the number
of transfers among the Variable Sub-Accounts to one transfer per Contract Year
after the Income Date.
TELEPHONE TRANSACTIONS. You may request transfers or withdrawals by
telephone. We will not be liable for following instructions communicated by
telephone that we reasonably believe to be genuine. To request transfers or
withdrawals 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 and may only be liable for any losses due to
unauthorized or fraudulent instructions where we fail to follow our procedures
properly. Such procedures include the following: (a) upon telephoning a
request, you or your authorized representative will be asked to provide certain
identifying information, (b) all such conversations will be tape recorded, and
(c) all such telephone transactions will be followed by a confirmation
statement of the transaction.
Our telephone transaction authorization form may also allow you to
create a power of attorney by authorizing another person to give telephone
instructions. Unless prohibited by state law, such power will be treated as a
durable power of attorney, and shall not be affected by subsequent incapacity,
disability, or incompetency of the Owner. 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 executed
in good faith reliance upon your power of attorney.
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
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<PAGE> 47
Contracts. We believe that such simultaneous transfers made by such third
parties are not in the best interest of all shareholders of the Funds, and this
position is shared by the managements of the Funds.
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,
these procedures will not prevent Owners from making their own transfer
requests.
DOLLAR-COST AVERAGING PROGRAM. Our optional dollar-cost averaging
program permits you to systematically transfer on a monthly basis, 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 specially designated Fixed Sub-Accounts ("DCA Fixed
Sub-Accounts"). These DCA Fixed Sub-Accounts may have different Guarantee
Periods and different Guaranteed Interest Rates than the Fixed Sub-Accounts.
Please consult your registered representative about the DCA 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 Fund or a DCA Fixed Sub-Account, the
amounts that are actually transferred 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 Income Date by sending us Satisfactory Notice. The minimum
transfer amount is $250 from the Money Market Sub-Account or from a DCA Fixed
Sub-Account. All dollar-cost averaging transfers will be made on the day of
each month that corresponds to your Contract Date unless that date is not a
Business Day. Otherwise, the transfer will be made 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 the Income Date, until the Contract is surrendered,
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 a Market Value Adjustment ordinarily will be assessed on the
amount canceled. You can request changes by writing us at our Customer
Service Center. There is
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<PAGE> 48
no additional charge for dollar-cost averaging. A transfer under this program
is not considered 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 withdrawal program.
ASSET ALLOCATION PROGRAM. You may select from six asset allocation
model portfolios, or you may use these models as a guide to help you develop
your own asset allocation model. The models are as follows:
<TABLE>
<CAPTION>
Model Investment and Risk Profile
----- ---------------------------
<S> <C>
I Stable Capital
II Stable Income
III Moderate Income
IV Moderate Growth
V Capital Growth
VI Aggressive Growth
</TABLE>
If you elect to participate in the asset allocation program, all initial and
additional purchase payments will automatically be allocated 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. It may be found that
allocation percentages among the Variable Sub-Accounts or even some of the
Variable Sub-Accounts within a particular model need to be changed. You will
be sent notice at least 30 days before any such change is made, and you will be
given 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. We reserve the right
to discontinue offering this program at any time and for any reason.
AUTOMATIC PORTFOLIO REBALANCING PROGRAM. Once your money has been
allocated among the Variable Sub-Accounts, the investment performance of each
Variable Sub-Account may cause your allocation to shift. Prior to the Income
Date, you may instruct us to
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<PAGE> 49
automatically rebalance (on a calendar quarter, semi-annual, or annual basis)
Variable Account Value to return 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. Requests received on other than a Business Day
will be deemed 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. A transfer under this program is not considered 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. Any money allocated to
the Fixed Account will not be included 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 your
Variable Account Value and your Fixed Account Value. We determine your Account
Value first on the Contract Date and thereafter on each Business Day. The
Account Value will vary to reflect: (i) the performance of the Variable
Sub-Accounts you have selected, (ii) interest credited on amounts allocated to
the Fixed Account, and (iii) charges, transfers, withdrawals, and surrenders.
Account Value may be more or less than purchase payments paid.
SURRENDER VALUE. The Surrender Value on a Business Day before the
Income Date, is the Account Value, adjusted for any applicable Market Value
Adjustment that may be positive or negative, less any applicable surrender
charge that would be deducted if your Contract were surrendered that day, less
any applicable annual administration charge, and less any applicable Purchase
Payment Tax Charge.
VARIABLE ACCOUNT VALUE. On any Business Day, the Variable Account
Value equals the sum of the values in each Variable 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, 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, 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
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<PAGE> 50
Sub-Account at $10 when we established the Sub-Account. For each Valuation
Period after the date of establishment, the Accumulation Unit value is
determined 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 used to
measure the investment performance of a Variable Sub-Account from one Valuation
Period to the next during the Accumulation Phase. The net investment factor
for any Valuation Period is determined 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 is determined by us 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. The Fixed Account Value is the sum of the value
of each Fixed Sub-Account (including a DCA Fixed Sub-Account) on any particular
day. The value in each Fixed Sub-Account is equal to: (1) the portion of the
purchase payment(s) allocated or amount transferred to the Sub-Account; plus
(2) interest at the Guaranteed Interest Rate; minus (3) any transfers from the
Sub-Account; minus (4) any withdrawals (including any associated surrender
charges) from the Sub-Account; and minus (5) any charges allocated to the
Sub-Account. We also adjust the Fixed Sub-Account Value for any Market Value
Adjustment, the value of which could be positive or negative.
5. 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 and surrenders under the Contracts; the
death benefit paid on the death of the Owner; the available investment options,
including dollar-cost averaging, asset allocation, automatic portfolio
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<PAGE> 51
rebalancing, and systematic partial withdrawal programs; administration of the
income plan options available under the Contracts; and the distribution of
various reports to Owners. Costs and expenses we incur include those
associated with various overhead and other expenses related to 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
Annuitants may live longer than estimated when the annuity factors under the
Contracts were established, that the amount of the death benefit will be
greater than Account Value, and that the costs of providing the services and
benefits under the Contracts will exceed the charges deducted. We may also
deduct a charge for taxes. See "Fee Table," page ___.
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.
Unless otherwise specified, charges are deducted proportionately from
all Variable Sub-Accounts and Fixed Sub-Accounts in which you are invested.
Charges under the Contracts may be reduced or eliminated 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:
(i) the size of the group;
(ii) the total amount of purchase payments to be received from the
group;
(iii) the purposes for which the Contracts are purchased;
(iv) the nature of the group for which the Contracts are purchased; and
(v) 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 of
ours. Reductions in Contract charges will not be unfairly discriminatory
against any person.
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. The
applicable percentage is 7% in the first Contract Year, and declines until it
reaches 0% in the eighth Contract Year.
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<PAGE> 52
If you surrender your Contract, we deduct the surrender charge from the
Account Value in determining the Surrender Value. If you take an Excess
Withdrawal, we deduct the surrender charge from the 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 a "Free
Withdrawal Amount" without incurring a surrender charge. For a table of
surrender charges and a description of the Free Withdrawal Amount, see the "Fee
Table," page __.
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 they were made: 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 requested 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 $1,000, and no
Market Value Adjustment is applicable. Your initial purchase payment was
$5,000, your current Account Value is $5,250, 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 (including any associated surrender charge and
Market Value Adjustment incurred) in that Contract Year (10% x $5,000 =
$500); and
(b) is the excess of the Account Value on the date of withdrawal over
the unliquidated purchase payments ($5,250 - $5,000 = $250).
Therefore, the Free Withdrawal amount is $500. A surrender charge will apply
to the excess of $1,000 over $500. The surrender charge is equal to $35 (7% x
$500).
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 (or the Annuitant, if the Owner is not an
individual) have a "Qualifying Terminal Illness" or have been confined
continuously to a "Qualifying Hospital or Nursing Care Facility" for at least
45 days in a 60 day period. "Qualifying Terminal Illness" and "Qualifying
Hospital or Nursing Care Facility" are defined in your Contract.
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<PAGE> 53
ANNUAL ADMINISTRATION CHARGE
We will deduct an annual administration charge of $40 during 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 fee on and after the eighth Contract Anniversary, or if the Account
Value is at least $50,000 when the annual administration charge would have
otherwise been deducted.
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, each written or telephone request is considered to be one transfer,
regardless of the number of Sub-Accounts affected by the transfer. In the event
that the transfer charge becomes applicable, it will be deducted
proportionately from the Sub-Accounts from which the transfer is made.
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.
ASSET-BASED CHARGES
We deduct Asset-Based Charges for mortality and expense risks and
administrative costs assumed by us. Prior to the Income Date, Asset-Based
Charges are deducted monthly and calculated as a percentage of the Variable
Account Value on the date of deduction. On the Contract Date and monthly
thereafter, the Asset-Based Charges are deducted proportionately from the
Variable Sub-Accounts in which you are invested. After the Income Date,
however, these charges are called Variable Sub-Account Charges and are deducted
daily from the assets of such Variable Sub-Accounts. The maximum charges are:
<TABLE>
<CAPTION>
Combined Asset-Based Charges
----------------------------
Annual Charge Monthly Charge Daily Charge
------------- -------------- ------------
<S> <C> <C> <C>
Contract Years 1-7 1.40% .116667% .0038626%
Contract Years 8+ 1.25% .104167% .0034462%
</TABLE>
We reserve the right to deduct Asset-Based Charges on the effective date of any
transfer from the Fixed Account, or allocation of purchase payment to the
Variable Account, based on the amount transferred or allocated and based on the
number of days remaining until the next date of deduction. These charges do
not apply to any Fixed Account Value.
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<PAGE> 54
FUND EXPENSES
Because the Variable Account purchases shares of the various Funds
chosen by you, the net assets of the Variable Account will reflect the
investment management fees and other operating expenses incurred by those
Funds. A table of each Fund's management fees and other expenses can be found
in the front of this Prospectus in the Fee Table. For a description of each
Fund's expenses, management fees, and other expenses, see the Trusts'
prospectuses.
6. HOW WILL MY CONTRACT BE TAXED?
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
COUNSEL OR OTHER COMPETENT TAX ADVISERS SHOULD BE CONSULTED FOR MORE COMPLETE
INFORMATION.
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 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 (the
"IRS").
The Contract may be purchased on a non-tax-qualified basis or purchased
on a tax-qualified basis. A Qualified Contract is designed for use by
individuals whose purchase payments are comprised solely of proceeds from
and/or contributions under retirement plans that are intended to qualify as
plans entitled to special income tax treatment under Sections 408 or 408A of
the Code. The ultimate effect of federal income taxes on the amounts held
under a Contract, or income payments, depends on the type of retirement plan,
on the tax and employment status of the individual concerned, and on our tax
status. In addition, certain requirements must be satisfied in purchasing a
Qualified Contract with proceeds from a tax-qualified plan and receiving
distributions from a Qualified Contract in order to continue receiving
favorable tax treatment. Some retirement plans are subject to distribution and
other requirements that are not incorporated into our Contract administration
procedures. Owners, participants, and Beneficiaries are responsible for
determining whether contributions, distributions, and other transactions with
respect to the Contract comply with applicable law. Therefore, purchasers of a
Qualified Contract should seek competent legal and tax advice regarding the
suitability of a Contract for their situation. The following discussion
assumes that the Qualified Contract is purchased with proceeds from and/or
contributions under retirement plans that qualify for the intended special
federal income tax treatment.
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TAX STATUS OF THE CONTRACT
DIVERSIFICATION REQUIREMENTS. The Code requires that the investments
of the Variable Account be "adequately diversified" in order for the Contract
to be treated as an annuity contract for federal income tax purposes. It is
intended that the Variable Account, through the Funds, will satisfy these
diversification requirements.
In certain circumstances, owners of variable annuity 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. When 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 Contract, such as the flexibility of an Owner to allocate
purchase payments and transfer Account Values, have not been explicitly
addressed in published rulings. While we believe that the Contract does not
give an Owner investment control over Variable Account assets, we reserve the
right to modify the Contract as necessary to prevent an Owner from being
treated as the owner of the Variable Account assets supporting the Contract.
REQUIRED DISTRIBUTIONS. To be treated as an annuity contract for
federal income tax purposes, the Code requires a Non-Qualified Contract to
contain certain provisions specifying how your interest in the Contract will be
distributed in the event of your death. The Non-Qualified Contracts contain
provisions that are intended to comply with these Code requirements, although
no regulations interpreting these requirements have yet been issued. We intend
to review such provisions and modify them if necessary to assure that they
comply with the applicable requirements when such requirements are clarified by
regulation or otherwise.
Other rules may apply to a Qualified Contract.
The following discussion assumes that the Contract will qualify as an
annuity contract for federal income tax purposes.
TAX TREATMENT OF ANNUITIES
IN GENERAL. We believe that if you are a natural person you will not be
taxed on increases in the value of a Contract until a distribution occurs or
until income payments begin. (An agreement to assign or pledge any portion of
the Account Value, and, in the case of a Qualified Contract, any portion of an
interest in the qualified plan, ordinarily will be treated as a distribution.)
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TAXATION OF A NON-QUALIFIED CONTRACT
NON-NATURAL PERSON. The Owner of any annuity contract who is not a
natural person ordinarily must include in income any increase in the excess of
the Account Value over the "investment in the contract" (ordinarily, the
purchase payments or other consideration paid for the contract) during the
taxable year. There are some exceptions to this rule and a prospective Owner
that is not a natural person may wish to discuss these with a tax adviser.
The following discussion generally applies to Contracts owned by natural
persons.
WITHDRAWALS. When a withdrawal (including Systematic Withdrawals) from
a Non-Qualified Contract occurs, the amount received will be treated as
ordinary income subject to tax up to an amount equal to the excess (if any) of
the Account Value immediately before the distribution over the Owner's
investment in the Contract at that time. It is possible that a positive Market
Value Adjustment at the time of a withdrawal may be treated as part of the
Account Value immediately before the distribution. You may want to consult a
tax adviser on the tax consequences of market value adjustments.
SURRENDERS. In the case of a surrender under a Non-Qualified Contract,
the amount received ordinarily will be taxable only to the extent it exceeds
the Owner's investment in the Contract.
PENALTY TAX ON SURRENDER AND CERTAIN WITHDRAWALS. In the case of a
distribution from a Non-Qualified Contract, a federal tax penalty equal to 10%
of the amount treated as income ordinarily will be imposed. In general,
however, there is no penalty on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of an Owner;
- attributable to the taxpayer's becoming disabled; or
- made as part of a series of substantially equal
periodic payments for the life (or life expectancy) of
the taxpayer.
Other exceptions may be applicable under certain circumstances and
special rules may be applicable in connection with the exceptions enumerated
above. A tax adviser should be consulted regarding exceptions from the penalty
tax.
INCOME PAYMENTS. Although tax consequences may vary depending on the
payment option elected under an annuity contract, a portion of each income
payment is ordinarily not taxed and the remainder is taxed as ordinary income.
The non-taxable portion of an income payment is ordinarily determined in a
manner that is designed to allow you to recover your investment in the Contract
ratably on a tax-free basis over the expected stream of income payments, as
determined when income payments start. Once your investment in the Contract
has been fully recovered, however, the full amount of each income payment is
subject to tax as ordinary income.
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TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of your death or the death of the Annuitant. Ordinarily, such
amounts are includible in the income of the recipient as follows: (i) if
distributed in a lump sum, they are taxed in the same manner as a surrender of
the Contract, or (ii) if distributed under an income payment option, they are
taxed in the same way as income payments.
TRANSFERS, ASSIGNMENTS OF A CONTRACT. A transfer or assignment of
ownership of a Contract, the designation of an Annuitant, the designation of a
payee other than yourself, the selection of certain Income Dates, or the
exchange of a Contract may result in certain tax consequences to you that are
not discussed herein. An Owner contemplating any such transfer or assignment
should consult a tax adviser as to the tax consequences.
WITHHOLDING. Annuity distributions are ordinarily subject to
withholding for the recipient's federal income tax liability. Recipients can
ordinarily elect, however, not to have tax withheld from distributions.
MULTIPLE CONTRACTS. All annuity contracts that we or our affiliates
issue to the same Owner during any calendar year are treated as one annuity
contract for purposes of determining the amount includible in such Owner's
income when a taxable distribution occurs.
TAXATION OF A QUALIFIED CONTRACT
The Contract is designed for use with several types of qualified plans.
The tax rules applicable to participants in these qualified plans vary
according to the type of plan and the terms and conditions of the plan itself.
Special favorable tax treatment may be available for certain types of
contributions and distributions. Adverse tax consequences may result from
contributions in excess of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; and in other specified
circumstances. Therefore, no attempt is made to provide more than general
information about the use of the Contract with the various types of qualified
retirement plans. Contract Owners, Annuitants, and Beneficiaries are cautioned
that the rights of any person to any benefits under these qualified retirement
plans may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Contract, but we shall not be
bound by the terms and conditions of such plans to the extent such terms
contradict the Contract, unless we consent. For IRAs under Section 408 of the
Code (described below), distributions generally must commence no later than
April 1 of the calendar year following the calendar year in which the Owner
reaches age 70 1/2. Roth IRAs under Section 408A of the Code do not require
distributions at any time prior to the Owner's death.
WITHDRAWALS. When a withdrawal from a Qualified Contract occurs, a
pro-rata portion of the amount received is taxable, ordinarily based on the
ratio of the Owner's
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investment in the contract (ordinarily, any non-deductible purchase payments or
other consideration paid for the Contract) to the Owner's total accrued benefit
balance under the retirement plan. For a Qualified Contract, the investment in
the contract can be zero. Special tax rules apply to withdrawals from Roth
IRAs (see below). Distributions from Qualified Contracts generally are subject
to withholding for the Owner's federal income tax liability. The withholding
rate varies according to the type of distribution and the Owner's tax status.
The Owner will be provided the opportunity to elect not to have tax withheld
from distributions.
Brief descriptions follow of the various types of qualified retirement
plans in connection with a Contract. We will endorse the Contract as necessary
to conform it to the requirements of such plan.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits
eligible individuals to contribute to an individual retirement program known as
an "Individual Retirement Annuity" or "IRA." These IRAs are subject to limits
on the amount that may be contributed, the persons who may be eligible, and on
the time when distributions may commence. IRA contributions may be deductible
in whole or in part depending on the Owner's income and whether the Owner is a
participant in a qualified plan. Earnings in the IRA are not taxed until
distributed. Also, distributions from certain other types of qualified
retirement plans may be rolled over on a tax-deferred basis into an IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject
to a 10% federal penalty tax.
SIMPLE IRAS. Certain small employers may establish SIMPLE plans as
provided by Section 408(p) of the Code, under which employees may elect to
defer to a SIMPLE IRA a percentage of compensation up to $6,000 (as increased
for cost of living adjustments). The sponsoring employer is required to make
matching or non-elective contributions on behalf of employees. Distributions
from SIMPLE IRAs are subject to the same restrictions that apply to IRA
distributions and are taxed as ordinary income. Subject to certain exceptions,
premature distributions prior to age 59 1/2 are subject to a 10% federal
penalty tax, which is increased to 25% if the distribution occurs within the
first two years after the commencement of the employee's participation in the
plan.
ROTH IRAS. Section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which
are subject to certain limitations, are not deductible and must be made in cash
or as a rollover or transfer from another Roth IRA or other IRA. A conversion
of an IRA to a Roth IRA may be subject to tax and other special rules may
apply. You should consult a tax adviser before combining any converted amounts
with any other Roth IRA contributions, including any other conversion amounts
from other tax years. Distributions from a Roth IRA ordinarily are not taxed,
except that, once aggregate distributions exceed contributions to the Roth IRA,
income tax and a 10% federal penalty tax may apply to distributions made (1)
before age 59 1/2 (subject to certain exceptions) or (2) during the five
taxable years starting with the year in which the first contribution is made to
the Roth IRA.
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A 10% federal penalty tax may apply to amounts attributable to a conversion from
an IRA if they are distributed during the five taxable years beginning with the
year in which the conversion was made.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax
consequences under the Contract are not exhaustive, and special rules are
provided with respect to other tax situations not discussed in this Prospectus.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of distributions under a Contract depend
on the individual circumstances of each Owner or recipient of the distribution.
A competent tax adviser should be consulted for further information.
Further, the federal income tax consequences discussed herein reflect
our understanding of current law, and the law may change. Although the
likelihood of legislative change is uncertain, there is always the possibility
that the tax treatment of the Contracts could change by legislation or other
means. It is also possible that any change could be retroactive (that is,
effective prior to the date of the change). A tax adviser should be consulted
with respect to legislative developments and their effect on the Contract.
7. HOW DO I ACCESS MY MONEY?
You can partially withdraw from or surrender your Contract. When you
surrender your Contract, you can take the proceeds in a single sum, or you can
request that we pay the proceeds under one of our income plans. See "What are
my Income Payment Options?," page __.
WITHDRAWALS
You may withdraw all or part of your Surrender Value at any time before
the Income Date. (If you have elected the "payments for a specified period
certain" income plan option, you may request a full withdrawal after the Income
Date; otherwise, no withdrawals are permitted after the Income Date). You may
make your withdrawal request in writing or by telephone. See "Requesting
Payments," page __. Any withdrawal must be at least $250. We will pay you the
withdrawal amount in one sum. Under certain circumstances, we may delay this
payment. See "Requesting Payments," page __ .
When you request a withdrawal, you can direct how the withdrawal will
be deducted 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.
A PARTIAL WITHDRAWAL WILL REDUCE YOUR DEATH BENEFIT AND MAY BE SUBJECT
TO A SURRENDER CHARGE AND MARKET VALUE ADJUSTMENT. (SEE "WHAT ARE THE EXPENSES
UNDER A CONTRACT?" AND "DOES THE CONTRACT HAVE A DEATH BENEFIT?")
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Please note that if your requested withdrawal would reduce your Account
Value below $2,000, we reserve the right to treat the request as a withdrawal
of only the excess over $2,000.
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 Variable Sub-Accounts and/or the Fixed Sub-Accounts. You
select the day withdrawals will be taken, but this day can be no later than the
28th day of the month. If a day is not selected, the day of each month that
corresponds to your Contract Date will be used. 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 specify otherwise. Any amount in
excess of the Free Withdrawal Amount may be subject to a
surrender charge (see "Surrender Charge," page ___). Also, any
amount in excess of interest earned on a Fixed Sub-Account in
the prior period ordinarily will be subject to a Market Value
Adjustment (see "Market Value Adjustment," page ___).
You may elect to participate in the systematic partial withdrawal
program at any time before the Income Date by providing Satisfactory Notice.
Once we have received 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
offering 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.
IRA PARTIAL WITHDRAWAL PROGRAM
If your Contract is an IRA Contract and you will attain age 70 1/2 in
the current calendar year, distributions may be made to satisfy requirements
imposed by federal tax law. An IRA partial withdrawal provides payout of
amounts required to be distributed by the IRS rules governing mandatory
distributions under qualified plans. A notice before distributions must
commence will be sent, and you may elect this program at that time, or at a
later date.
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The IRA Partial Withdrawal program may not be elected while you are
participating in the systematic partial withdrawal program. IRA partial
withdrawals may be taken on a monthly, quarterly, semi-annual, or annual basis.
A minimum withdrawal of $100 is required. You select the day withdrawals will
be taken, but this day can be no later than the 28th day of the month. If a
day is not elected, the day of each month that corresponds to your Contract
date will be used.
REQUESTING PAYMENTS
You must provide us with Satisfactory Notice of your request for
payment. We will ordinarily pay any death benefit, withdrawal, or surrender
proceeds within seven days after receipt at our Customer Service Center of all
the requirements for such a payment. The amount will be determined as of the
date our Customer Service Center receives all such requirements.
We may delay making a payment, applying Account Value to an income
plan, or processing a transfer request if: (1) 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 (2) the SEC, by order, permits postponement of payment to protect our
Contract 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, or transfer
request for up to six months from the date we receive the request. If payment
is deferred 30 days or more, the amount deferred will earn interest at a rate
not less than the minimum required in the jurisdiction in which the Contract is
delivered.
8. HOW IS CONTRACT PERFORMANCE PRESENTED?
We may advertise or include in sales literature yields, effective
yields, and total returns for the Variable Sub-Accounts. Effective yields and
total returns for the Variable Sub-Accounts are based on the investment
performance of the corresponding Funds. THESE FIGURES ARE BASED ON HISTORICAL
PERFORMANCE AND DO NOT INDICATE OR PROJECT FUTURE RESULTS. We may also
advertise or include in sales literature a Variable Sub-Account's performance
compared to certain performance rankings and indexes compiled by independent
organizations, and we may present performance rankings and indexes without such
a comparison.
The yield of the Money Market Sub-Account refers to the annualized
income generated by an investment in the Sub-Account over a specified seven-day
period. The yield is calculated by assuming that the income generated for that
seven-day period is generated each seven-day period over a 52-week period. The
effective yield is calculated similarly but, when annualized, the income earned
by an investment in the Money Market Sub-Account is assumed to be reinvested.
The effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
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The yield of a Variable Sub-Account (except the Money Market
Sub-Account) refers to the annualized income generated by an investment in the
Variable Sub-Account over a specified 30-day or one-month period. The yield is
calculated by assuming that the income generated by the investment during that
30-day or one-month period is generated each period over a 12-month period.
The total return of a Variable Sub-Account refers to return quotations
assuming an investment under a Contract has been held in the Variable
Sub-Account for the stated times. Average annual total return of a Variable
Sub-Account tells you the return you would have experienced if you allocated a
$1,000 purchase payment to a Variable Sub-Account for the specified period.
Standardized average annual total return reflects all historical investment
results for the Variable Sub-Account, less all charges and deductions applied
against the Variable Sub-Account, including any surrender charge that would
apply if you surrendered your Contract at the end of each period indicated, but
excluding any deductions for purchase payment taxes. Standardized total return
may be quoted for various periods including 1 year, 5 years, and 10 years, or
from inception of the Variable Sub-Account if any of those periods are not
available. "Non-Standard" average annual total return information may be
presented, computed on the same basis as described above, except that
deductions will not include the Surrender Charge. In addition, we may from
time to time disclose average annual total return for non-standard periods and
cumulative total return for a Variable Sub-Account.
We may, from time to time, also disclose yield, standard total returns,
and non-standard total returns for the Funds. We may also disclose yield,
standard total returns, and non-standard total returns of funds or other
accounts managed by the Adviser or Sub-adviser with investment objectives
similar to those of the Funds, and Variable Sub-Account performance based on
that performance data. Non-standard performance will be accompanied by
standard performance.
In advertising and sales literature, the performance of each Variable
Sub-Account may be compared to the performance of other variable annuity
issuers in general or to the performance of particular types of variable
annuities investing in mutual funds, or investment series of mutual funds with
investment objectives similar to each of the Variable Sub-Accounts. Advertising
and sales literature may also compare the performance of a Variable Sub-Account
to the S&P 500 Composite Stock Price Index, a widely used measure of stock
performance. This unmanaged index assumes the reinvestment of dividends but
does not reflect any deduction for the expense of operating or managing an
investment portfolio. Other independent ranking services and indexes may also
be used as a source of performance comparison. We may also report other
information, including the effect of tax-deferred compounding on a Variable
Sub-Account's investment returns, or returns in general, which may be
illustrated by tables, graphs, or charts.
9. DOES THE CONTRACT HAVE A DEATH BENEFIT?
Your Contract provides two different types of death benefits for your
Beneficiary. There is the basic death benefit and the accidental death
benefit.
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BASIC DEATH BENEFIT
If any Owner dies before the Income Date, we will pay the Beneficiary
the greatest of:
(i) the Account Value determined as of the Business Day we receive
proof of death (if proof of death is received on other than a
Business Day, the proof will be deemed received on the next
following Business Day);
(ii) 100% of the sum of all purchase payments made under the
Contract, reduced by the amount of any prior withdrawal
(including any associated surrender charge and Market Value
Adjustment incurred); or
(iii) the highest anniversary value (the "Highest Anniversary
Value").
The Highest Anniversary Value is equal to the greatest anniversary
value attained in the following manner. When we receive proof of death, we
will calculate an anniversary value for each Contract Anniversary prior to the
date of the Owner's death, but not beyond the Owner's attained age 80. An
anniversary value for a Contract Anniversary is equal to (1) the Account Value
on that Contract Anniversary, (2) increased by the dollar amount of any
purchase payments made since the Contract Anniversary, and (3) reduced
proportionately by any withdrawals (including any associated surrender charge
and Market Value Adjustment incurred) taken since that Contract Anniversary.
(By proportionately, we take the percentage by which the withdrawal decreases
the Account Value and we reduce the sum of (1) and (2) by that percentage.)
If there are multiple Owners, the age of the oldest Owner will be used
to determine the applicable death benefit. If there is no Owner who is a
natural person (that is, an individual), we will treat the Annuitant as Owner
for the purpose of determining when the Owner dies and the Annuitant's age will
determine the death benefit payable to the Beneficiary.
OWNER'S DEATH BEFORE THE INCOME DATE. If an Owner dies before the
Income Date, the Beneficiary has up to five years from the Owner's date of
death to request that the death benefit be paid in one lump sum. If the lump
sum is elected and paid, the Contract will terminate, and we will have no
further obligations under the Contract. Alternatively, the Beneficiary may
provide us with Satisfactory Notice and request that the Contract continue, in
which case we will continue the Contract subject to the following conditions:
1. If there are joint Owners, the surviving Owner becomes
the new Owner. Otherwise, the Beneficiary becomes the
new Owner.
2. Unless otherwise specified, any excess of the death
benefit over the Account Value will be allocated to
and among the Variable and Fixed Accounts in
proportion to their values as of the date on which the
death benefit is
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determined. We will establish a new Fixed Sub-Account
for any allocation to the Fixed Account based on the
Guarantee Period the new Owner then elects.
3. No additional purchase payments may be applied to the
Contract.
However, certain distribution rules will apply to the continued
Contract. If the new Owner is not the deceased Owner's spouse, we must
distribute the entire interest in the Contract either: (i) over the life of
the new Owner, but not extending beyond the life expectancy of the new Owner,
with distributions beginning within one year of the prior Owner's death; or
(ii) within five years of the deceased Owner's death. These distributions, if
from the Fixed Account, are subject to our Market Value Adjustment rules.
Alternatively, if the new Owner is the deceased Owner's spouse, the
Contract will continue with the surviving spouse as the new Owner. The
surviving spouse may name a new Beneficiary. If no Beneficiary is so named,
the surviving spouse's estate will be the Beneficiary. Upon the death of the
surviving spouse, the death benefit will equal the Account Value as of the
Business Day we receive proof of the spouse's death. We will distribute the
entire interest in this contract to the new Beneficiary in accordance with the
provisions that apply in the case when the new Owner is not the surviving
spouse.
If there is more than one Beneficiary, the distribution provisions will
independently apply to each Beneficiary.
If no Owner of the Contract is an individual, the death of any
Annuitant under the Contract will be treated as the death of an Owner.
In all events, death benefit distributions will be made in accordance
with section 72(s) of the Code, or any applicable successor provision.
OWNER'S DEATH AFTER THE INCOME DATE. If any Owner dies on or after the
Income Date, but before the time the entire interest in the Contract has been
distributed, the remaining portion will be distributed at least as rapidly as
under the method of distribution being used as of the date of the Owner's
death.
If income payments have been selected based on an income plan providing
for payments for a guaranteed period and the Annuitant dies on or after the
Income Date, we will make the remaining guaranteed payments to the Beneficiary.
Any remaining payments will be made as rapidly as under the method of
distribution being used as of the date of the Annuitant's death. If no
Beneficiary is living, we will commute any unpaid guaranteed payments to a
single sum (on the basis of the interest rate used in determining the payments)
and pay that single sum to the estate of the last to die of the Annuitant or
the Beneficiary.
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ACCIDENTAL DEATH BENEFIT
Under certain circumstances, if the Owner dies before the Income Date,
we will provide an additional death benefit called the accidental death
benefit. This additional benefit will be equal to the purchase payments made
minus any withdrawals (including any associated surrender charge or Market
Value Adjustment incurred), determined as of the date of the Owner's death (or
the next Business Day if the Owner dies on other than a Business Day), up to a
maximum of $250,000.
To qualify for this benefit, the Owner's death must: (i) occur prior
to the first Contract Anniversary after the Owner attains age 80; and (ii) be a
direct result of accidental bodily injury, independent of all other causes. If
there is no Owner who is a natural person (that is, an individual), we will
treat the Annuitant as Owner and use the Annuitant's age for purposes of
determining whether the accidental death benefit is payable.
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 the benefit is
paid, when the Contract is surrendered or the entire Account Value is applied
to an income plan, when the interest in the Contract is distributed due to the
death of an Owner, or when you request termination of the benefit.
PROOF OF DEATH
Proof of death must be received at our Customer Service Center before
we will pay any death benefit. 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.
10. WHAT OTHER INFORMATION SHOULD I KNOW?
SEPARATE ACCOUNTS
THE SAGE VARIABLE ANNUITY 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. The
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Variable Account is used to support the Contracts as well as for other purposes
permitted by law. The Variable Account is registered with the SEC as a unit
investment trust under the 1940 Act and 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.
The Variable Account is divided 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 Trust (TM),
Morgan Stanley 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. Any dividend from net investment income and distribution from realized
gains from security transactions of a Fund are reinvested 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.
THE SAGE FIXED INTEREST ACCOUNT A. The Fixed Account is a separate
investment account under state insurance law. It is maintained separate from
our General Account and separate from any other separate account that we may
have. We own the assets in the Fixed Account. 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. Such 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. The Fixed Account is not required to be
registered as an investment company under the 1940 Act.
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 in accordance with instructions
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received from Owners with Account Value in the Variable Sub-Accounts. To
obtain voting instructions from Owners, before a meeting of shareholders of the
Funds, we will send Owners voting instruction materials, a voting instruction
form, and any other related material. Shares held by a Variable Sub-Account
for which no timely instructions are received will be voted by us in the same
proportion as those shares for which voting instructions are received. Should
the 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.
MODIFICATION
When permitted by applicable law, we may modify the Contracts as
follows: (1) deregister the Variable Account under the 1940 Act; (2) operate
the Variable Account as a management company under the 1940 Act if it is
operating as a unit investment trust; (3) operate the Variable Account as a
unit investment trust under the 1940 Act if it is operating as a managed
separate account; (4) restrict or eliminate any voting rights of Owners, or
other persons who have voting rights as to the Variable Account; (5) combine
the Variable Account with other separate accounts; and (6) 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 or that
the Variable Account may purchase; 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.
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 corporation
organized under the laws of the state of Delaware in 1997, is 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. The Contracts are offered on a continuous basis and we
do not anticipate discontinuing their sale. The Contracts may not be available
in all states.
The Contracts are sold by broker-dealers through registered
representatives of such broker-dealers 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
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payments (up to a maximum of 6%). 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 for the year ended December 31, 1997, as set forth in their report,
which is included in this Prospectus. Our financial statements are included 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, Sage Life's 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, Sage Life believes 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, you will be sent a report
showing information about your Contract for the period covered by the report.
You will also be sent 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, you will receive a confirmation of these
transactions.
ASSIGNMENT
You may assign your Contract at any time prior to the Income Date. 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 the
assignment is accepted by us. 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.
CHANGE OF OWNER, BENEFICIARY, OR ANNUITANT
During your lifetime and while your Contract is in force, you can
transfer ownership of your Contract, change the Beneficiary, or change the
Annuitant. However, the Annuitant cannot be changed after the Income Date. To
make any of these changes, you must send us Satisfactory
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Notice. If accepted, any change in Owner, Beneficiary, or Annuitant will take
effect on the date you signed the notice. Any of these changes will not affect
any payment made or action taken by us before our acceptance. A CHANGE IN
OWNER MAY BE A TAXABLE EVENT AND MAY ALSO EFFECT THE AMOUNT OF DEATH BENEFIT
PAYABLE UNDER YOUR CONTRACT.
MISSTATEMENT AND PROOF OF AGE, SEX, OR SURVIVAL
We may require proof of age, sex, or survival of any person upon whose
age, sex, or survival any payments depend. If the age or sex of the Annuitant
has been misstated, or if the age of the Owner has been misstated, the benefits
will be those that the Account Value applied would have provided for the
correct age and sex. If we have made incorrect income payments, we will pay
the amount of any underpayment. The amount of any overpayment will be deducted
from future income payments.
INCONTESTABILITY
Your Contract is incontestable from its Contract Date.
AUTHORITY TO MAKE AGREEMENTS
All agreements made by us must be signed by one of our officers. 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.
PREPARING FOR THE YEAR 2000
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the year 2000. This potential problem has become known as the "Year 2000
issue." The Year 2000 issue affects virtually all companies and organizations.
Computer applications that are affected by the Year 2000 issue could
impact the Company's business functions in various ways, ranging from a
complete inability to perform critical business functions to a loss of
productivity in varying degrees. Likewise, the failure of some computer
applications could have no impact on critical business functions. The Company
used these issues as critical components in the evaluation and selection of
in-house systems and of third party administrators.
Since the Company plans to outsource most of its operating functions,
there will only be a limited number of in-house systems utilized. At present,
the only in-house system utilized is the accounting system. This system was
certified as Year 2000 compliant before it was selected and installed for
operation. The Company also intends to purchase a reserve valuation system
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and a reinsurance system. Year 2000 compliance will be a critical component in
the evaluation and selection process for those two systems.
The Company has various third party administrators (including
investment advisors, brokers, transfer agents, and other financial services
institutions) for the processing of such tasks as contract administration, fund
administration, underwriting and investment administration. The quality of
these third party administrators was of paramount importance in the selection
process.
Although the Company has received assurances from all of its third
party administrators, it is currently working with them to assess all Year 2000
issues associated with the processing of the Company's applications. This
assessment involves the testing of the data being processed by third party
administrators and electronically interfaced into the Company's accounting
system. As to outside organizations from which the Company will not be relying
on electronic interface, the Company will be relying on responses to
questionnaires supplied to these service providers as to their status on Year
2000 compliance. Based upon the responses received from these third party
administrators, the Company will develop a plan to assure Year 2000 compliance
by all third party administrators. The Company anticipates completing all
testing well in advance of January 1, 2000. As this testing has and continues
to be done in the normal course of system development, the Company has not
budgeted any costs associated with the Year 2000 issue. In addition, Year 2000
costs have been deemed immaterial.
The failure of any of the Company's third party administrators to
achieve complete compliance could have a material adverse effect on the
Company's ability to conduct its business, including delays in calculating unit
values, redeeming shares, delivering account statements and providing other
information, communication and servicing to Contract Owners. The Company
believes that it has taken the necessary provisions, both through selection and
testing, to assure that it will not experience any material adverse effects on
the Company's ability to conduct its business. The Company does however
realize the importance of this issue and is currently developing a detailed
contingency plan for operations in the unlikely event one or more of its third
party administrators is unable to fulfill its obligations.
FINANCIAL STATEMENTS
No financial statements are presented for the Variable Account because
it has yet to commence operations.
The audited financial statements for Sage Life for the year ended
December 31, 1997 are included in this Prospectus. These financial statements
should be considered only as bearing on the ability of Sage Life to meet its
obligations under the Contracts. They should not be considered as bearing on
the investment performance of the assets held in the Variable Account.
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11. HOW CAN I MAKE INQUIRIES?
Inquiries regarding your Contract may be made 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.
12. ADDITIONAL INFORMATION ABOUT SAGE LIFE ASSURANCE OF AMERICA, INC.
HISTORY AND BUSINESS
Ownership
Sage Life Assurance of America, Inc. 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 a
majority of states.
The Company's formation was sponsored in 1981 by Fidelity Mutual Life
Insurance Company, a Pennsylvania insurer, under the name of Fidelity Standard
Life Insurance Company ("Fidelity Life"). Fidelity Life was acquired by
Security First Life Insurance Company ("Security First") of Los Angeles,
California in December 1984. In January 1997, Fidelity Life was acquired by
Sage Insurance Group, Inc. ("Sage Insurance Group") (formerly Finplan
Investment Corp.), a Delaware corporation and an indirect subsidiary of Sage
Group Limited ("Sage Group"), a South African corporation, which is the
Company's ultimate parent. The Company changed to its present name in September
1997. In December, 1998, a new company, Sage Life Holdings of America, Inc., was
formed by Sage Insurance Group to act as the new immediate parent of the
Company. This 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 Internal Revenue
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, all of the remaining annuity
business of Fidelity Life was assumption reinsured by Security First. Security
First is now a subsidiary of The Metropolitan Life Insurance Company.
Holding Company Structure and Background
As mentioned above, the Company is a wholly owned subsidiary of Sage
Life Holdings of America, Inc. ("Sage Life Holdings"), which in turn is a wholly
owned subsidiary of Sage Insurance Group, a holding company for affiliated
entities connected with the life and annuity insurance business in the United
States. The Company is also an indirect wholly owned subsidiary of 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
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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.
Sage Group signed a letter of intent with Swiss Re Life and Health
America, Inc. ("Swiss Re") on December 1, 1998. Swiss Re's ultimate parent is
Swiss Reinsurance Company, Switzerland, one of the world's largest life and
health reinsurance groups. The letter of intent contemplates that Swiss Re
will enter into reinsurance arrangements with the Company. In addition, it
provides for an investment by Swiss Re in a newly formed company, Sage Life
Holdings, that has become the immediate parent of the Company and a wholly-owned
subsidiary of Sage Insurance Group. The arrangements contemplated by the letter
of intent may be subject to regulatory approval.
SELECTED FINANCIAL DATA
The historical financial results of the Company for the calendar year
1996 and all prior years are not comparable to the results for the years 1997
and 1998 due to the substantial change in the business operations of the
Company. The Company 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 policy contracts of the Company other than the small
number of contracts that were not 100% assumption reinsured to the Company's
former parent company. These insurance liabilities were subsequently reinsured
during 1998. Effectively, therefore, since January 1997, the Company became
comparable to a new company that had not yet commenced business activities.
The following selected financial data as of December 31, 1997 and for
the year then ended, has been derived from the audited financial statements of
the Company. The following selected financial data as of October 31, 1998 and
for the ten months then ended, has been derived from the unaudited financial
statements of the Company, which have been prepared on the same basis as the
Company's audited financial statements and, in the opinion of management,
contain all adjustments consisting of only normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations for this period. The results of operations for the ten months ended
October 31, 1998 may not be indicative of results for the full year. The data
set forth below should be read in conjunction with the financial statements,
including related notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
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Selected Financial Data
(in thousands)
<TABLE>
<CAPTION>
Ten months
ended Year ended
October 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Income Statement Data:
Revenues:
Net investment income $1,075 $ 989
Expenses:
Amortization expense 337 325
General and administrative expenses 1,071 1,016
------- ------
Total expenses 1,408 1,341
Loss before taxes (332) (352)
Income tax expense - -
-------- -------
Net loss $ (332) $ (352)
======== =======
Balance Sheet Data:
Total Assets $36,317 $36,689
Stockholder's Equity $36,242 $33,202
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Introduction
The following discussion highlights significant factors influencing the
results of operations of the Company. It should be read in conjunction with
the Company's financial statements and the related notes included in this
Prospectus.
History and Business Overview
In early 1999, the Company plans to commence marketing of new variable
insurance products. The Company was acquired by Sage Insurance Group on
December 31, 1996, and since that date has been preparing for the
recommencement of insurance underwriting and marketing activities. (Prior to
the acquisition of the Company, all new business production and marketing
ceased in October 1996.) There has been a total reengineering of the Company's
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products, systems and administration since the change of ownership. All of the
Company's current senior management are experienced in the insurance industry
(either in the United States or in South Africa) and most have been recruited
since January 1997. The ongoing business strategy of the Company is to focus
its activities on the development, underwriting, and marketing of variable
insurance products. The Company's obligations under these contracts are (1)
variable accounts -- determined by the value of investments held in separate
accounts, and (2) fixed accounts -- backed by investments held in separate
accounts. Assets of these separate accounts that equal the reserves and other
liabilities supporting the contracts to which they relate, may not be used to
pay any other obligations or creditors of the Company. The Contracts initially
will be distributed through banks. The Company currently anticipates that,
over the long-term, its distribution channels will expand to include
wirehouses, regional broker-dealers and financial planners.
Results of Operations
Net losses for the ten months ended October 31, 1998 were $332,442 and
were $351,786 for the year ended December 31, 1997. As the Company is not
currently underwriting or marketing insurance products, all revenue for 1998
and 1997 is derived from investing activities. Effective investment yields for
the Company's General Account were 5.3% for the ten months ended October 31,
1998, and 5.4% for the year ended December 31, 1997. General expenses incurred
in financing of the Company's daily activities more than offset investment
revenue. As the Company commences business in 1999, management anticipates
that revenues will increase primarily by charges and fees associated with
products being offered, while expenses will increase by acquisition expenses,
the cost of administering this new business and the payment of benefits.
The Company has capitalized certain costs that have been incurred in
the development and registration of the Company's insurance products and have
been paid for by Sage Insurance Group. These development costs are being
amortized on a straight line basis over fifteen years. Accumulated amortization
at October 31, 1998 and December 31, 1997 was $234,474 and $93,637,
respectively.
In April 1998, Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" (SOP 98-5) was issued. SOP 98-5 requires entities to
charge to expense all start-up costs as incurred. SOP 98-5 is effective for
years beginning after December 15, 1998 (i.e., January 1, 1999). In addition,
SOP 98-5 requires entities upon adoption to write-off as the cumulative effect
of a change in accounting principle any previously unamortized capitalized
start-up costs. Accordingly, the Company will be required to write-off any
unamortized capitalized development costs on January 1, 1999.
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Liquidity and Capital Resources
Since the beginning of 1997, the Company's primary cash needs have been
for the development of its insurance products and related infrastructure and to
fund the daily operations of the Company. The Company's cash needs have been
met through interest income and capital contributions from Sage Insurance
Group.
During 1999, the Company expects its cash needs will continue to
increase as its underwriting and marketing activities begin. The Company
anticipates that it will be unable to meet all of its liquidity requirements in
1999 without capital contributions from Sage Insurance Group. However, as
discussed above, Swiss Re has made an equity investment in a newly formed
holding company, Sage Life Holdings, that will provide an additional source of
funds to the Company for new business expenses. In addition, although not
required to do so, the Company believes that Sage Insurance Group will continue
to provide capital to the Company for its non-recurring costs associated with
new products and business development during 1999. The Company's future
marketing efforts could be hampered in the unlikely event that Swiss Re, Sage
Insurance Group and/or their affiliates are unwilling to commit additional
funding.
Segment Information
The Company currently plans to conduct its business as a single segment,
and anticipates that this segment will eventually include all of the following
products:
- Combination fixed and variable deferred annuities.
- Combination fixed and variable immediate annuities.
- Combination fixed and variable life insurance products.
Reinsurance
The Company intends to enter into a coinsurance reinsurance arrangement
with Swiss Re, pursuant to which Swiss Re will reinsure a significant portion
of the Company's liabilities under its variable insurance contracts. This
arrangement will provide additional capacity for growth of the Company's
variable insurance business.
In addition, the Company intends to reinsure certain mortality risks
associated with the guaranteed minimum death benefit and accidental death
benefit features of the Contracts. The Company intends to use only highly
rated reinsurance companies to reinsure these risks.
Reinsurance does not relieve the Company from its obligations to
Contract Owners. The Company remains primarily liable to its Contract Owners
to the extent that any reinsurer does not meet its obligations under the
reinsurance agreements.
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Reserves
In accordance with the insurance laws and regulations under which it
operates, the Company is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on outstanding
contracts. Reserves involving life contingencies are based on mortality tables
in general use in the United States and, where applicable, are computed to
equal amounts which, together with interest on such reserves computed annually
at certain assumed rates, will be sufficient to meet the Company's Contract
obligations at their maturities, or the event of the Contract Owner's death. In
the financial statements included in this Prospectus, all reserves have been
determined in accordance with generally accepted accounting principles. 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 October 31, 1998.
Investments
The Company's General Account cash and invested assets of $25.6 million
and $25.3 million at October 31, 1998 and December 31, 1997, respectively, were
invested entirely in investment grade securities and money market funds. It is
the stated policy of the Company to refrain from investing in securities having
speculative characteristics. The Company's 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
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 Contract Owners 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 shareholders
within five business days after declaration and at least ten days prior to
payment. At December 31, 1997, the maximum amount of dividends the Company
could have paid its parent without prior approval from state regulatory
authorities was $2,501,775.
New Accounting Standards
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130),
which establishes new rules for the reporting and display of comprehensive
income and its components, consisting of net income and other comprehensive
income. The accumulated balance of other comprehensive income is required to
be reported separately in stockholder's equity. The Company's only
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component of other comprehensive income is net unrealized gains or losses on
available-for-sale securities, which is reported separately in stockholder's
equity. The adoption of SFAS 130 had no impact on the Company's net income or
stockholder's equity.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards
for the reporting of operating segment information in both annual financial
reports and interim financial reports issued to shareholders. Operating
segments are components of an entity for which separate financial information
is available and is evaluated regularly by the entity's chief operating
management. SFAS is effective for fiscal year 1998 and is not anticipated to
have a material impact on the Company.
COMPETITION
The Company is 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 those being offered by the
Company. 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 the Company. The Company is
unique in that it is one of the few life insurers that confines its activities
to the marketing of separate account variable insurance products.
TRANSACTIONS WITH SAGE INSURANCE GROUP
In 1997 the Company entered into a Cost Sharing Agreement with Sage
Insurance Group to share 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
$109,923 from Sage Insurance Group for the ten months ended October 31, 1998
and paid expenses of $76,048 for the year ended December 31, 1997. In
addition, Sage Insurance Group provides funds to the Company to meet various
operating expenses. These amounts are paid back to Sage Insurance Group at the
end of each quarter.
Sage Insurance Group has also incurred expenditures in connection with
the costs of establishing new systems, new products, and premises for the
Company. The amount of these developmental costs paid for by companies
affiliated with Sage Life on October 31, 1998 and December 31, 1997 were
$2,749,628 and $1,504,558, respectively. Sage Insurance Group regards these
expenditures as being of a developmental nature and does not intend to recover
these expenditures from the Company. Accordingly, these expenditures have been
capitalized as development costs and reflected as contributed capital in the
Company's financial statements.
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EMPLOYEES
Due to the Company's business strategy of outsourcing its primary
administrative and investment functions to organizations that specialize in
these areas, the number of full time personnel employed by the Company will be
limited. As of October 31, 1998, the Company had 14 employees. As of December
31, 1997, the Company had 8 employees.
PROPERTIES
The Company's executive office is located at 300 Atlantic Street, in
Stamford, Connecticut, where the Company's primary records are maintained.
Customer records, however, are maintained at the Company's Customer Service
Center.
Sage Insurance Group leases the Company's office space. The Company
reimburses Sage Insurance Group for the office space under the Cost Agreement
described above.
STATE REGULATION
The Company is 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"). A detailed financial statement in the
prescribed form (the "Statement") is filed with the Insurance Department each
year covering the Company's operations for the preceding year and its financial
condition as of the end of that year. Regulation by the Insurance Department
means that the Insurance Department may examine the Company and its books and
records to determine, among other things, whether contract liabilities and
reserves as stated by the Company are correct. A full examination of the
Company's operations will be conducted periodically by the Insurance Department
under the auspices of the NAIC.
In addition, the Company is subject to regulation under the insurance
laws of all jurisdictions in which it operates. 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. The Company is
required to file the Statement with supervisory agencies in each of the
jurisdictions in which it does business, and its 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
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calculate their risk-based capital in accordance with this formula and to
include the results in their Statement. It is anticipated that these standards
will have no significant effect upon the Company.
Further, many states regulate affiliated groups of insurers, such as
the Company and its 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. The insurance products of the Company 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, removal of barriers preventing banks from engaging in the
insurance business, tax law changes affecting the taxation of insurance
companies, and the tax treatment of insurance products and its impact on the
relative desirability of various personal investment vehicles.
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS
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, Trustee, Sage Life
Age 60 Chairman, 2/98 to present Investment Trust, 7/98 to
present; Director, Sage Life
Assurance Company of New York, 5/98 to
present; Vice 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
present; President, Chief
Executive Officer, Sage Life
Assurance of America Inc.,
1/97-2/98; Director, Sage
Distributors, Inc., 1/98 to
present; Director, President, Chief
Executive Officer, Sage
</TABLE>
58
<PAGE> 80
<TABLE>
<S> <C> <C>
Management Services (USA),
Inc., 6/96 to present; Owner,
Sheldon Scowby Resources
7/95-6/96; Executive Vice
President, Mutual of America
Life Insurance Group, 6/91-
7/95; President, Mutual of
America Financial Services,
6/91-7/95
Robin I. Marsden(1) Director, 1/97 to Trustee, Sage Life Investment
Age 33 present, President and Chief Trust, 7/98 present; Director,
Executive Officer, 2/98 to Sage Life Assurance Company of
present 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.; Investments Director,
Sage Life Holdings, Ltd.,
11/94 to 1/98;
Executive-Strategic
Developments, Sage Group Ltd.,
11/94 to 1/98; Partner and
Management Consultant Deloitte
& Touche 1/89-10/94
H. Louis Shill(2) Director, Director, Sage Life Assurance
Age 68 1/97 to present Company 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
Paul C. Meyer(3) Director, Director, Sage Life Assurance
Age 45 1/97 to present Company of New York 5/98 to
present; Partner, Rogers & Wells,
1986 to present
Richard D. Starr(4) Director, Director, Sage Life Assurance
Age 54 1/97 to present Company of New York, 5/98 to
present; President, First
Interstate Securities,
1/95-
</TABLE>
59
<PAGE> 81
<TABLE>
<S> <C> <C>
12/95; Chairman & Chief
Executive Officer, Financial
Institutions Group, Inc., 10/78
to present
Mitchell R. Katcher(1) Director, 12/97 to Vice President, Sage Life
Age 45 present, Senior Investment Trust, 7/98 to
Executive Vice present; Director, Sage
President, Chief Life Assurance Company of New
Financial Officer, York, 5/98 to present; Director,
Chief Actuary Treasurer, Sage Advisors, Inc.,
5/97 to present 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.
</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.
COMPENSATION
Executive officers of the Company also serve as officers of its parent
and of certain affiliated companies. Cost allocations to the Company have been
made as to certain individual's time devoted to their duties with the Company.
No allocation was made during 1997 nor will any be made for 1998 for the
services of Mr. Shill. No allocation was made during 1997 for the services of
Mr. Marsden.
The following table includes compensation paid by Sage Life for
services rendered in all capacities for the years indicated for the Chief
Executive Officer and the other Executive Officers compensated more than
$100,000 for the year ended December 31, 1997.
60
<PAGE> 82
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Principal Position Year Salary Bonus(1) All Other Compensation(2)
- --------------------------- ---- ------ -------- -------------------------
<S> <C> <C> <C> <C>
Ronald S. Scowby, 1997 $337,500 $100,000 $0
President and Chief Executive
Officer(3)
Mitchell R. Katcher, 1997 $114,583 $265,000 $0
Senior Executive
Vice President, Chief Financial
Officer and Chief Actuary
</TABLE>
(1) The amount shown relates to bonuses paid in 1998 for services rendered in
1997.
(2) The amount shown relates to deferred compensation earned in 1997.
(3) Mr. Scowby's salary and bonus are paid by Sage Management Services (USA),
Inc.
Outside directors of the Company are paid $12,000 and $2,000 per meeting
attended. For the year ended December 31, 1997, the outside directors each were
paid $20,000. Directors who are officers or employees of the Company or its
affiliates are not compensated for serving on the Board. Directors do not
receive retirement benefits.
61
<PAGE> 83
Report of Independent Auditors
Board of Directors
Sage Life Assurance of America, Inc.
We have audited the accompanying balance sheet of Sage Life Assurance of
America, Inc. (formerly Fidelity Standard Life Insurance Company) as of
December 31, 1997, and the related statements of operations, stockholder's
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides 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 of December 31, 1997, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Stamford, Connecticut
April 22, 1998
/s/ Ernst & Young LLP
62
<PAGE> 84
Sage Life Assurance of America, Inc.
Balance Sheets
<TABLE>
<CAPTION>
OCTOBER 31, 1998
(unaudited) DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale, at fair value $3,604,066 $ 3,595,326
Short-term investments 2,579,083 21,530,888
------------ ----------
Total investments 6,183,149 25,126,214
Cash and cash equivalents 19,422,092 228,605
Accrued investment income 130,929 58,039
Receivable from affiliates 48,769 25,941
Reinsurance recoverable - 2,728,284
Other assets 5,000 11,443
Goodwill 6,606,236 6,802,300
Development costs 3,919,711 1,310,921
Separate account assets - 396,992
------------ ------------
Total assets $36,315,886 $36,688,739
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued expenses $ 2,005 $ 180,442
Policy liabilities 2,728,284
Deferred income taxes 36,220 26,227
Amounts payable to affiliates 36,454 154,366
Separate account liabilities - 396,992
------------ ------------
Total liabilities 74,679 3,486,311
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 34,355,127 31,005,508
Unrealized gains on investment 70,308 48,706
Retained deficit (684,228) (351,786)
------------ ------------
36,241,207 33,202,428
------------ ------------
$36,315,886 $ 36,688,739
=========== ============
</TABLE>
See accompanying notes to financial statements.
63
<PAGE> 85
Sage Life Assurance of America, Inc.
Statements of Operations
<TABLE>
<CAPTION>
TEN MONTHS ENDED
OCTOBER 31, 1998 YEAR ENDED
(unaudited) DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
REVENUES
Investment income $ 1,075,251 $ 989,494
EXPENSES
Amortization expense 336,901 325,406
General and administrative expenses 1,070,792 1,015,874
--------- ---------
Total expenses 1,407,693 1,341,280
--------- ---------
Loss before taxes (332,442) (351,786)
Income tax expense - -
------------ ------------
Net loss $ (332,442) $ (351,786)
============ ===========
</TABLE>
See accompanying notes to financial statements.
64
<PAGE> 86
Sage Life Assurance of America, Inc.
Statements of Stockholder's Equity
<TABLE>
<CAPTION>
TEN MONTHS ENDED
OCTOBER 31, 1998 YEAR ENDED
(unaudited) DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
Common stock; balance at beginning and end of year: $ 2,500,000 $ 2,500,000
Additional paid-in capital:
Balance at beginning of year 31,005,508 15,505,558
Additional capital contributions 3,349,619 15,500,000
------------ ----------
Balance at end of year 34,355,127 31,005,508
Unrealized investment gains:
Balance at beginning of year 48,706 -
Change in unrealized gain 21,602 48,706
------ ------
Balance at end of year 70,308 48,706
Retained earnings:
Balance at beginning of year (351,786) -
Net loss (332,442) (351,786)
--------- ---------
Balance at end of year (684,228) (351,786)
--------- ---------
Total stockholder's equity $36,241,207 $33,202,428
=========== ===========
</TABLE>
See accompanying notes to financial statements.
65
<PAGE> 87
Sage Life Assurance of America, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER 31, 1998 YEAR ENDED
(unaudited) DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (332,442) $ (351,786)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Amortization expense 336,901 325,406
Changes in:
Accrued investment income (72,890) (29,638)
Receivable from affiliates (22,828) (25,941)
Other assets 6,443 (11,443)
Accrued expenses (178,437) 116,216
Amounts payable to affiliates (117,912) 154,366
--------- -------
Net cash (used in) provided by operating activities (381,165) 177,180
INVESTING ACTIVITIES
Proceeds from sales, maturities and repayments of - 42,941
fixed maturity securities
Net sales [purchases] of short-term investments 18,974,652 (15,507,987)
---------- ------------
Net cash provided by (used in) investing activities 18,974,652 (15,465,046)
FINANCING ACTIVITIES
Capital contribution from the parent 600,000 15,500,000
------- ----------
Net cash provided by financing activities 600,000 15,500,000
------- ----------
Increase in cash and cash equivalents 19,193,487 212,134
Cash and cash equivalents at beginning of period 228,605 16,471
------- ------
Cash and cash equivalents at end of period $ 19,422,092 $ 228,605
================= ===============
</TABLE>
See accompanying notes to financial statements.
66
<PAGE> 88
Sage Life Assurance of America, Inc.
Notes to Financial Statements
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATION
Sage Life Assurance of America, Inc. (the "Company") is a wholly-owned indirect
subsidiary of Sage Insurance Group, Inc., ("SIGI") which is a wholly-owned
indirect subsidiary of Sage Group Limited, a South African company.
DESCRIPTION OF BUSINESS
Effective December 31, 1996, SIGI purchased from Security First Life Insurance
Company (SFLIC) all of the outstanding stock of Fidelity Standard Life
Insurance Company (Fidelity Standard), a Delaware domiciled life insurance
company licensed to sell fixed and variable annuity contracts. As a result of
the purchase, Fidelity Standard was renamed Sage Life Assurance of America,
Inc. Effective October 31, 1996, Fidelity Standard entered into a modified
coinsurance arrangement to cede all of its separate account liabilities to its
then parent, SFLIC. Assets equal to the total reserves and related liabilities
were transferred to SFLIC. The remaining general account liabilities were ceded
under a 100% coinsurance arrangement with SFLIC. In connection with the
purchase of Fidelity Standard, the Company entered into a service agreement
with SFLIC to provide all necessary administrative services for all ceded
business.
The Company is in the process of developing and preparing to market variable
annuity and variable life insurance products. The marketing of these products
is expected to begin in the first quarter 1999. Sage Distributors Inc.
(formerly Finplan of America, Inc.), an affiliated broker/dealer, will
distribute the variable products as principal underwriter. (Selling agreements
will be entered into with other broker/dealers that will sell the variable
insurance products). Sage Advisors, Inc., an affiliate, will provide investment
management services to registered investment companies (mutual funds). These
mutual funds are in the process of being developed.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. The information presented herein
with respect to the period as of and for the ten months ended October 31, 1998,
is unaudited.
NEW ACCOUNTING PRONOUNCEMENT
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), which
establishes new rules for the reporting and display of comprehensive income and
its components, consisting of net income and other comprehensive income. The
accumulated balance of other comprehensive income is required to be reported
separately in stockholder's equity. The Company's only component of other
comprehensive income is net unrealized gains or losses on available-for-sale
securities, which is reported separately in stockholder's equity. The adoption
of SFAS 130 had no impact on the Company's net income or stockholder's equity.
67
<PAGE> 89
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards
for the reporting of operating segment information in both annual financial
reports and interim financial reports issued to shareholders. Operating
segments are components of an entity for which separate financial information
is available and is evaluated regularly by the entity's chief operating
management. SFAS 131 is effective for fiscal year 1998 and is not anticipated
to have a material impact on the Company.
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.
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.
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 are carried at fair value. 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 statement of operations.
POLICY LIABILITIES
Policy liabilities consist of deposits received plus credited interest, less
accumulated policyholder charges, assessments, and withdrawals related to
annuities of a nonguaranteed return nature. Interest crediting rates ranged
from 5.5% to 7.0%.
68
<PAGE> 90
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 October 31, 1998 and December 31,
1997 was $427,833 and $231,769, respectively.
DEVELOPMENT COSTS
The Company has capitalized certain costs that have been incurred in the
development and registration of the Company's insurance products. These
development costs are being amortized on a straight line basis over fifteen
years. Accumulated amortization at October 31, 1998 and December 31, 1997 was
$234,474 and $93,637, respectively.
In April 1998, Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5), was issued. SOP 98-5 requires entities to charge to
expense all start-up costs as incurred. SOP 98-5 is effective for years
beginning after December 15, 1998 (i.e., January 1, 1999). In addition, SOP
98-5 requires entities upon adoption to write-off as the cumulative effect of a
change in accounting principle any previously unamortized capitalized start-up
costs. Accordingly, the Company will be required to write-off any unamortized
capitalized development costs on January 1, 1999.
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.
69
<PAGE> 91
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
2. INVESTMENTS
Investments in fixed maturity securities as of October 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUE
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Obligations $ 3,497,538 $106,528 - $3,604,066
===========================================================================
</TABLE>
Investments in fixed maturity securities as of December 31, 1997 consisted of
the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Obligations $3,520,393 $79,120 $4,187 $3,595,326
=========================================================================
</TABLE>
The amortized cost and fair value of fixed maturity securities by contractual
maturity at October 31, 1998 and December 31, 1997 are summarized below.
Actual maturities will differ from contractual maturities because certain
borrowers have the right to call or prepay obligations.
<TABLE>
<CAPTION>
October 31, 1998 AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Due in one year or less $ 815,082 $ 816,019
Due after five years through ten years 2,682,456 2,788,047
----------- -----------
Total $3,497,538 $3,604,066
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997 AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Due in one year or less $ 815,495 $ 811,308
Due after five years through ten years 2,704,898 2,784,018
----------- ----------
Total $3,520,393 $3,595,326
=========== ==========
</TABLE>
70
<PAGE> 92
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
Investment income by major category of investment for October 31, 1998 and
December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED
OCTOBER 31, 1998 DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
Bonds $193,303 $255,778
Short-term investments 823,179 720,556
Cash and cash equivalents 71,892 49,035
------ ------
Total investment income 1,088,374 1,025,369
Investment expenses 13,123 35,875
------ ------
Net investment income $1,075,251 $989,494
========== ========
</TABLE>
At October 31, 1998 and December 31, 1997, investment securities with an
amortized cost value of $6,076,620 and $6,128,048 and a fair value of
$6,184,066 and $6,202,980, 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 has filed a separate life insurance company Federal income tax
return for the period January 1, 1997 through December 31, 1997. The Company
will continue to file a separate life insurance company Federal income tax
return through the year 2001. Beginning in the year 2002, the Company will be
included in the consolidated Federal income tax return of Sage Holdings (USA),
Inc. and its subsidiaries.
The provision for income taxes varies from the amount that would be computed
using the federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
OCTOBER 31, 1998 DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
Pre-tax loss $ (332,442) $ (351,786)
Application of the federal statutory tax rate - 34% (113,030) (119,607)
Tax effect of:
State income taxes - (75)
Change in valuation allowance 113,030 119,532
------- -------
Total income tax provision $ - $ -
=========== ===========
</TABLE>
71
<PAGE> 93
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
Significant components of the Company's deferred tax assets and
liabilities as of October 31, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, 1998 DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,844,098 $ 756,521
--------------------- --------------------
Total deferred tax assets $ 1,844,098 $ 756,521
Deferred tax liabilities:
Unrealized gain on appreciation of investments (36,220) (26,227)
Amortization of goodwill and development costs (1,611,536) (636,989)
-------------------- -------------------
Total deferred tax liabilities (1,647,756) (663,216)
Valuation allowance for deferred tax assets (232,562) (119,532)
-------------------- -------------------
Net deferred tax liability $ (36,220) $ (26,227)
==================== ===================
</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.
At October 31, 1998, the Company has net operating loss carryforwards of $3.2
million for federal income tax purposes that expire in 2013 and $2.2 million
that expire in the year 2012.
4. REINSURANCE AND OTHER AGREEMENTS
Effective September 1, 1998, all of the in-force business of the Company was
novated to SFLIC, a subsidiary of the Metropolitan Life Insurance Company.
5. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory-basis capital and surplus and net income are $25,017,752 and $51,133
at and for the year ended December 31, 1997, respectively. The required
statutory capital and surplus at December 31, 1997 is $17,257,518.
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 shareholders
within five business days after declaration and at least ten days prior to
payment. At December 31, 1997, the maximum amount of dividends the Company
could pay SIGI without prior approval from state regulatory authorities is
$2,501,775.
72
<PAGE> 94
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS
In 1997, the Company entered into a Cost Sharing Agreement with SIGI 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 recorded income of
$109,923 from SIGI for the ten months ended October 31, 1998 and expenses of
$76,048 for the year ended December 31, 1997. In addition, SIGI provides funds
to the Company to meet various operating expenses. These amounts are paid back
to SIGI at the end of each quarter. At October 31, 1998 and December 31, 1997,
$12,315 and $100,000 of the amounts transferred to the Company remained payable
to SIGI, respectively.
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 October 31, 1998 and
December 31, 1997 were $2,749,628 and $1,504,558, respectively.
73
<PAGE> 95
Table of Contents of the
Statement of Additional Information
Additional information about the Contracts and The Sage Variable Annuity
Account A is contained in the Statement of Additional Information. You can
obtain a free copy of the Statement of Additional Information by writing to us
at the address shown on the front cover or by calling (877) 835-7243 (Toll
Free). The following is the Table of Contents for the Statement of Additional
Information.
Statement of Additional Information
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Historical Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money Market Sub-Account Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Sub-Account Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average Annual Total Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Total Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of the Annual Administration Charge on Performance Data . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Indexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Payment Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of Fixed Income Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of Variable Income Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Unit Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange of Income Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Safekeeping of Account Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
74
<PAGE> 96
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 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 or applied to an income plan in order to
provide the amount requested.
(N/365)
[(1+I)/(1+J+.0025)] - 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,
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, 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 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, or apply to an income plan.
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 or withdrawals affecting this Fixed Sub-Account
have been made, and no
A-1
<PAGE> 97
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)
2555/365
3. Market Value Adjustment = $124,230 x {[(1.07)/(1.0825)] -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 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
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 (365 x 7)
2555/365
3. Market Value Adjustment = $124,230 x {[(1.07)/(1.0625)] -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 seven-year Guarantee Period ("J") is 8.0% at the time of
withdrawal, no prior transfers or withdrawals affecting this Fixed Sub-Account
have been made, and no surrender charge is applicable.
A-2
<PAGE> 98
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)
2555/365
3. Market Value Adjustment = $100,000 x {[(1.07)/(1.0825)]
-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 or withdrawals affecting this Fixed
Sub-Account have been made, and no surrender charge is applicable.
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)
2555/365
3. Market Value Adjustment = $100,000 x {[(1.07)/(1.0625)]
- 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> 99
APPENDIX B
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 Amount Dollar Interest End of Month
of Month Account Value Averaging Cost Averaged Credited Account Value
- ---------- ------------- Monthly Factor ------------- For Month -------------
-------------- ---------
<S> <C> <C> <C> <C> <C>
24,117
1 24,000 - - 117 23,224
2 24,117 1 / 24 1,005 112 22,323
3 23,224 1 / 23 1,010 108 21,412
4 22,323 1 / 22 1,015 104 20,492
5 21,412 1 / 21 1,020 99 19,562
6 20,492 1 / 20 1,025 95 18,622
7 19,562 1 / 19 1,030 90 17,673
8 18,622 1 / 18 1,035 86 16,715
9 17,673 1 / 17 1,040 81 15,746
10 16,715 1 / 16 1,045 76 14,768
11 15,746 1 / 15 1,050 72 13,780
12 14,768 1 / 14 1,055 67 12,782
13 13,780 1 / 13 1,060 62 11,774
14 12,782 1 / 12 1,065 57 10,756
15 11,774 1 / 11 1,070 52 9,727
16 10,756 1 / 10 1,076 47 8,688
17 9,727 1 / 9 1,081 42 7,639
18 8,688 1 / 8 1,086 37 6,580
19 7,639 1 / 7 1,091 32 5,510
20 6,580 1 / 6 1,097 27 4,429
21 5,510 1 / 5 1,102 21 3,338
22 4,429 1 / 4 1,107 16 2,236
23 3,338 1 / 3 1,113 11 1,124
24 2,236 1 / 2 1,118 5 -
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> 100
To obtain a Statement of Additional Information for this Prospectus, please
complete the form below and mail to:
Sage Life Assurance of America, Inc.
Customer Service Center
1290 Silas Deane Highway
Wethersfield, CT 06109
Please send a Statement of Additional Information to me at the following
address:
- --------------------------------------------
Name
- --------------------------------------------
Address
- --------------------------------------------
City/State Zip Code
<PAGE> 101
STATEMENT OF ADDITIONAL INFORMATION
DATED _____________ ____, 1999
FLEXIBLE PAYMENT DEFERRED COMBINATION FIXED AND VARIABLE ANNUITY
CONTRACTS
issued by
THE SAGE VARIABLE ANNUITY ACCOUNT A AND SAGE LIFE ASSURANCE OF
AMERICA, INC.
Customer Service Center:
1290 Silas Deane Highway
Wethersfield, CT 06109
Telephone: (877) 835-7243
(Toll Free)
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Flexible Deferred Combination Fixed and Variable
Annuity Contracts (the "Contracts" offered by Sage Life Assurance of America,
Inc. ("we," "us," "our," "Sage Life," or the "Company"). You may obtain a copy
of the Prospectus dated ___________, by calling 1-877-835-7243 (Toll Free) or
by writing to our Customer Service Center at the above address. You may also
obtain a copy of the Prospectus by accessing the Securities and Exchange
Commission's website at http://www.sec.gov. Terms used in the current
Prospectus for the Contracts are incorporated into and made a part of this
Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
SHOULD BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR
THE CONTRACTS AND THE PROSPECTUSES FOR THE TRUSTS.
<PAGE> 102
Statement of Additional Information
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Historical Performance Data . . . . . . . . . . . . . . .
Money Market Sub-Account Yields . . . . . . . . . . . . . . . . . . .
Other Variable Sub-Account Yields . . . . . . . . . . . . . . . . . .
Average Annual Total Returns . . . . . . . . . . . . . . . . . . . . .
Other Total Returns . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of the Annual Administration Charge on Performance Data . . . .
Use of Indexes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Payment Provisions . . . . . . . . . . . . . . . . . . . . . . . .
Amount of Fixed Income Payments . . . . . . . . . . . . . . . . . . .
Amount of Variable Income Payments . . . . . . . . . . . . . . . . . .
Income Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Unit Value . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange of Income Units . . . . . . . . . . . . . . . . . . . . . . .
Safekeeping of Account Assets . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
i
<PAGE> 103
PARTICIPATION
The Contracts do not participate in the surplus or profits of the Company,
and the Company does not pay dividends on the Contracts.
BENEFICIARY DESIGNATION
This is as shown in the application. It includes the name of the
Beneficiary and the order and method of payment. If you name "estate" as a
Beneficiary, it means the executors or administrators of your estate. If you
name "children" of a person as a Beneficiary, only children born to or legally
adopted by that person as of an Owner's date of death will be included.
We may rely on an affidavit as to the ages, names, and other facts about
all Beneficiaries. We will incur no liability if we act on such affidavit.
CALCULATION OF HISTORICAL PERFORMANCE DATA
From time to time, we may disclose yields, total returns, and other
performance data of the Variable Sub-Accounts and the Funds. Such performance
data will be computed, or accompanied by performance data computed, in
accordance with the standards defined by the SEC.
MONEY MARKET SUB-ACCOUNT YIELDS
From time to time, advertisements and sales literature may quote the
current annualized yield of the Variable Sub-Account investing in the Money
Market Fund (the "Money Market Sub-Account") of the Sage Life Investment Trust
for a seven-day period in a manner that does not take into consideration any
realized or unrealized gains or losses on shares of the Money Market Fund.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) at the end of the seven-day period in
the value of a hypothetical account under a Contract having a balance of one
Accumulation Unit of the Money Market Sub-Account at the beginning of the
period, dividing such net change in Account Value by the value of the
hypothetical account at the beginning of the period to determine the base
period return, and annualizing this quotient on a 365-day basis. The net change
in Account Value reflects (i) net income from the Money Market Fund
attributable to the hypothetical account; and (ii) charges and deductions
imposed under a Contract which are attributable to the hypothetical account.
The charges and deductions include the per unit charges for the hypothetical
account for the annual administration charge and the Asset-Based Charges. For
purposes of calculating current yields for a Contract, an average per unit
annual administration charge is used based on the $40 Annual Administration
Charge. Current yield is calculated according to the following formula:
1
<PAGE> 104
<TABLE>
<S> <C>
Current Yield = ((NCS - ES)/UV) (365/7)
Where:
NCS = the net change in the value of the
Money Market Fund (exclusive of realized gains or
losses on the sale of securities, unrealized
appreciation and depreciation, and income other than
investment income) for the seven-day period
attributable to a hypothetical account having a balance
of one Accumulation Unit.
ES = per unit expenses attributable to the hypothetical
account for the seven-day period.
UV = the unit value for the first day of the seven-day period.
(365/7)
Effective Yield = (1+((NCS - ES)/UV)) -1
Where:
NCS = the net change in the value of the Money Market Fund
(exclusive of realized gains or losses on the sale of
securities, unrealized appreciation and depreciation and
income other than investment income) for the seven-day
period attributable to a hypothetical account having a
balance of one Accumulation Unit.
ES = per unit expenses attributable to the hypothetical
account for the seven-day period.
UV = the unit value for the first day of the seven-day period.
</TABLE>
Because of the charges and deductions imposed under the Contracts, the
yield for the Money Market Sub-Account is lower than the yield for the Money
Market Fund. Yield calculations do not take into account the surrender charge
that is assessed on certain withdrawals and surrender of Account Value.
The current and effective yields on amounts held in the Money Market
Sub-Account normally fluctuate on a daily basis. THEREFORE, THE DISCLOSED
YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF
FUTURE YIELDS OR RATES OF RETURN. The Money Market Sub-Account's actual yield
is affected by changes in interest rates on money market securities, average
portfolio maturity of the Money Market Fund, the types and quality of portfolio
securities held by the Money Market Fund and the Money Market Fund's operating
expenses. Yields on amounts held in the Money Market Sub-Account may also be
presented for periods other than a seven-day period.
2
<PAGE> 105
OTHER VARIABLE SUB-ACCOUNT YIELDS
The yield is computed by: 1) dividing the net investment income of the
Fund attributable to the Variable Sub-Account units less expenses allocated to
a Variable Sub-Account for the period; by 2) the maximum offering price per
unit on the last day of the period times the daily average number of
Accumulation Units outstanding for the period; and then 3) compounding that
yield for a six-month period; and then 4) multiplying that result by two (2).
Expenses allocated to a Variable Sub-Account include the Annual Administration
Charge and the Asset-Based Charges. The yield calculation assumes an annual
administration charge of $40 per Contract deducted at the end of each Contract
Year on the Contract Anniversary. For purposes of calculating the 30-day or
one-month yield, an average administration cost charge based on the average
Account Value in the Variable Sub-Account is used to determine the amount of
the charge attributable to the Variable Sub-Account for the 30-day or one-month
period. The 30-day or one-month yield is calculated according to the following
formula:
6
Yield = 2 x ((((NI - ES)/(U x UV)) + 1) -1)
Where:
NI = net income of the portfolio for the 30-day or one-month
period attributable to the Variable Sub-Account's units.
ES = expenses of the Variable Sub-Account for the 30-day or
one-month period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last day in
the 30-day or one-month period.
Because of the charges and deductions imposed under the Contracts, the
yield for the Variable Sub-Account is lower than the yield for the
corresponding Fund.
The yield on amounts invested in the Variable Sub-Accounts normally
fluctuates over time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD
IS NOT AN INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. A
Variable Sub-Account's actual yield is affected by the types and quality of
securities held by the corresponding Fund and that Fund's operating expenses.
Yield calculations do not take into account the surrender charge that is
assessed on certain withdrawals and surrenders of Account Value.
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns for one or more of the Variable Sub-Accounts for
various periods of time.
When a Variable Sub-Account or Fund has been in operation for 1, 5, and 10
years, respectively, the average annual total return for these periods will be
provided. Otherwise,
3
<PAGE> 106
average annual total return will be shown from inception of the Variable
Sub-Account. Average annual total returns for other periods of time may, from
time to time, also be disclosed.
Standard average annual total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the Surrender Value of that investment as of the last day
of each of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent calendar quarter-end
practicable, considering the type of the communication and the media through
which it is communicated.
Standard average annual total returns are calculated using Variable
Sub-Account unit values which we calculate on each Business Day based on the
performance of the Variable Sub-Account's underlying Fund. The calculation
assumes that annual Asset-Based Charges of 1.40% during the first seven
Contract Years (decreasing to 1.25% during Contract Years 8 and later) are
deducted monthly beginning on the Contract Date. The calculation also assumes
that the Annual Administration Charge is $40 per year per Contract deducted at
the end of each Contract Year during the first seven contract years. For
purposes of calculating average annual total return, an average per-dollar
per-day annual administration charge attributable to the hypothetical account
for the period is used. The calculation also assumes surrender of Account
Value at the end of the period for return quotation taking into account any
applicable Free Withdrawal Amount. The total return is calculated according to
the following formula:
1/N
TR = (ESV/P) -1
Where:
TR = the average annual total return for the period.
ESV = the Surrender Value of the hypothetical account
at the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns that do not reflect deduction of the Surrender
Charge. Other total returns are calculated in exactly the same way as average
annual total returns described above, except that the ending Surrender Value of
the hypothetical account for the period is replaced with an ending value for
the period that does not take into account any charges on amounts surrendered
or withdrawn.
4
<PAGE> 107
The Company may disclose cumulative total returns in conjunction with the
standard formats described above. The cumulative total returns will be
calculated using the following formula:
CTR = (ESV/P) - 1
Where:
CTR = The cumulative total return for the period.
ESV = The ending Surrender Value of the hypothetical investment
at the end of the period net of recurring charges.
P = A hypothetical single payment of $1,000.
EFFECT OF THE ANNUAL ADMINISTRATION CHARGE ON PERFORMANCE DATA
The Contracts provide for a $40 Annual Administration Charge (waived for
Contracts with Account Value of at least $50,000, or beginning on and after the
eighth Contract Year) that is deducted from the Sub-Accounts proportionately.
For purposes of reflecting the Annual Administration Charge in yield and total
return quotations, the average Account Value is assumed to be $30,000, so that
the annual administration charge is .1333%.
USE OF INDEXES
From time to time, the performance of certain historical indexes may be
presented in advertisements or sales literature. The performance of these
indexes may be compared to the performance of certain Variable Sub-Accounts or
Funds, or may be presented without such a comparison.
OTHER INFORMATION
The following is a partial list of those publications which may be noted in the
Funds' sales literature and/or shareholder materials which contain articles
describing investment results or other data relative to one or more of the
Variable Sub-Accounts. Other publications may also be cited.
Broker World Financial World
Across the Board Advertising Age
American Banker Barron's
Best's Review Business Insurance
Business Month Business Week
Changing Times Consumer Reports
The Economist Financial Planning
Forbes Fortune
Inc. Institutional Investor
Insurance Forum insurance Sales
Insurance Week Journal of Accountancy
Journal of Financial Service Professionals Journal of Commerce
Life Insurance Selling Life Association News
MarketFacts Manager's Magazine
5
<PAGE> 108
National Underwriter Money
Morningstar, Inc. Nation's Business
New Choices (formerly 50 Plus) The New York Times
Pension World Pensions & Investments
Rough Notes Round the Table
U.S. Banker VARDs
The Wall Street Journal Working Woman
INCOME PAYMENT PROVISIONS
AMOUNT OF FIXED INCOME PAYMENTS. On the Income Date, the amount you have
chosen to apply to provide fixed income payments will be applied under the
income plan you have chosen. The monthly income payment factor in effect on the
Income Date times that amount and then divided by $1,000 will be the dollar
amount of each monthly payment. Each of these payments are guaranteed and
remain level throughout the period you selected.
The monthly income payment factor used to determine the amount of the
fixed income payments will not be less than the guaranteed minimum monthly
income payment factor shown in your Contract.
AMOUNT OF VARIABLE INCOME PAYMENTS. These payments will vary in amount.
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. The Income Unit
values for each payment will be determined no earlier than five Business Days
preceding the due date of the variable income payment. We guarantee the
payment will not vary due to changes in mortality or expenses.
INCOME UNITS. On the Income Date, the number of Income Units for an
applicable Variable Sub-Account is determined by multiplying (1) by (2),
dividing the result by (3), and then dividing that result by (4) where:
(1) is the amount you have chosen to allocate to that Variable
Sub-Account;
(2) is the monthly income payment factor for the income plan chosen;
(3) is $1,000; and
(4) is the Income Unit value for the Variable Sub-Account for the
Valuation Period ending on that date.
INCOME UNIT VALUE. The value of an Income Unit is calculated at the same
time that the value of an Accumulation Unit is calculated and is based 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.
Thereafter, the Income Unit value for every Business Day is determined by
multiplying (a) by (b), and then dividing by (c) where:
6
<PAGE> 109
(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 and that is shown in your Contract for the number of
days in the Valuation Period.
After the Income Date the net investment factor is calculated slightly
different than before the Income Date. Before the Income Date Asset-Based
Charges are calculated as a percentage of the Variable Account Value on the
date of deduction. These charges are equal on an annual basis to 1.40%,
decreasing to 1.25% after the seventh Contract Year. However, on and after the
Income Date, we call these charges Variable Sub-Account Charges and deduct them
from the assets in each Variable Sub-Account on a daily basis. Therefore, the
"net investment factor" in (b), above, is determined 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 Variable Sub-Account Charges (adjusted for the number
of days in the Valuation Period).
ILLUSTRATION OF CALCULATION OF INCOME UNIT VALUE
<TABLE>
<S> <C>
1. Accumulation Unit value for current
Valuation Period . . . . . . . . . . . . . . . . . . . . . 10.0026116
2. Accumulation Unit value for immediately
preceding Valuation Period . . . . . . . . . . . . . . . . . 10.0000000
3. Net Investment Factor prior to the Income
date (1)/(2) . . . . . . . . . . . . . . . . . . . . . . . 1.00026116
4. Adjustment for Variable Sub-Account Charges . . . . . . . . 0.000038626
5. Net Investment Factor on and after the Income
Date (3)-(4) . . . . . . . . . . . . . . . . . . . . . . . 1.00022253
6. Income Unit value for the immediately preceding
Valuation Period . . . . . . . . . . . . . . . . . . . . . 10.00000000
7. Daily equivalent of the assumed investment rate
for the number of days in the Valuation Period
(assuming you select 3%)=(1.03(1/365)). . . . . . . . . . . . 1.00008099
8. Income Unit value for current Valuation
Period [(5) x (6)]/(7) . . . . . . . . . . . . . . . . . . . 10.00141533
</TABLE>
7
<PAGE> 110
ILLUSTRATION OF VARIABLE INCOME PAYMENTS
<TABLE>
<S> <C>
1. Number of Accumulation Units . . . . . . . . . . . . . . . . . 1,000
2. Accumulation Unit value . . . . . . . . . . . . . . . . . . . . 10.0026116
3. Account Value (1) x (2) . . . . . . . . . . . . . . . . . . . . 10,002.61
4. Minimum monthly income payment factor per $1,000 applied . . . 10.50
5. First monthly variable income payment [(3) x (4)]/$1,000 . . . 105.03
6. Income Unit value . . . . . . . . . . . . . . . . . . . . . . .10.00141533
7. Number of Income Units (5)/(6) . . . . . . . . . . . . . . . . 10.50151
8. Assume Income Unit value at the end of the second month is . . 10.05
9. Second monthly variable income payment (7) x (8) . . . . . . . 105.54
10. Assume Income Unit value at the end of the third month is. . . . 10.10
11. Third monthly variable income payment (7) x (10) . . . . . . . . 106.07
</TABLE>
EXCHANGE OF INCOME UNITS. After the Income Date, 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.
SAFEKEEPING OF ACCOUNT ASSETS
The Company holds the title to the assets of the Variable Account. The
assets are kept physically segregated and held separate and apart from the
Company's General Account assets and from the assets in any other separate
account.
Records are maintained of all purchases and redemptions of Fund shares
held by each of the Variable Sub-Accounts.
A fidelity bond in the amount of approximately $10 million per occurrence
covering the Company's directors, officers, and employees has been issued by
Lloyd's of London.
LEGAL MATTERS
All matters relating to Delaware law pertaining to the Contracts,
including the validity of the Contracts and the Company's authority to issue
the Contracts, have been passed upon by James F. Bronsdon, the Company's Vice
President, Legal and Compliance. Sutherland Asbill & Brennan LLP has provided
advice on certain matters relating to the federal securities laws.
8
<PAGE> 111
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities
Act of 1933, as amended, with respect to the Contracts discussed in this
Statement of Additional Information. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Statement of Additional Information. Statements contained in this
Statement of Additional Information concerning the content of the Contracts and
other legal instruments are intended to be summaries. For a complete statement
of the terms of these documents, reference should be made to the instruments
filed with the SEC.
FINANCIAL STATEMENTS
The Statement of Additional Information contains no financial statements
for the Variable Account because the Variable Account had not commenced
operations as of the date of this Statement of Additional Information.
Financial statements of the Company are presented in the Prospectus.
9
<PAGE> 112
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part A. Financial
statements for The Sage Variable Annuity Account A (the "Variable Account") are
not included in Part B because the Variable Account had not yet commenced
operations as of the date of this Registration Statement.
(b) Exhibits
<TABLE>
<S> <C>
(1)(a) Resolutions of the Board of Directors of Sage Life Assurance
of America, Inc. establishing The Sage Variable Annuity
Account A.(1)
(2) Not Applicable.
(3) Form of Distribution Agreement with Sage Distributors, Inc. and
Form of Selling Agreement.(2)
(4)(a)(i)(B) Amended Form of Individual Contract.(3)
(ii)(B) Amended Form of Individual Contract with Interest Account.*
(iii)(B) Amended Form of Group Contract.(3)
(iv)(B) Amended Form of Group Certificate.(3)
(b)(i)(B) Amended Form of Individual IRA Rider.(3)
(ii)(B) Amended Form of Group IRA Rider.(3)
(iii)(B) Amended Form of Individual SIMPLE IRA Rider.(3)
(iv)(B) Amended Form of Group SIMPLE IRA Rider.(3)
(v)(A) Form of Individual Roth IRA Rider.(4)
(vi)(A) Form of Group Roth IRA Rider.(4)
(vii) Form of Individual Waiver of Surrender Charge Rider.(4)
(viii) Form of Group Waiver of Surrender Charge Rider.(4)
</TABLE>
1
<PAGE> 113
<TABLE>
<S> <C>
(ix) Form of Individual Accidental Death Benefit Rider.(4)
(x) Form of Group Accidental Death Benefit Rider.(4)
(5)(i) Form of Individual Contract Application.(5)
(ii) Form of Group Certificate Application.(6)
(6)(a) Articles of Incorporation of the Company.(7)
(b) By-Laws of the Company.(7)
(7) Not Applicable.
(8)(a)(i) Form of Participation Agreement with AIM Variable Insurance
Funds, Inc.(8)
(ii) Form of Participation Agreement with The Alger American
Fund.(8)
(iii) Form of Participation Agreement with Liberty Variable
Investment Trust.*
(iv) Form of Participation Agreement with MFS(R) Variable
Insurance Trust.(TM)(8)
(v) Form of Participation Agreement with Morgan Stanley
Universal Funds, Inc.*
(vi) Form of Participation Agreement with Oppenheimer Variable
Account Funds.*
(vii) Form of Participation Agreement with Sage Life Investment
Trust.(8)
(viii) Form of Participation Agreement with SteinRoe Variable
Investment Trust.*
(ix) Form of Participation Agreement with T. Rowe Price Equity
Series, Inc.*
(b) Form of Services Agreement with Financial Administration
Services, Inc.*
(9)(i) Opinion and Consent of James F. Bronsdon.*
(ii) Consent of Sutherland Asbill & Brennan LLP.*
(10) Consent of Ernst & Young LLP.*
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14)(a) Power of Attorney for Paul C. Meyer.(9)
</TABLE>
2
<PAGE> 114
<TABLE>
<S> <C>
(14)(b) Power of Attorney for Ronald S. Scowby.*
(14)(c) Power of Attorney for H. Louis Shill.*
(14)(d) Power of Attorney for Richard D. Starr.*
(14)(e) Power of Attorney for Mitchell R. Katcher.*
</TABLE>
- -------------------
* Filed herewith
(1) Incorporated herein by reference to Exhibit No. 1 to the Registration
Statement on Form N-4 (File No. 333-43329) filed on December 24, 1997.
(2) Incorporated herein by reference to Exhibit No. 3 to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-4 (File No. 333-43329)
filed on December 31, 1998.
(3) Incorporated herein by reference to Exhibit No. 4 to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-4 (File No. 333-43329)
filed on December 31, 1998.
(4) Incorporated herein by reference to Exhibit No. 4 to the Registration
Statement on Form N-4 (File No. 333-43329) filed on December 24, 1997.
(5) Incorporated herein by reference to Exhibit No. 5 to Pre-Effective Amendment
No. 1 to the Registration Statement filed on Form N-4 (File 333-43329) on
December 31, 1998.
(6) Incorporated herein by reference to Exhibit No. 5 to the Registration
Statement filed on Form N-4 (File No. 333-43329) filed on December 24, 1997.
(7) Incorporated herein by reference to Exhibit No. 6 to the Registration
Statement filed on Form N-4 (Filed No. 333-43329) filed on December 24, 1997.
(8) Incorporated herein by reference to Exhibit No. 8 to Pre-Effective Amendment
No. 1 to the Registration Statement filed on Form N-4 (File No. 333-43329) on
December 31, 1998.
(9) Incorporated herein by reference to Exhibit 14(a) to Pre-Effective Amendment
No. 1 to the Registration Statement filed on Form N-4 (File No. 333-44751) on
January 12, 1999.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Incorporated herein by reference to the section titled "Directors and
Executive Officers" of the Prospectus filed as Part A of this Registration
Statement.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The registrant is a segregated asset account of the Company and
therefore is owned and controlled by the Company. The Company is a stock life
insurance company of which all the voting securities are owned by Sage Life
Holdings of America, Inc., a Delaware corporation, ("Sage Life Holdings"), all
of the voting securities of which are owned by Sage Insurance Group, Inc., a
Delaware corporation. (The Company in turn owns all of the voting securities of
Sage Life Assurance Company of New York, a New York domiciled company which is
pursuing a license to conduct insurance business in that state.) In addition to
Sage Life Holdings, Sage Insurance Group also owns all of the voting securities
of Sage Distributors, Inc. (a broker-dealer), Sage Advisors, Inc. (a registered
investment adviser), and Finplan Holdings, Inc. (a financing company), all of
which are Delaware corporations. All the voting securities of Sage Insurance
Group, Inc. are owned by Sage Insurance Holdings, Inc, a Delaware corporation.
Sage Insurance Holdings, Inc. is a wholly owned subsidiary of Sage Holdings
(USA), Inc., a Delaware corporation. (Sage Holdings (USA), Inc. also owns all
of the voting securities of Sage Properties (USA), Inc., a Virginia corporation
whose principal assets are real estate.) Sage Holdings (USA), Inc. is a wholly
owned subsidiary of Sage Life Holdings Limited, a South African corporation.
The nature of the business of the companies listed above is insurance and
financial services. Sage Life Holdings is 100% owned by Sage Group Limited, a
<PAGE> 115
South African corporation that is the ultimate holding company. Sage Group
Limited is a controlling company operating in life insurance, mutual funds and
investment management. Various companies and other entities controlled by Sage
Group Limited may be considered to be under common control with the registrant
or the Company. Such other companies and entities and the nature of their
businesses are set forth below. These companies are incorporated in South
Africa and are wholly owned subsidiaries unless otherwise noted.
Sage Life Holdings was formed pursuant to a letter of intent between
Sage Group Limited and Swiss Re Life and Health America, Inc. ("Swiss Re").
Swiss Re's ultimate parent is Swiss Reinsurance Company, Switzerland, one of
the world's largest life and health reinsurance groups. Pursuant to the letter
of intent, Swiss Re made an equity investment into Safe Life Holdings. The
arrangements contemplated by the letter of intent may be subject to regulatory
approval.
<TABLE>
<CAPTION>
DIRECT AND INDIRECT SUBSIDIARIES OF SAGE GROUP LIMITED
<S> <C>
COMPANY NAME PRINCIPAL BUSINESS
Alexotel (Pty) Ltd Property holding
Allied Financial Planning Services (Pty) Ltd Investment consultants
Bentley Office Park (Pty) Ltd Property development & investment
Blackreef Properties (Pty) Ltd Property holding
Consumer Classics (Pty) Ltd Manufacturing & distribution
Corporate Marketing Services (Pty) Ltd Investment marketing
Dinwiddie Township (Pty) Ltd Property holding
Edenston Properties (Pty) Ltd Property development
Educational Information Services (Pty) Ltd Publishing
Ensiklopedie Afrikana (Edms) Beperk Publishing
Estromin Properties & Investments (Pty) Ltd Property investment
Everest Construction (Pty) Ltd Construction
FPS (South Vaal) Investments (Pty) Ltd Property investment
FPS (Vaal) Investments (Pty) Ltd Investment holding
FPS Consultants Ltd Investment consultants
FPS Corporate Services (Pty) Ltd Pension advisors
FPS Investment Holdings Ltd Investment holding
FPS Investments (Pty) Ltd Investment holding
FPS Ltd Investment consultants
FPS Marketing & Management Systems (Pty) Ltd Training
Fraser Street Registrars (Pty) Ltd Transfer secretaries
Hatfield Properties (Block A) (Pty) Ltd Property investment
Hatfield Properties (Block B) (Pty) Ltd Property investment
Hatfield Properties (Block C) (Pty) Ltd Property investment
Highrise Home Investments (Pty) Ltd Property investment
Home Mortgage Investments (Pty) Ltd
(50% owner) Financing
J van Streepen (Kempton Park) (Pty) Ltd
(51% owner) Property development
Kemparkto (Pty) Ltd Property investment & development
Lakeview Management Properties (Pty)
Ltd (75% owner) Property management
Lanrov Investments (Pty) Ltd Investment holding
Lot 26 of Portion 8 Parktown (Pty) Ltd Property development
Lot 26 of Portion 9 Parktown (Pty) Ltd Property investment
Mardin Agency (Pty) Ltd Real estate agents
Marlands Flats (Pty) Ltd Property holding
Meumann & Heyneke (Pty) Ltd Retail merchants
Nedrep Investments Ltd Investment holding
Netherlands Properties (Pty) Ltd Property investment
New Smal Construction Co. (Pty) Ltd Construction
Noordwyk Developments (Pty) Ltd Property development
Palmiet Townships (Pty) Ltd Property development
PJP Properties (Pty) Ltd Investment
R/E 105 Rosebank (Pty) Ltd Investment holding
Residential Mortgage Investments (Pty)
Ltd (50% owner) Financing
S A Cultural Holdings (Pty) Ltd Investment
S A Kultuur Beleggings (Edms) Beperk Investment
S.B. Plant Hire (Pty) Ltd Plant hire
SACI Finance (Pty) Ltd Finance company
</TABLE>
<PAGE> 116
<TABLE>
<S> <C>
Sage Business Park (Eight) (Pty) Ltd Property investment
Sage Business Park (Five) (Pty) Ltd Property investment
Sage Business Park (Four) (Pty) Ltd Property investment
Sage Business Park (Nine) (Pty) Ltd Property investment
Sage Business Park (One) (Pty) Ltd Property investment
Sage Business Park (Seven) (Pty) Ltd Property investment
Sage Business Park (Six) (Pty) Ltd Property investment
Sage Business Park (Three) (Pty) Ltd Property investment
Sage Business Park (Two) (Pty) Ltd Property investment
Sage Centre (Pty) Ltd Property investment
Sage Corporate Services (Pty) Ltd Investment holding
Sage Family Benefits (Pty) Ltd Insurance consultants
Sage Holdings Ltd Financial, investment &
management
Sage Investment Trust Ltd Insurance & investment
Sage Land Finance (Pty) Ltd Financiers
Sage Land Holdings (Pty) Ltd Investment holding
Sage Library Gardens Ltd Investment holding
Sage Life Holdings Ltd Investment holding
Sage Life Ltd Life insurance
Sage Management Services (Pty) Ltd Management
Sage Parking (Pty) Ltd Own & operate parking garages
Sage Personal Investment Marketing (Pty) Ltd Investment consultants
Sage Properties (549 Sandown) (Pty) Ltd Property holding
Sage Properties (Menlyn) (Pty) Ltd Property investment
Sage Properties (Rivonia Four) (Pty) Ltd Property holding
Sage Properties (Sunnyside) (Pty) Ltd Property holding
Sage Properties Ltd Investment holding
Sage Property Holdings Ltd Property holding
Sage Property Management Services (Pty) Ltd Property management
Sage Property Portfolio Managers (Pty) Ltd Property investment & management
Sage Property Trust Managers, Ltd.
(77.2% owner) Management of unit trusts
Sage Schachat Developments (Pty) Ltd Builders
Sage Schachat Ltd Investment holding
Sage Secretarial Services (Pty) Ltd Management & secretarial
Sage Selections (Pty) Ltd Investment
Sage Specialized Insurances Ltd Short term insurance
Sage Strategic Investments (Pty) Ltd Investment holding
Sage Trustees (Pty) Ltd Trustees
Sage Unit Trusts Ltd Management of unit trusts
Sagemed (Pty) Ltd Health & medical insurance
SAK Executive Investments (Pty) Ltd Investment holding
SAK Holdings (Pty) Ltd Investment holding
Sandhurst Properties (Block A) (Pty) Ltd Property investment & management
Sandhurst Properties (Block B) (Pty) Ltd Property investment & management
Sandhurst Properties (Block C) (Pty) Ltd Property investment & management
Sandhurst Properties (Block D) (Pty) Ltd Property investment & management
Sandhurst Properties (Block E) (Pty) Ltd Property investment & management
Sandhurst Properties (Block F) (Pty) Ltd Property investment & management
Sandhurst Properties (Block G) (Pty) Ltd Property investment & management
Sandown Development Holdings (Pty) Ltd Property holding
Sandown Developments (Pty) Ltd Property development
Schachat Ciskei (Pty) Ltd Property development
Schachat Construction (Pty) Ltd Construction
Schachat Cullum (Pty) Ltd Property development & management
Schachat Finance Company (Pty) Ltd Financiers
Schachat Land Resources (Pty) Ltd Investment holding
Schachat Natal (Pty) Ltd Farming & other
Schalab Townships (Pty) Ltd (51% owner) Property development
Sectional Title (Pty) Ltd Property development
SLR Land Development (Pty) Ltd Building contractors
SMH Land Development (Pty) Ltd Property investment
SPTM Holdings (Pty) Ltd Investment holding
SSI Securities (Pty) Ltd Financiers
Stonehouse Investments (Pty) Ltd Property investment
Strandbou (Pty) Ltd Property investment
Sunnyside Erf 26 (Block B) (Pty) Ltd Property investment & management
Sunnyside Erf 26 (Block C) (Pty) Ltd Property investment & management
Sunnyside Erf 26 (Block D) (Pty) Ltd Property investment & management
Table Classics (Pty) Ltd Deal in tableware products
The Gold Jewelry Corporation (Pty) Ltd Manufacture & sale of coins & jewelry
Townhomes (Pty) Ltd Building contractors
Von Brandis Square Development Co.
(Pty) Ltd Property development
Wereldspekium (Edms) Beperk Distributors & publishers of books
Witch Construction Company (Pty) Ltd Property investment & development
Witch Construction Company (Transvaal)
(Pty) Ltd Property investment & development
Witch Management (Pty) Ltd Management services
Sage International B.V.
(Netherlands corporation) Holding
Sage International Assets Ltd
(BVI corporation) Holding
Sage Management Services (USA), Inc.
(New York corporation) Management services
</TABLE>
<PAGE> 117
ITEM 27. NUMBER OF CONTRACT OWNERS
Not applicable.
ITEM 28. INDEMNIFICATION
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.
3
<PAGE> 118
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 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.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Sage Distributors, Inc. ("Sage Distributors") is the registrant's
principal underwriter.
(b) Officers and Directors of Sage Distributors
4
<PAGE> 119
<TABLE>
<CAPTION>
Name and Principal Business Address* Positions and Offices With Sage Distributors
- ----------------------------------- --------------------------------------------
<S> <C>
Robin I. Marsden Director
Mitchell R. Katcher Director
Ronald S. Scowby Director
James F. Bronsdon President, Chief Executive Officer,
Chief Legal Officer
James F. Renz Chief Financial Officer, Treasurer,
Assistant Secretary
Robert J. Kiggins Secretary
</TABLE>
* The principal business address of all of the persons listed above is
300 Atlantic Street, Stamford, CT 06901, except for Mr. Kiggins whose
principal business address is 11 Martine Avenue, 12th Floor, White
Plains, New York 10606.
ITEM 30. LOCATION OF BOOKS AND RECORDS
All of the accounts, books, records or other documents required to be
kept by Section 31(a) of the Investment Company Act of 1940 and rules
thereunder, are maintained at our Customer Service Center.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this
registration statement.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) The registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as is
necessary to ensure that the audited financial statements in
the statement are never more than 16 months old for as long
as purchase payments under the Contracts offered herein are
being accepted.
(b) The registrant undertakes that it will include either (1) as
part of any application to purchase a Contract offered by the
prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the
prospectus that the applicant can remove and send to the
Company for a Statement of Additional Information.
Additional Information.
(c) The registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form N-4
5
<PAGE> 120
promptly upon written or oral request to the Company at the
address or phone number listed in the prospectus.
(d) The Company represents that the fees and charges under the
Contracts, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the
risks assumed by the Company.
6
<PAGE> 121
SIGNATURES
As required by the Securities Act of 1933, and the Investment Company
Act of 1940, the registrant has caused this Pre-Effective Amendment No. 2 to be
signed on its behalf, in the City of Stamford, and the State of Connecticut, on
this 27th day of January, 1999.
The Sage Variable Annuity 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
As required by the Securities Act of 1933, this Pre-Effective Amendment
No. 2 has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Ronald S. Scowby* Chairman January 27, 1999
- ---------------------- ----------------
Ronald S. Scowby
/s/ H. Louis Shill Director January 25, 1999
- ---------------------- ----------------
H. Louis Shill
Paul C. Meyer* Director January 27, 1999
- ---------------------- ----------------
Paul C. Meyer
Richard D. Starr* Director January 27, 1999
- ---------------------- -----------------
Richard D. Starr
</TABLE>
7
<PAGE> 122
<TABLE>
<CAPTION>
Date
----
<S> <C>
/s/ Mitchell R. Katcher Director, January 26, 1999
- ---------------------- Senior Executive Vice ----------------
Mitchell R. Katcher President, Chief Financial
Officer, Chief Actuary
</TABLE>
*By: /s/ James F. Bronsdon
----------------------
James F. Bronsdon
As Attorney-In-Fact pursuant
to a Power of Attorney as dated below.
<TABLE>
<CAPTION>
Director Date
-------- ----
<S> <C>
Ronald S. Scowby January 26, 1999
Paul C. Meyer December 23, 1998
Richard D. Starr January 7, 1999
</TABLE>
8
<PAGE> 123
EXHIBIT INDEX
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C> <C>
(4)(a)(ii)(b) Amended Form of Individual Contract with Interest Account
(8)(a)(iii) Form of Participation Agreement with Liberty Variable
Investment Trust
(8)(a)(v) Form of Participation Agreement with Morgan Stanley Universal
Funds, Inc.
(8)(a)(vi) Form of Participation Agreement with Oppenheimer Variable
Account Funds
(8)(a)(viii) Form of Participation Agreement with SteinRoe Variable
Investment Trust
(8)(a)(ix) Form of Participation Agreement with T. Rowe Price Equity
Series, Inc.
(8)(b) Form of Services Agreement with Financial Administration
Services, Inc.
(9)(i) Opinion and Consent of James F. Bronsdon, Esq.
(9)(ii) Consent of Sutherland Asbill & Brennan LLP
(10) Consent of Ernst & Young LLP
(14)(b) Power of Attorney for Ronald S. Scowby
(14)(c) Power of Attorney for Richard D. Starr
</TABLE>
<PAGE> 1
EXHIBIT (4)(a)(ii)(B)
[SAGE LOGO]
[SAGE LIFE ASSURANCE OF AMERICA, INC.]
[MEMBER OF SAGE INSURANCE GROUP, INC.]
A Stock Company
<TABLE>
<S> <C>
Home Office Customer Service Center
300 Atlantic Street 1290 Silas Deane Highway
Stamford, CT 06901 Wethersfield, CT 06109
1-877-TEL-SAGE
</TABLE>
PLEASE READ THIS CONTRACT CAREFULLY. This Contract is a legal contract
between the Contractholder (you) and Sage Life Assurance of America, Inc. You
have the rights described in the Contract. We will make Income Payments
beginning on the Income Date shown in the Schedule if the Annuitant is living
on that date.
RIGHT TO EXAMINE THIS CONTRACT:
IF FOR ANY REASON YOU ARE NOT SATISFIED WITH THIS CONTRACT, YOU MAY RETURN IT
TO US OR THE AGENT WHO SOLD IT TO YOU WITHIN 10 DAYS AFTER YOU RECEIVE IT (THE
FREE LOOK PERIOD). WHEN WE RECEIVE IT, WE WILL PROMPTLY REFUND YOU THE ACCOUNT
VALUE PLUS ANY CHARGES SHOWN IN THE SCHEDULE THAT WE HAVE DEDUCTED FROM THE
ACCOUNT VALUE ON OR BEFORE THE DATE THE RETURNED CONTRACT WAS RECEIVED BY US,
OR IF REQUIRED BY THE LAW OF YOUR STATE, THE INITIAL PURCHASE PAYMENT (MINUS
ANY WITHDRAWALS).
ALL PAYMENTS AND VALUES, WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE
VARIABLE ACCOUNT, MAY INCREASE OR DECREASE, DEPENDING ON THIS CONTRACT'S
INVESTMENT RESULTS AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT. ALL PAYMENTS
AND VALUES BASED ON THE INTEREST ACCOUNT MAY BE SUBJECT TO A MARKET VALUE
ADJUSTMENT, THE OPERATION OF WHICH MAY CAUSE SUCH PAYMENTS AND VALUES TO
INCREASE OR DECREASE.
/s/ RONALD S. SCOWBY
---------------------
Chairman
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
Surrender Values while you are living and prior to the Income Date
Income Payments begin on the Income Date
Nonparticipating
DVA1-9712 NV
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
MAKING PURCHASE PAYMENTS . . . . . . . . . . . . . . . . . . . . 9
VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . 9
INTEREST ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . 11
TRANSFERS AMONG ACCOUNTS . . . . . . . . . . . . . . . . . . . . 13
SURRENDERING, OR WITHDRAWING PART OF YOUR ACCOUNT VALUE . . . . . 13
CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
OWNER, ANNUITANT AND BENEFICIARY . . . . . . . . . . . . . . . . 13
DEATH BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . 14
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 16
ANNUITY INCOME BENEFITS . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
DVA1-9712 NV Page 2
<PAGE> 3
<TABLE>
<CAPTION>
SCHEDULE
<S> <C> <C> <C>
Contract No.:
Owner: Contract Date: XX/XX/XXXX
Issue Age/Sex:
Annuitant: Income Date: XX/XX/XXXX
Issue Age/Sex:
Initial Purchase Payment: $
</TABLE>
This Schedule sets forth additional information that relates to the provisions
in this Contract with the corresponding headings.
MAKING PURCHASE PAYMENTS
The Designated Sub-Account is the Money Market Sub-Account.
No purchase payment, whether initial or additional, may be allocated such that
any Sub-Account would have a value less than $250.
Additional purchase payments are subject to the following limits:
1. [Non-qualified plan: Additional purchase payments may be made until
the earlier of the year in which you attain age 85 or the year in
which the Annuitant attains age 85.]
OR
[Qualified plan: Additional purchase payments may be made until the
year in which you attain age 70 1/2, except rollover contributions
may be made until the year in which you attain age 85.]
2. The minimum additional purchase payment we will accept is $250.
3. Our prior approval is required before you make a purchase payment that
causes the Account Value of all annuities that you maintain with us to
exceed $1,000,000.
VARIABLE ACCOUNT
The Variable Account for this Contract is The Sage Variable Annuity Account A.
It is a unit investment trust variable account.
INTEREST ACCOUNT
The Interest Account for this Contract is The Sage Fixed Interest Account A.
The Minimum Guaranteed Interest Rate is 3%.
The Minimum Deferral Interest Rate is 3%.
Index Rate: The Index Rate is the U.S. Treasury Constant Maturity Series as
reported in Federal Reserve Bulletin Release H.15. 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 but in no event less
often than monthly.
DVA1-9712 NV Page 3
<PAGE> 4
TRANSFERS AMONG ACCOUNTS
The minimum amount that can be transferred is $250. However, if less remains
in a Sub-Account, that amount may be transferred. If a transfer request would
reduce the Account Value remaining in a Sub-Account below $250, we will treat
the transfer request as a request to transfer the entire amount.
Your transfer request must clearly state the Sub-Accounts from which and to
which transfers are to be made.
We reserve the right to limit, upon notice, the maximum number of transfers you
may make to one per calendar month or 12 per Contract Year.
After the Income Date, we reserve the right to:
1. disallow transfers from the Interest Account to the Variable Account,
or from the Variable Account to the Interest Account; and
2. limit the maximum number of transfers between Variable Sub-Accounts to
1 per Contract Year.
SURRENDERING, OR WITHDRAWING PART OF YOUR ACCOUNT VALUE
The Free Withdrawal Amount is the greater of (a) and (b) where:
(a) is the excess of 10% of the total purchase payments over 100% of all
prior withdrawals including any associated surrender charge and Market
Value Adjustment incurred in that Contract Year; and
(b) is the excess of the Account Value on the date of withdrawal
over the unliquidated purchase payments.
The minimum amount that can be withdrawn is $250. If a withdrawal request
would reduce the 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 the Account Value below $2,000, we
reserve the right to treat the request as a withdrawal of only the excess over
$2,000.
Unless you specify otherwise, we will make withdrawals proportionately from all
Sub-Accounts in which you are invested.
CHARGES
SURRENDER CHARGE - A surrender charge may be imposed upon surrender of this
Contract or when an Excess Withdrawal is made. The surrender charge is applied
to each purchase payment and is a percentage of each purchase payment as
follows:
<TABLE>
<CAPTION>
Maximum
Contract Surrender Charge
Year Percentage
---- ----------
<S> <C>
1 7%
2 7%
3 6%
4 5%
5 4%
6 3%
7 1%
8+ 0%
</TABLE>
DVA1-9712 NV Page 4
<PAGE> 5
TRANSFER CHARGE - We reserve the right to charge a maximum of $25 for each
transfer after the 12th in a Contract Year. Each request is considered to be
one transfer regardless of the number of Sub-Accounts affected by the transfer.
The transfer charge will be deducted proportionately from all Sub-Accounts from
which the transfer is made.
ADMINISTRATION CHARGE - $40 a year. This charge is incurred at the beginning
of each Contract Year and deducted on each Contract Anniversary or upon
surrender. The charge will be waived:
1. if the Account Value is at least $50,000 at the time of deduction; or
2. beginning on and after the 8th Contract Anniversary.
PURCHASE PAYMENT TAX CHARGE - The amount of any state and local taxes levied by
any governmental entity on purchase payments may be deducted from the Account
Value when such taxes are incurred. We reserve the right to defer the
collection of this charge and deduct it against your Account Value on the
surrender of this Contract, or Excess Withdrawal, or application of the Account
Value to provide income payments.
ASSET-BASED CHARGES - We deduct asset-based charges to compensate us for
assuming mortality and expense risks, and certain administrative expenses.
Prior to the Income Date asset-based charges are calculated as a percentage of
the Variable Account Value on the date of deduction. On the Contract Date, and
monthly thereafter, the asset-based charges are deducted in proportion to the
Variable Sub-Accounts in which you are invested. The maximum charges are:
<TABLE>
<CAPTION>
Asset-Based Charges Annual Charge Monthly Charge
------------------- ------------- --------------
<S> <C> <C>
Contract Years 1-7 1.40% .116667%
Contract Years 8+ 1.25% .104167%
</TABLE>
We also reserve the right to deduct asset-based charges on the effective date
of any transfer from the Interest Account, or allocation of purchase payment to
the Variable Account, based on the amount transferred or allocated, and based
on the number of days remaining until the next date of deduction.
VARIABLE SUB-ACCOUNT CHARGES - On and after the Income Date we deduct the
asset-based charges above from the assets in each Variable Sub-Account on a
daily basis. The maximum charges are:
<TABLE>
<CAPTION>
Variable Sub-Account Charges Annual Charge Daily Charge
---------------------------- ------------- ------------
<S> <C> <C>
Contract Years 1-7 1.40% .0038626%
Contract Years 8+ 1.25% .0034462%
</TABLE>
CHARGE DEDUCTION RULES - Unless otherwise specified above, charges are deducted
from the Account Value proportionately from all Sub-Accounts in which you are
invested.
ANNUITY INCOME BENEFITS
If you have not chosen an income plan, Life Annuity with 10 Years Certain will
automatically apply.
The Maximum Income Date is the first day of the first calendar month following
the Annuitant's 95th birthday.
We reserve the right to require that the Income Date be at least 2 years after
the Contract Date.
The minimum amount that can be applied under any Variable or Fixed Income
Annuity is $5,000.
The minimum income payment is $100.
We currently allow assumed investment rates of 3% and 5%. If you do not
specify one of these rates when you choose an income plan, the assumed
investment rate will be 3%.
Values for other ages, and for other payment periods, joint life combinations,
or assumed investment rates that we offer (Tables below assume 3%) are
available on request. Monthly income payments are shown for each $1,000
applied.
DVA1-9712 NV Page 5
<PAGE> 6
INCOME TABLE FOR A FIXED PERIOD
<TABLE>
<CAPTION>
Fixed Period Monthly Income Fixed Period Monthly Income Fixed Period Monthly Income
of Years Payment of Years Payment of Years Payment
--------- ------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
11 $8.88 21 $5.33
12 8.26 22 5.16
13 7.73 23 5.00
14 7.28 24 4.85
5 17.95 15 6.89 25 4.72
6 15.18 16 6.54 26 4.60
7 13.20 17 6.24 27 4.49
8 11.71 18 5.98 28 4.38
9 10.56 19 5.74 29 4.28
10 9.64 20 5.53 30 4.19
</TABLE>
INCOME TABLE FOR LIFE
<TABLE>
<CAPTION>
Male/Female Male/Female Male/Female
Age Life Only 10 Years Certain 20 Years Certain
--- --------- ---------------- ----------------
<S> <C> <C> <C>
50 4.28 / 3.92 $4.24 / 3.90 $4.10 / 3.84
55 4.72 / 4.27 4.64 / 4.24 4.40 / 4.12
60 5.31 / 4.74 5.17 / 4.68 4.73 / 4.45
65 6.13 / 5.38 5.84 / 5.25 5.04 / 4.81
70 7.28 / 6.29 6.65 / 6.00 5.29 / 5.14
75 8.90 / 7.62 7.53 / 6.92 5.43 / 5.37
80 11.19 / 9.62 8.37 / 7.93 5.50 / 5.48
85 14.36 / 12.63 9.00 / 8.77 5.52 / 5.52
</TABLE>
RIDERS
Accidental Death Benefit Rider
The Maximum Accidental Death Benefit is $250,000.
DVA1-9712 NV Page 6
<PAGE> 7
DEFINITIONS
- -------------------------------------------------------------------------------
"ACCOUNT VALUE" is the entire amount we hold under this Contract for you before
the Income Date. It is equal to the sum of the Variable Account Value and the
Interest Account Value.
"ACCUMULATION UNIT" is the unit of measure we use before the Income Date to
keep track of the value of each Variable Sub-Account.
"ANNUITANT" is the natural person whose age determines the Maximum Income Date
and the amount and duration of income payments involving life contingencies.
The Annuitant may also be the person to whom any payment will be made starting
on the Income Date. The Annuitant's name appears in the Schedule.
"BENEFICIARY" is the person or persons to whom we pay a death benefit if any
Owner dies prior to the Income Date.
"CONTRACT DATE" is the date this Contract is issued at our Customer Service
Center. The Contract Date is shown in the Schedule. While this Contract is in
force, every anniversary of the Contract Date is the CONTRACT ANNIVERSARY, and
each and every consecutive twelve-month period beginning on the Contract Date
and each Contract Anniversary is a CONTRACT YEAR.
"CONTINGENT ANNUITANT" is the natural person who becomes the Annuitant if the
Annuitant dies prior to the Income Date.
"CONTINGENT BENEFICIARY" is the person that becomes the Beneficiary if the
named Beneficiary dies prior to the Income Date.
"CUSTOMER SERVICE CENTER" is where we provide service to you. The mailing
address and telephone number of the Customer Service Center are shown on the
first page of this Contract.
"EXCESS WITHDRAWAL" is a withdrawal of Account Value that exceeds the Free
Withdrawal Amount.
"EXPIRY DATE" is the last day in a Guarantee Period.
"FREE WITHDRAWAL AMOUNT" is the maximum amount that can be withdrawn in a
Contract Year without being subject to a surrender charge. This amount is
described in the Schedule.
"GENERAL ACCOUNT" consists of all our assets other than those held in any
separate investment accounts.
"GUARANTEED INTEREST RATE" is the effective annual interest rate we will credit
for a specified Guarantee Period. The Guaranteed Interest Rate will never be
less than the minimum shown in the Schedule.
"GUARANTEE PERIOD" is a period of years for which a specified effective annual
interest rate is guaranteed by us. Interest is credited daily at a rate to
yield the declared annual Guaranteed Interest Rate.
"HOME OFFICE" is our main office. The mailing address is shown on the first
page of this Contract.
"INCOME DATE" is the date when income payments under this Contract commence.
This date is shown in the Schedule.
"INCOME UNIT" is the unit of measure we use to calculate the amount of income
payments under the Variable Income Annuity.
"INTEREST ACCOUNT" is a separate investment account of ours into which purchase
payments may be invested or Account Value may be transferred.
DVA1-9712 NV Page 7
<PAGE> 8
"INTEREST ACCOUNT VALUE" is the sum of the value of each Interest Sub-Account
on any particular day.
An "INTEREST SUB-ACCOUNT" is established when purchase payments are invested or
amounts are transferred to the Interest Account. The value of each Interest
Sub-Account is equal to the amount invested, increased by interest and reduced
by any withdrawals or transfers from, or charges assessed against the Interest
Sub-Account.
"MARKET VALUE ADJUSTMENT" is a positive or negative adjustment that may apply
to surrender, withdrawals, transfers, and amounts applied to an income plan,
from an Interest Sub-Account before the end of a Guarantee Period.
"NET ASSET VALUE" is the price of one share of an investment portfolio.
"SATISFACTORY NOTICE" is a notice or request authorized by you, in a form
satisfactory to us, received at our Customer Service Center.
"SUB-ACCOUNT" includes both Variable Sub-Accounts and Interest Sub-Accounts,
unless the context indicates otherwise.
"SURRENDER VALUE" is the amount you receive upon surrender of this Contract
before the Income Date. It is your Account Value, plus or minus any applicable
Market Value Adjustment, and less any applicable surrender charges or other
charges shown in the Schedule.
"VALUATION DATE" is the date at the end of a Valuation Period when each
Variable Sub-Account is valued.
"VALUATION PERIOD" is the period between one calculation of an Accumulation
Unit value and the next calculation. Normally, we calculate Accumulation Units
daily when the New York Stock Exchange is open for trading and we are open for
business. We can delay this calculation if an emergency exists, making
disposal or fair valuation of assets in the Variable Account not reasonably
practicable, or the Securities and Exchange Commission (SEC) permits the delay.
We may change when we calculate the Accumulation Unit value by giving you 30
days notice, or such notice as may be required by law.
"VARIABLE ACCOUNT" is a separate investment account of ours into which purchase
payments may be invested or Account Value may be transferred. The Variable
Account is shown in the Schedule.
"VARIABLE ACCOUNT VALUE" is the sum of the value of each Variable Sub-Account
on a Valuation Date.
"VARIABLE SUB-ACCOUNT" is a division of the Variable Account that invests in
shares of a particular investment portfolio. The value of a Variable
Sub-Account is determined by multiplying (a) times (b) where:
(a) equals the number of Accumulation Units held in the Variable
Sub-Account; and
(b) equals the value of the Accumulation Unit for the Variable
Sub-Account.
"WE", "US" OR "OUR" is Sage Life Assurance of America, Inc.
"YOU" OR "YOUR" is the Owner of this Contract. Your name appears in the
Schedule. You are entitled to exercise all rights under this Contract.
However, if you designate an irrevocable beneficiary, you may need that
beneficiary's consent before you exercise your rights under this Contract. The
death of any Owner before the Income Date initiates payment of the death
benefit.
DVA1-9712 NV Page 8
<PAGE> 9
MAKING PURCHASE PAYMENTS
- -------------------------------------------------------------------------------
INITIAL PURCHASE PAYMENT - You must make the initial purchase payment in order
to put this Contract in force. The amount of your initial purchase payment is
shown in the Schedule.
ADDITIONAL PURCHASE PAYMENTS - After the initial purchase payment, additional
purchase payments may be made at any time while this Contract is in force and
before the Income Date. The amount of any additional purchase payments may
vary but are subject to limits described in the Schedule.
ALLOCATION OF PURCHASE PAYMENTS AMONG THE VARIABLE AND INTEREST ACCOUNTS -
Subject to limits described in the Schedule, you tell us how to allocate your
purchase payment, less any applicable taxes, by notifying us of your choices.
You specified how to allocate your initial purchase payment in your application
for this Contract. Initial purchase payments allocated to the Interest Account
will be invested in Interest Sub-Accounts with the Guarantee Periods that you
specified in your application. We may, however, require that an initial
purchase payment allocated to a Variable Sub-Account be invested in the
Designated Sub-Account shown in the Schedule during the Free Look Period. At
the end of the Free Look Period, if your initial purchase payment was allocated
to the Designated Sub-Account by us, we will transfer the value of the
Designated Sub-Account to the Sub-Account(s) you specified in your application.
For the purpose of processing transfers from the Designated Sub-Account, the
Free Look Period will end 15 days after the Contract Date.
Subject to our rules, you may tell us how to allocate any additional purchase
payments. If you do not tell us, they will be allocated in the same manner as
your most recent purchase payment.
CANCELLATION OF CONTRACT - If you have not made a purchase payment for more
than 2 years and your Account Value is less than $2,000 on a Contract
Anniversary, we may cancel this Contract and pay you the Surrender Value as
though you had made a full withdrawal. We will send you written notice at your
address of record. You will be allowed 61 days from the date we mail you the
notice to submit an additional purchase payment to us in an amount not less
than the difference between $2,000 and the Account Value on the last Contract
Anniversary. The additional purchase payment is subject to the limits and
minimums shown in the Schedule.
VARIABLE ACCOUNT
- -------------------------------------------------------------------------------
VARIABLE ACCOUNT - A variable account is an investment account we maintain
separate from our General Account and any other separate investment accounts we
may have. We own the assets in a variable account. A variable account will
not be charged with liabilities that arise from any other business that we
conduct. We may transfer to our General Account assets that exceed the reserves
and other liabilities of a variable account.
A variable account may invest in mutual funds, unit investment trusts and other
investment portfolios. Such a variable account is treated as a unit investment
trust under Federal securities laws and is registered with the SEC under the
Investment Company Act of 1940.
We may offer certain series or variable accounts that may not be registered
with the SEC under the Securities Act of 1933. Any such series or variable
account, if offered, will be described in the applicable offering document.
The Variable Account for this Contract is shown in the Schedule. The laws of
our state of domicile govern this Variable Account.
VARIABLE SUB-ACCOUNTS - A unit investment trust variable account includes
variable sub-accounts, each investing in a designated investment portfolio.
The sub-accounts and the investment portfolios in which they invest are
specified in the prospectus or offering document. Income, gains or losses,
realized and unrealized from assets in each variable sub-account are credited
to or charged against that variable sub-
DVA1-9712 NV Page 9
<PAGE> 10
account without regard to other income, gains or losses in the other
sub-accounts or our other income, gains or losses.
CHANGES WITHIN THE VARIABLE ACCOUNT - We may, from time to time, make
additional Variable Sub-Accounts available to you. These Sub-Accounts will
invest in investment portfolios we find suitable for this Contract. We also
have the right to eliminate Sub-Accounts, to combine two or more Sub-Accounts
or to substitute a new investment portfolio for the portfolio in which a
Sub-Account invests. Such an action may become necessary if, in our judgment,
a portfolio or Sub-Account no longer suits the purposes of this Contract. This
may happen due to a change in laws or regulations, or a change in a portfolio's
or Sub-Account's investment objectives or restrictions, or because the
portfolio or Sub-Account is no longer available for investment, or for some
other reason. We will get prior approval from the insurance department of our
state of domicile before taking such action. If required, this approval
process will be on file with the insurance department of the jurisdiction in
which this Contract is delivered. We will also get any required approval from
the SEC and any other required approvals before taking such an action.
Subject to any required regulatory approvals, we reserve the right to transfer
assets of the Variable Sub-Accounts that we determine to be associated with the
class of contracts to which this Contract belongs, to another variable account
or variable sub-account.
When permitted by law, we reserve the right to:
1. Deregister the Variable Account under the Investment Company Act of
1940;
2. Operate the Variable Account as a management company under the
Investment Company Act of 1940, if it is operating as a unit
investment trust;
3. Operate the Variable Account as a unit investment trust under the
Investment Company Act of 1940, if it is operating as a Managed
Separate Account;
4. Restrict or eliminate any voting rights of Owners, or other persons
who have voting rights as to the Variable Account;
5. Combine the Variable Account with other separate investment accounts;
and
6. Combine a Variable Sub-Account with another Variable Sub-Account.
If any 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 choose a new Sub-Account.
ACCUMULATION UNITS - We keep track of the value of each of your Variable
Sub-Accounts by crediting you with Accumulation Units for each Sub-Account.
The number of Accumulation Units credited to you for each Sub-Account is
determined by dividing (a) by (b) where:
(a) is the dollar amount allocated to that Sub-Account; and
(b) is the value of the Accumulation Unit for that Sub-Account for
the Valuation Date on which the purchase payment or transferred
amount is invested in that Sub-Account.
Accumulation Units will be adjusted for any transfers and will be canceled on
payment of a death benefit, a withdrawal, a surrender, the application of
Account Value to an income plan on the Income Date, or assessment of charges
shown in the Schedule (other than the variable sub-account charges) based on
their value for the Valuation Period in which the transaction occurs.
VALUE OF ACCUMULATION UNITS - The Accumulation Unit value for any Valuation
Period is determined by multiplying (a) by (b) where:
(a) is the Accumulation Unit value for the immediately preceding Valuation
Period; and
(b) is the "net investment factor" for the Variable Sub-Account for the
Valuation Period for which the value is being determined.
DVA1-9712 NV Page 10
<PAGE> 11
The value of an Accumulation Unit may increase, decrease or remain the same
from one Valuation Period to the next.
NET INVESTMENT FACTOR - The net investment factor for a Variable Sub-Account is
an index that measures the investment performance of that Sub-Account from one
Valuation Period to the next. The net investment factor for any Valuation
Period is determined by dividing (a) by (b), and then subtracting (c) where:
(a) is the net result of:
(i) the Net Asset Value per share of the investment portfolio share
in which the Sub-Account invests determined at the end of the
current Valuation Period; plus
(ii) the per share amount of any dividend or capital gains
distribution made by that investment portfolio on shares held
in the 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
is determined by us to have resulted from the operations of
that Sub-Account;
(b) is the Net Asset Value per share of the investment portfolio share in
which the Sub-Account invests determined at the end of the immediately
preceding Valuation Period; and
(c) is the daily variable sub-account charges shown in the Schedule
(adjusted for the number of days in the Valuation Period).
The net investment factor may be more or less than, or equal to, one.
INTEREST CCOUNT
- -------------------------------------------------------------------------------
INTEREST ACCOUNT - The Interest Account is a separate investment account under
state insurance law. It is maintained separate from our General Account and
separate from any other separate investment account that we may have. We own
the assets in the Interest Account. Notwithstanding the foregoing, our
obligations under (and the values and benefits under) the Interest Account
option of this Contract do not vary as a function of the investment performance
of the Interest Account. Owners and Beneficiaries with rights under this
Contract do not participate in the investment gains or losses of the assets of
the Interest Account. Such gains or losses accrue solely to us. We retain the
risk that the value of the assets in the Interest Account may fall below the
reserves and other liabilities that we must maintain in connection with our
obligations under the Interest Account option of this Contract. In such event,
we will transfer assets from our General Account to the Interest Account to
make up the difference. The Interest Account will not be charged with
liabilities that arise from any other business that we conduct. We may
transfer to our General Account assets that exceed the reserves and other
liabilities of the Interest Account. The Interest Account is not required to
be registered with the SEC as an investment company under the Investment
Company Act of 1940.
INTEREST SUB-ACCOUNT - We will establish a separate Interest Sub-Account for
you each time you allocate amounts to the Interest Account. Amounts invested
in these Interest Sub-Accounts earn interest at the Guaranteed Interest Rate in
effect on the date the amounts are allocated.
GUARANTEE PERIODS - Each Interest Sub-Account is guaranteed an interest rate
for a period we refer to as a Guarantee Period. The Guaranteed Interest Rate
for an Interest Sub-Account is effective for the entire Guarantee Period. The
length of a Guarantee Period is measured from the end of the calendar month in
which the amount is allocated to the Interest Sub-Account. The last day of the
Guarantee Period is its Expiry Date. Surrender, or withdrawals or transfers
from all or part of an Interest Sub-Account, and amounts applied to an income
plan, made prior to the Expiry Date of a Guarantee Period may be subject to a
Market Value Adjustment.
DVA1-9712 NV Page 11
<PAGE> 12
We will notify you at least thirty days prior to an Expiry Date of your options
for renewal, which include:
1. electing a new Guarantee Period from among those then offered by us,
but excluding any that extend beyond your Income Date; or
2. transferring the value of the Interest Sub-Account to one or more
Variable Sub-Accounts.
If we do not receive Satisfactory Notice prior to the Expiry Date, we will
transfer the value of the expiring Interest Sub-Account to an Interest
Sub-Account with the same Guarantee Period, but not longer than 5 years, nor
extending beyond your Income Date. This transfer will be effective as of the
Expiry Date of the previous Guarantee Period.
GUARANTEED INTEREST RATES - Periodically, we will declare Guaranteed Interest
Rates for then available Guarantee Periods. These rates will be guaranteed for
the duration of the respective Guarantee Periods. Guaranteed Interest Rates
will never be less than the Minimum Guaranteed Interest Rate shown in the
Schedule.
MARKET VALUE ADJUSTMENT - A Market Value Adjustment may be applied to
surrender, withdrawals, transfers or amounts applied to an income plan when
taken from an Interest Sub-Account other than the thirty-day period prior to
its Expiry Date. A Market Value Adjustment is applied separately to each
Interest Sub-Account.
A Market Value Adjustment is determined by multiplying the amount surrendered,
withdrawn, transferred or applied to an income plan by the following factor:
(N/365)
[(1+I)/(1+J+.0025)] -- 1
Where:
- I is the Index Rate for a maturity equal to the Interest
Sub-Account's Guarantee Period;
- J is the Index Rate for a maturity equal to the time remaining
(rounded up to the next full year) in the Interest Sub-Account's
Guarantee Period; and
- N is the remaining number of days in the Guarantee Period at the time
of calculation.
If there is no Index Rate for the maturity needed to calculate I or J, straight
line interpolation between the Index Rate of the next highest and next lowest
maturities will be used to determine that Index Rate. If the maturity is one
year or less, we will use the Index Rate for a one-year maturity.
Market Value Adjustments will be applied as follows:
1. For a surrender, withdrawal, transfer or amount applied to an income
plan, the Market Value Adjustment will be calculated on the total
amount that must be surrendered, withdrawn, transferred or applied to
an income plan in order to provide the amount requested.
2. If the Market Value Adjustment is negative, it is deducted from any
remaining value in the Interest Sub-Account or amount surrendered.
Any remaining Market Value Adjustment is deducted from the amount
withdrawn, transferred or applied to an income plan.
3. If the Market Value Adjustment is positive, it is added to any
remaining value in the Interest Sub-Account or amount surrendered. If
the full amount of the Interest Sub-Account is withdrawn, transferred
or applied to an income plan, the Market Value Adjustment is added to
the amount withdrawn, transferred or applied to an income plan.
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TRANSFERS AMONG ACCOUNTS
- -------------------------------------------------------------------------------
Prior to the Income Date and while the Annuitant is living, you may transfer
Account Value among Sub-Accounts. Certain restrictions may apply during the
Free Look Period. To make a transfer, you must give us Satisfactory Notice.
Transfers generally take effect when we receive the notice. The number of free
transfers that we allow each Contract Year is shown in the Charges section of
the Schedule. Restrictions for transfers are shown in the Schedule. A
transfer from an Interest Sub-Account may be subject to a Market Value
Adjustment.
SURRENDERING, OR WITHDRAWING PART OF YOUR ACCOUNT VALUE
- -------------------------------------------------------------------------------
Prior to the Income Date and while the Annuitant is living, you may withdraw
all or part of your Account Value by giving us Satisfactory Notice. The
minimum withdrawal is shown in the Schedule.
If you request a surrender, we will terminate this Contract and pay you the
Surrender Value. This amount may also be applied to the income plans subject
to any restrictions described in this Contract. Unless specified otherwise, we
will make partial withdrawals as described in the Schedule. Surrender and
withdrawals generally take effect on the date we receive Satisfactory Notice.
If you make a withdrawal from this Contract in excess of the Free Withdrawal
Amount described in the Schedule, a surrender charge may be assessed.
Surrender charges are described in the Schedule. A withdrawal from the
Interest Account may also be subject to a Market Value Adjustment.
EXCESS WITHDRAWALS - If a partial withdrawal is made for an amount greater than
the Free Withdrawal Amount, a surrender charge may be applicable. For purposes
of calculating the surrender charge only, purchase payments will be liquidated
in whole or in part on a "first-in-first-out-basis." This means we liquidate
purchase payments in the order they were made: the oldest unliquidated purchase
payment first, the next oldest unliquidated purchase payment second, etc.,
until all purchase payments have been liquidated.
The surrender charge as to any liquidated purchase payment is determined by
multiplying the amount of the purchase payment being liquidated by the
applicable percentage shown in the Schedule. The total surrender charge will
be the sum of the surrender charges for each purchase payment being liquidated.
In a partial withdrawal, the surrender charge is deducted from the Account
Value remaining after you are paid the amount requested. The amount requested
from a Sub-Account may not exceed the value of that Sub-Account less any
applicable surrender charge. In a complete withdrawal (or surrender of this
Contract), it is deducted from the amount otherwise payable.
CHARGES
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The types and amounts of charges and when and how they are deducted are
described in the Schedule.
OWNER, ANNUITANT AND BENEFICIARY
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THE OWNER - You are the Owner of this Contract. You have the rights and options
described in this Contract, including but not limited to the right to receive
the income payments beginning on the Income Date. One or more people may own
this Contract.
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THE ANNUITANT - Unless another Annuitant is shown in the Schedule, you are also
the Annuitant. You may name a Contingent Annuitant. You will be the
Contingent Annuitant unless you name someone else. If there are joint Owners,
we will treat the youngest Owner as the Contingent Annuitant, unless you elect
otherwise.
If you are not the Annuitant and the Annuitant dies before the Income Date, the
Contingent Annuitant becomes the Annuitant. If the Annuitant dies and no
Contingent Annuitant has been named, we will allow you sixty days to designate
someone other than yourself as Annuitant.
THE BENEFICIARY - We pay the death benefit to the primary Beneficiary (unless
there are joint Owners in which case proceeds are payable to the surviving
Owner). If the primary Beneficiary dies before the Owner, the death benefit is
paid to the Contingent Beneficiary, if any. If there is no surviving
Beneficiary, we pay the death benefit to the Owner's estate.
One or more persons may be named as primary Beneficiary or Contingent
Beneficiary. We will assume any death benefit is to be paid in equal shares to
the multiple surviving Beneficiaries unless you specify otherwise.
You have the right to change Beneficiaries. However, if you designate the
primary Beneficiary as irrevocable, you may need the consent of that
irrevocable Beneficiary to exercise the rights and options under this Contract.
CHANGE OF OWNER, BENEFICIARY OR ANNUITANT - During your lifetime and while this
Contract is in force you can transfer ownership of this Contract or change the
Beneficiary, or change the Annuitant. (However, the Annuitant cannot be
changed after the Income Date.) To make any of these changes, you must send us
Satisfactory Notice. If accepted, any change in Owner, Beneficiary or
Annuitant will take effect on the date you signed the notice. Any of these
changes will not affect any payment made or action taken by us before our
acceptance. A CHANGE OF OWNER MAY BE A TAXABLE EVENT and may also affect the
amount of death benefit payable under this Contract.
DEATH BENEFITS
- -------------------------------------------------------------------------------
DEATH BENEFIT BEFORE THE INCOME DATE - If any Owner dies before the Income
Date, we will pay the Beneficiary the greatest of the following:
(a) the Account Value determined as of the day we receive proof of death;
or
(b) 100% of the sum of all purchase payments made to this Contract,
reduced by any prior withdrawals (including any associated surrender
charge and Market Value Adjustment incurred); or
(c) the Highest Anniversary Value.
HIGHEST ANNIVERSARY VALUE - The Highest Anniversary Value is equal to the
greatest anniversary value attained from the following:
Upon our receipt of proof of death, we will calculate an anniversary
value for each Contract Anniversary before the Owner's death
excluding, however, Contract Anniversaries that come after the Owner
attains age 80. An anniversary value is equal to the Account Value on
a Contract Anniversary, increased by the dollar amount of any purchase
payments made since that Contract Anniversary and reduced for any
withdrawals (including any associated surrender charge and Market
Value Adjustment incurred) taken since that anniversary. This
reduction will be made in proportion to the reduction in the Account
Value that results from a withdrawal.
MULTIPLE OWNERS - If there are multiple Owners, the age of the oldest Owner
will be used to determine the death benefit.
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DEATH BENEFIT WHEN NO NATURAL OWNERS - If there is no Owner who is a natural
person, we will treat the Annuitant as Owner for the purpose of paying the
death benefit, and the Annuitant's age will determine the death benefit payable
to the Beneficiary.
REQUIRED DISTRIBUTION OF PROCEEDS ON THE DEATH OF THE OWNER - The three
sub-sections indented below are required to qualify this Contract as an annuity
contract under Section 72(s) of the Internal Revenue Code of 1986, as amended.
Where the terms of these three sub-sections are in conflict with any other
sections or sub-sections of this Contract, these three sub-sections will
control. We reserve the right to amend or administer this Contract as
necessary to comply with the applicable tax requirements. These three
sub-sections and this Contract should be construed so that they comply with the
applicable tax requirements.
DEATH BENEFIT OPTIONS BEFORE INCOME DATE - In the event any Owner dies
before the Income Date, the death benefit may be taken in one sum, in
which case this Contract will terminate. Such sum shall be paid
within five years of the Owner's death unless one of the options for
continuation of this Contract below is elected by the person entitled
to make that election.
CONTRACT CONTINUATION OPTION - If the death benefit is not taken in
one sum immediately, this Contract will continue subject to the
following provisions:
1. If there are joint Owners, the surviving Owner becomes the new
Owner. Otherwise, the Beneficiary becomes the new Owner.
2. Unless specified otherwise, any excess of the death benefit
over the Account Value will be allocated to and among the
Variable and Interest Accounts in proportion to their values
as of the date on which the death benefit is determined. We
will establish a new Interest Sub-Account for any allocation
to the Interest Account based on the Guarantee Period you then
elect.
3. No additional purchase payments may be applied to this
Contract.
4. If the new Owner is not the deceased Owner's spouse, the
entire interest in this Contract must be distributed under one
of the following options:
a. The entire interest in this Contract must be distributed over
the life of the new Owner, or over a period not extending
beyond the life expectancy of the new Owner, with
distributions beginning within one year of the Owner's death;
or
b. The entire interest in this Contract must be distributed
within 5 years of the Owner's death.
5. If the new Owner is the deceased Owner's spouse, this Contract
will continue with the surviving spouse as the new Owner. The
surviving spouse may name a new Beneficiary. If no Beneficiary is
so named, the surviving spouse's estate will be the Beneficiary.
Upon the death of the surviving spouse, the death benefit will
equal the Account Value as of the date we receive proof of the
spouse's death, and the entire interest in this Contract must be
distributed to the new Beneficiary in accordance with the
provisions of 4 (a) or 4 (b) above.
If there is more than one Beneficiary, the foregoing provisions will
independently apply to each Beneficiary.
DEATH BENEFIT ON OR AFTER THE INCOME DATE - If any Owner dies on or
after the Income Date but before the time the entire interest in this
Contract has been distributed, the remaining portion will be
distributed at least as rapidly as under the method of distribution
being used as of the date of the Owner's death.
If income payments have been selected based on an income plan
providing for payments for a guaranteed period, and the Annuitant dies
on or after the Income Date, we will make the remaining guaranteed
payments to the Beneficiary. Any remaining payments will be made as
rapidly as under the method of distribution being used as of the date
of the Annuitant's death. If no Beneficiary is living, we will
commute any unpaid guaranteed payments to a single sum (on the
DVA1-9712 NV Page 15
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basis of the interest rate used in determining the payments) and pay
that single sum to the estate of the last to die of the Annuitant or the
Beneficiary.
PROOF OF DEATH - Proof of death must be received at our Customer Service Center
before we will pay any death benefit. 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.
GENERAL PROVISIONS
- -------------------------------------------------------------------------------
ENTIRE CONTRACT - This Contract including any attached riders, endorsements,
amendments and the application, if one is attached to this contract when
issued, constitutes the entire contract between you and us. All statements
made by you, or any Owner, or any Annuitant will be deemed representations and
not warranties.
ASSIGNMENT - You may assign this Contract at any time prior to the Income Date.
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 the
assignment is accepted by us. An absolute assignment will revoke the interest
of any revocable Beneficiary. We will not be responsible for the validity of
any assignment. AN ASSIGNMENT MAY BE A TAXABLE EVENT.
CLAIMS OF CREDITORS - To the extent permitted by law, no benefits payable under
this Contract will be subject to the claims of your, the Beneficiary's, or the
Annuitant's creditors.
MISSTATEMENT AND PROOF OF AGE, SEX OR SURVIVAL - We may require proof of age,
sex or survival of any person upon whose age, sex or survival any payments
depend. If the age or sex of the Annuitant has been misstated, or if the age
of the Owner has been misstated, the benefits will be those that the Account
Value applied would have provided for the correct age and sex. If we have made
incorrect income payments, the amount of any underpayment will be paid
immediately. The amount of any overpayment will be deducted from future income
payments.
NO DIVIDENDS PAYABLE - This Contract is non-participating and does not share in
any distribution of our surplus. We will not pay any dividends.
INCONTESTABILITY - This Contract is incontestable from its Contract Date.
REQUIRED REPORTS - We will furnish a report to you as often as required by law,
but at least once each Contract Year before the Income Date. The report will
show the number of Accumulation Units credited to each Variable Sub-Account in
which you are invested and the corresponding Accumulation Unit value as of the
date of the report. It will also show your Interest Account Value.
MORTALITY AND EXPENSES - Our actual mortality and expense experience will not
affect the amount of any income payments or any other values under this
Contract.
TAXES BASED UPON PURCHASE PAYMENT OR VALUE - If there is a law or change in law
assessing taxes against us based upon purchase payments or value of this
Contract, we reserve the right to charge you and all similarly situated Owners
proportionately for that tax. This would include a tax based upon our realized
net capital gains in the Variable Sub-Accounts and on earnings in the Interest
Account, on which we are not currently taxed.
PAYMENTS WE MAY DEFER - We may not be able to determine the value of the assets
of the Variable Sub-Accounts because:
1. The New York Stock Exchange is closed for trading;
2. The SEC determines that a state of emergency exists;
DVA1-9712 NV Page 16
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3. An order or pronouncement of the SEC permits a delay for the
protection of Owners; or
4. The check used to pay the purchase payment has not cleared through the
banking system. This may take up to 15 days.
If this happens, we may delay:
1. Determination and payment of the Surrender Value or any withdrawal;
2. Determination and payment of any death benefit if death occurs before
the Income Date;
3. Transfers of the Account Value; or
4. Application of the Account Value under an income plan.
We reserve the right to delay payment of amounts from the Interest Account for
up to six months. If deferred 30 days or more, the amount deferred will earn
interest at a rate not less than the Minimum Deferral Interest Rate shown in
the Interest Account section of the Schedule.
AUTHORITY TO MAKE AGREEMENTS - All agreements made by us must be signed by one
of our officers. No other person, including an insurance agent or broker, can
change the terms of this Contract or make any agreement binding on us.
REQUIRED NOTE ON OUR COMPUTATIONS - We have filed a detailed statement of our
computations with the insurance supervisory officials in the appropriate
jurisdictions. The values are not less than those required by the laws of
those states or jurisdictions. Any benefit provided by an attached rider will
not increase these values unless otherwise stated in that rider.
INTEREST ON PROCEEDS - Proceeds are payable within 30 days of receipt of proof
of death. We will pay interest on proceeds. This interest will accrue from
the date of death to the date of payment, but not for more than one year, at an
annual rate of 3%, or the rate and time required by law, if greater.
ANNUITY INCOME BENEFITS
- -------------------------------------------------------------------------------
CHOOSING AN INCOME DATE AND INCOME PLAN - On the Income Date, if the Annuitant
is alive and this Contract is in force, income payments will begin under the
income plan you have chosen. If you have not chosen an income plan, the option
shown in the Schedule will automatically apply. If you have not selected an
Income Date, the Maximum Income Date shown in the Schedule will automatically
apply.
You may choose or change an income plan or the Income Date by giving us
Satisfactory Notice at least 30 days before the Income Date. However, any
Income Date must meet the restrictions described in the Schedule.
Once income payments have begun, we reserve the right to disallow further
changes without our prior approval.
MINIMUM AMOUNTS - If the amount available to apply under any variable or fixed
option is less than the minimum amount shown in the Schedule, we reserve the
right to pay such amount in a lump sum in lieu of the payment otherwise
provided for.
Income payments will be made monthly unless quarterly, semi-annual or annual
payments are chosen by giving us Satisfactory Notice at least 30 days before
the Income Date. However, if at any time the payment becomes less than the
minimum income payment shown in the Schedule, we reserve the right to reduce
the frequency of payment to an interval that results in each payment being at
least equal to the minimum income payment. In no event will the interval be
less frequent than annual.
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ALLOCATION OF ANNUITY - At the time you elect the income plan, you may also
elect to have the Account Value applied to provide a Variable Income Annuity, a
Fixed Income Annuity, or a combination of both. Unless you specify otherwise,
we will provide either variable or fixed, or a combination of variable and
fixed income payments in proportion to the Sub-Accounts in which you are
invested as of a date not more than 5 Valuation Days before the due date of the
first income payment. If any applicable purchase payment taxes are then due
us, we will also deduct them proportionately.
VARIABLE INCOME ANNUITY
AMOUNT OF FIRST VARIABLE PAYMENT - The Income Tables shown in the Schedule are
used to determine the first monthly variable income payment for an assumed
investment rate of 3%. The Income Tables show the dollar amount of the first
monthly variable income payment that can be purchased with each $1,000 applied.
The assumed investment rates we currently allow are shown on the Schedule.
VALUE OF INCOME UNITS - The Income Unit value for any Valuation Period is
determined 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 for the
number of days in the Valuation Period.
The value of an Income Unit may increase, decrease or remain the same from one
Valuation Period to the next.
NUMBER OF INCOME UNITS - We determine the number of Income Units in each
Variable Sub-Account by dividing the first monthly variable income payment
attributable to that Sub-Account by its Income Unit value as of a date not more
than 5 Valuation Days before the due date of the first variable income payment.
AMOUNT OF SECOND AND SUBSEQUENT VARIABLE PAYMENTS - The dollar amount of the
second and subsequent variable income payments may change with the investment
performance of the Variable Sub-Accounts. The total amount of each variable
income payment will be equal to the sum of the variable income payments in each
Variable Sub-Account. The dollar amount of each payment for a Variable
Sub-Account is determined by multiplying the number of Income Units by the
Income Unit value for the Variable Sub-Account for the Valuation Period which
ends on a consistently applied date not more than 5 Valuation Days before the
payment is due.
We guarantee that the dollar amount of each payment after the first will not be
affected by variations in our expenses or mortality experience.
EXCHANGE OF INCOME UNITS - After the Income Date, 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 income payment made on the date of exchange would be unaffected by
the exchange.
FIXED INCOME ANNUITY
A Fixed Income Annuity is an annuity with income payments that remain fixed as
to dollar amount throughout the payment period. The Income Tables shown in the
Schedule are used to determine the monthly fixed income payment. The Income
Tables show the dollar amount of the monthly fixed income payment that can be
purchased with each $1,000 applied.
DVA1-9712 NV Page 18
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INCOME PLANS
The following is a list of income plans we guarantee to make available.
INCOME PLAN 1. LIFE ANNUITY - An annuity payable during the lifetime of the
Annuitant and terminating with the last payment preceding the death of the
Annuitant.
INCOME PLAN 2. LIFE ANNUITY WITH 10 OR 20 YEARS CERTAIN - An annuity payable
during the lifetime of the Annuitant with the provision that payments will be
made for a minimum of 10 or 20 years, as elected.
INCOME PLAN 3. JOINT AND LAST SURVIVOR ANNUITY - An annuity payable during the
joint lifetime of the Annuitant and a designated second person, and thereafter
during the remaining lifetime of the survivor, ceasing with the last payment
prior to the death of the survivor.
INCOME PLAN 4. PAYMENTS FOR A SPECIFIED PERIOD CERTAIN - An amount payable for
the number of years selected which may be from 5 to 30 years.
INCOME PLAN 5. ANNUITY PLAN - An amount can be used to purchase any single
premium annuity we offer on the Income Date for which you and the Annuitant are
eligible.
DVA1-9712 NV Page 19
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DVA1-9712 NV Page 21
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[SAGE LOGO]
[SAGE LIFE ASSURANCE OF AMERICA, INC.]
[MEMBER OF SAGE INSURANCE GROUP, INC.]
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
Surrender Values while you are living and prior to the Income Date
Income Payments begin on the Income Date
Nonparticipating
DVA1-9712 NV
<PAGE> 1
EXHIBIT 8(a)(iii)
FORM OF
PARTICIPATION AGREEMENT AMONG
SAGE LIFE ASSURANCE OF AMERICA, INC.
LIBERTY VARIABLE INVESTMENT TRUST,
LIBERTY ADVISORY SERVICES CORP.
AND
LIBERTY FUNDS DISTRIBUTOR, INC.
This Agreement, made and entered into as of this ______ day of __________,
1999 by and among Sage Life Assurance of America, Inc. (the "Company"), on its
own behalf and on behalf of its Separate Accounts, each of which is a segregated
asset account of the Company, Liberty Variable Investment Trust (the "Trust"),
Liberty Advisory Services Corp. ("LASC") and Liberty Funds Distributor, Inc.
("LFDI").
WHEREAS, the Trust engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, "Variable Insurance Products") to be offered by
insurance companies which have entered into participation agreements
substantially identical to this Agreement (each hereinafter a "Participating
Insurance Company"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares (such series being hereinafter referred to individually as a
"Series" or collectively as the "Series") available for purchase by the Company
for the Separate Accounts and listed in Schedule A, which is attached hereto and
incorporated herein; and
WHEREAS, the Trust relies on an order from the Securities and Exchange
Commission ("SEC"), dated July 1, 1988 (File No. 812-7044), granting life
insurance companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder to the extent necessary to
permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and
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WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (the "1933 Act"); and
WHEREAS, Liberty Advisory Services Corp. ("LASC") serves as investment
adviser to the Trust and is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and applicable state securities laws; and
provides certain administrative services to the Trust; and
WHEREAS, Liberty Funds Services, Inc. ("LFSI") serves as transfer agent to
the Trust; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products (set forth in Schedule A, which is attached hereto and
incorporated herein) under the 1933 Act, unless exempt therefrom; and
WHEREAS, the Company has established duly organized, validly existing
segregated asset accounts (set forth in Schedule A, which is attached hereto and
incorporated herein) (the "Separate Accounts") by resolution of the Board of
Directors of the Company; and
WHEREAS, the Company has registered or will register certain Separate
Accounts as unit investment trusts under the 1940 Act, unless exempt therefrom;
and
WHEREAS, the Company may rely on certain provisions of the 1933 and 1940
Acts that exempt certain Separate Accounts and Variable Insurance Products from
the registration requirements of the Acts in connection with the sale of
Variable Insurance Products under certain tax-advantaged retirement programs as
provided for by Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, LFDI serves as distributor of the Trust's shares and is
registered as a broker-dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Trust on behalf of
each Separate Account to fund certain Variable Insurance Products listed in
Schedule A and LFDI is authorized to sell such shares to the Separate Accounts
at net asset value as provided in Article I hereof;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Trust and LFDI agree as follows:
ARTICLE I. Sale of Fund Shares
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1.1. LFDI will sell to the Company those shares of the Trust which each
Separate Account orders, executing such orders on a daily basis at the closing
net asset value next computed after receipt by the Separate Accounts of purchase
payments or for the business day on which transactions under Variable Insurance
Products are effected by the Separate Accounts. The Company will notify the
Trust of purchase orders by 9:30 a.m. Eastern time on the next following
Business Day. For purposes of this Section 1.1, LFSI shall be the designee of
the Trust to receive such orders from the Company on behalf of each Separate
Account and receipt by LFSI shall constitute receipt by the Trust. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Trust calculates its net asset value pursuant to the rules of
the SEC.
1.2. The Trust will make its shares available indefinitely for purchase at
the applicable closing net asset value per share by the Company and its Separate
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC, and the Trust shall use reasonable efforts to
calculate such net asset value on each Business Day, in accordance with Section
1.11. Notwithstanding the foregoing, the Board of Trustees of the Trust (the
"Trustees") may refuse to sell shares of any Series to any person, or suspend or
terminate the offering of shares of any Series if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole discretion
of the Trustees, acting in good faith and in light of their fiduciary duties
under federal and any applicable state laws, necessary in the best interests of
the shareholders of such Series.
1.3. The Trust and LFDI agree that shares of the Trust will be sold only
to Participating Insurance Companies and their Separate Accounts. No shares of
any Series will be sold to the general public.
1.4. The Trust and LFDI will not sell Trust shares to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Sections 2.5 and 2.12 of
Article II of this Agreement is in effect to govern such sales.
1.5. The Trust will redeem for cash, at the Company's request, any full or
fractional shares of the Trust held by the Company, executing such requests on a
daily basis at the closing net asset value next computed after receipt by the
Separate Accounts of redemption requests or for the Business Day on which
transactions under Variable Insurance Products are effected by the Separate
Accounts. The Company will notify the Trust of redemption requests by 9:30 a.m.
Eastern time on the next following Business Day. For purposes of this Section
1.5, LFSI shall be the designee of the Trust to receive
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requests for redemption from the Company on behalf of each Separate Account, and
receipt by such designee shall constitute receipt by the Trust.
1.6. The Trust may suspend the redemption of any full or fractional shares
of the Trust (1) for any period (a) during which the New York Stock Exchange is
closed (other than customary weekend and holiday closings) or (b) during which
trading on the New York Stock Exchange is restricted; (2) for any period during
which an emergency exists (as determined by the SEC) as a result of which (a)
disposal by the Trust of securities owned by it is not reasonably practicable or
(b) it is not reasonably practicable for the Trust fairly to determine the value
of its net assets; or (3) for such other periods as the SEC may by order permit
for the protection of shareholders of the Trust.
1.7. The Company will purchase and redeem the shares of each Series
offered by the then current prospectus of the Trust and in accordance with the
provisions of such prospectus and statement of additional information (the
"SAI") (collectively referred to as the "Prospectus," unless otherwise
provided).
1.8. The Company shall pay for Trust shares on the next Business Day after
an order to purchase Trust shares is placed in accordance with the provisions of
Section 1.1. hereof. Payment shall be in federal funds transmitted by wire, or
may otherwise be provided by separate agreement, with the reasonable expectation
of receipt by the Trust by 2:00 p.m. Eastern time on the next Business Day after
the Trust (or its designee) receives the purchase order.
The Trust shall pay for redeemed Trust shares on the next Business Day
after a request to redeem Trust shares is made in accordance with the provisions
of Section 1.5 hereof. Payment shall be in federal funds transmitted by wire, or
may otherwise be provided by separate agreement, with the reasonable expectation
of receipt by the Company by 2:00 p.m. Eastern time on the next Business Day
after the Trust (or its designee) receives the redemption request.
With respect to the payment of the purchase price by the Company and of
the redemption proceeds by the Trust, the Company and the Trust may net purchase
and redemption orders with respect to each Series and may transmit one net
payment per Series.
1.9. Issuance and transfer of the Trust's shares will be by book entry
only. The Trust will not issue share certificates to either the Company or the
Separate Accounts. Shares ordered from the Trust will be recorded in an
appropriate title for each Separate Account or the appropriate subaccount of
each Separate Account.
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1.10. The Trust, through its designee LFSI, shall furnish same day notice
(by wire or telephone, followed by written confirmation) to the Company of any
income dividends or capital gain distributions payable on the shares of any
Series. The Company hereby elects to receive all such income, dividends and
capital gain distributions as are payable on the shares of each Series in
additional shares of that Series. The Company reserves the right to revoke this
election and to receive all such income, dividends and capital gain
distributions in cash. The Trust shall notify the Company through LFSI of the
number of shares so issued as payment of such income, dividends and
distributions.
1.11. The Trust shall make the closing net asset value per share for each
Series available to the Company on a daily basis as soon as reasonably practical
after closing the net asset value per share is calculated and shall use its best
efforts to make such closing net asset value per share available by 6:30 p.m.,
Boston time. If the trust provides materially incorrect share net asset value
information (as determined under SEC guidelines), the Company shall be entitled
to an adjustment to the number of shares purchased or redeemed to reflect the
correct net asset value per share. Any material error in the calculation or
reporting of net asset value per share, dividend or capital gain information
shall be reported promptly upon discovery to the Company.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act to the extent required by the 1933 Act; that the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws and that the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is duly organized and in
good standing under applicable law and that prior to any issuance or sale of any
Contract it has legally and validly established each Separate Account as a
segregated asset account under all applicable state insurance laws and has
registered or, prior to any issuance or sale of the Contracts, will register
each Separate Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for the
Contracts, to the extent required by the 1940 Act.
2.2. The Trust represents and warrants that Trust shares sold pursuant to
this Agreement shall be registered under the 1933 Act to the extent required by
the 1933 Act, duly authorized for issuance and sold in compliance with the laws
of the Commonwealth of Massachusetts and all applicable federal and any state
securities laws and that the Trust is and shall remain registered under the 1940
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Act to the extent required by the 1940 Act. The Trust shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Trust shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Trust or LFDI.
2.3. The Trust represents and warrants that it currently is qualified as a
Regulated Investment Company under Subchapter M of the Code and that it will
make every effort to remain qualified (under Subchapter M or any successor or
similar provision) and that it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
2.4. Subject to Sections 2.3 and 6.1 thereof, the Company represents that
the Contracts are currently treated as endowment, annuity or life insurance
contracts under applicable provisions of the Code and that it will make every
effort to maintain such treatment and that it will notify the Trust and LFDI
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the future.
2.5. The Trust currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future consistent with applicable law.
To the extent that it decides to finance distribution expenses pursuant to Rule
12b-1, the Trust undertakes to have its Trustees, a majority of whom are not
interested persons of the Trust, formulate and approve any plan under Rule 12b-1
to finance distribution expenses.
2.6. The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Trust represents that it is currently in compliance and shall at
all times remain in compliance with the applicable insurance laws of Delaware to
the extent required to perform this Agreement and all other states to the extent
that the Participating Insurance Company advises the Trust, in writing, of such
laws or any changes in such laws, including the furnishing of information not
otherwise available to the Company which is required by state insurance law to
enable the Company to obtain the authority needed to issue the Contracts in any
applicable state.
2.7. LFDI represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it is, and
will remain, a member in good standing of
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the NASD and registered as a broker-dealer with the SEC. LFDI further represents
that it will sell and distribute the Trust shares in accordance with the laws of
the Commonwealth of Massachusetts and all applicable state and federal
securities laws, including without limitation the 1933 Act, the 1934 Act, and
the 1940 Act.
2.8. The Trust represents and warrants that it is and shall remain
lawfully organized and validly existing under the laws of the Commonwealth of
Massachusetts and that it does and will comply in all material aspects with the
1940 Act and the rules and regulations thereunder.
2.9. LASC represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it is and
will remain duly registered as an investment adviser in all material aspects
under all applicable federal and state securities laws and that it shall perform
its obligations for the Trust in compliance in all material respects with all
applicable laws of the Commonwealth of Massachusetts and any applicable state
and federal securities laws.
2.10. The Trust represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities having
access to securities or funds of the Trust are and shall continue to be at all
times covered by a joint fidelity bond in an amount not less than the minimum
coverage required by Rule 17g-1 or other applicable regulations under the 1940
Act with no deductible amount. The aforesaid bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable fidelity insurance
company. Such fidelity bond may be a joint bond with other investment companies
having the same investment adviser, sub-adviser, distributor or transfer agent.
2.11. The Company represents and warrants that it will not transfer or
otherwise convey shares of the Trust, without the prior written consent of LFDI.
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1. LFDI shall provide the Company with as many copies of the current
prospectus for each Series set forth on Schedule A, excluding the SAI, as the
Company may reasonably request in connection with delivery of the prospectus,
excluding the SAI, to shareholders and purchasers of the Contracts. If requested
by the Company in lieu thereof, the Trust shall provide such documentation
(including a final copy of the new prospectus, excluding the SAI, as set in type
at the Trust's expense) and other assistance as is reasonably necessary in order
for the Company once each year (or more frequently if a prospectus for a Series
is amended) to have the prospectus for the Contracts and the Series'
prospectuses, excluding the SAI, printed together in one document. With respect
to any Series
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prospectus that is printed in combination with any one or more Contract
prospectus (the "Prospectus Booklet"), the costs of printing Prospectus Booklets
for distribution to existing Contract owners shall be prorated to the Trust
based on (a) the ratio of the number of pages of the Series prospectus included
in the Prospectus Booklet to the number of pages in the Prospectus Booklet as a
whole; and (b) the ratio of the number of Contract owners with Contract value
allocated to the Series to the total number of Contract owners, provided that
the Trust shall not be required to pay the Company more than $67,500 during
calendar year 1999 as its portion of the cost of printing Prospectus Booklets,
as allocated pursuant to this Section.
3.2. Each Series prospectus shall state that the SAI for the Series is
available from LFDI and the Trust, at its expense, shall provide a final copy of
such SAI to LFDI for duplication and provision to any prospective owner who
requests the SAI and to any owner of a Contract ("Owners").
3.3. The Trust, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require for
distribution to Owners.
3.4. If and to the extent required by law, the Company and, so long as and
to the extent that the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for Owners, the Trust shall:
(i) solicit voting instructions from Owners;
(ii) vote the Trust shares in accordance with instructions received from
Owners; and
(iii) vote Trust shares for which no instructions have been received in
the same proportion as Trust shares of such Series for which instructions have
been received;
The Company reserves the right to vote Trust shares held in any segregated
asset account in its own right, to the extent permitted by law. Each
Participating Insurance Company shall be responsible for assuring that each of
its Separate Accounts participating in the Trust calculates voting privileges in
a manner consistent with the standards to be provided in writing to the
Participating Insurance Company.
3.5. The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders. The Trust reserves the right to take all actions,
including but not limited to, the dissolution, merger, and
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sale of all assets of the Trust upon the sole authorization of its Trustees, to
the extent permitted by the laws of the Commonwealth of Massachusetts and the
1940 Act.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust or LASC or any sub-adviser or LFDI is named, at
least 10 days prior to its use. No such material shall be used if the Trust or
its designee objects to such use within 10 days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or a Prospectus for
Series shares, as such registration statement and Prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust,
or in sales literature or other promotional material approved by the Trust or
its designee or by LFDI, except with the permission of the Trust or LFDI or the
designee of either. The Trust and LFDI agree to respond to any request for
approval on a prompt and timely basis. The Company shall adopt and implement
procedures reasonably designed to ensure that "broker only" materials including
information about the Trust or LFII are not distributed to existing or
prospective owners, and neither the Trust nor LFII shall be liable for any
losses, damages, or expenses relating to the improper use of such broker only
materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company, a Separate Account(s) and/or
the Contracts are named at least 10 days prior to its use. No such material
shall be used if the Company or its designee objects to such use within 10 days
after receipt of such material.
4.4. The Trust and LFDI shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, any Separate Account, or the Variable Insurance Products other than the
information or representations contained in a registration statement or
prospectus for such Variable Insurance Products, as such registration statement
and prospectus may be amended or supplemented from time to time, or in published
reports for such Separate Account which are in the public domain or approved by
the Company for distribution to Owners, or in sales literature or other
promotional material approved by the Company or its designee, except with the
permission of the Company. The Company agrees to respond to any request for
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approval on a prompt and timely basis. The Trust and LFII shall adopt and
implement procedures reasonably designed to ensure that "broker only" materials
including information about the Company or the Contracts are not distributed to
existing or prospective owners, and the Company shall not be liable for any
losses, damages, or expenses relating to the improper use of such broker only
materials.
4.5. The Trust will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemption,
requests for no-action letters, and all amendments to any of the above, that
relate to the Trust or its shares, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
The Trust shall provide the Company with as much notice as is reasonable
practicable of any proxy solicitation for a Series and of any material change in
the prospectuses or registration statements relating to the Trust or its shares,
particularly any changes resulting in a change to a prospectus or registration
statement relating to the Contracts.
4.6. The Company will provide to the Trust at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemption, requests for no-action letters, and all amendments
to any of the above, that relate to the Variable Insurance Products or any
Separate Account, contemporaneously with the filing of such document with the
SEC.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, SAIs, shareholder reports, proxy materials, and any other material
constituting sales literature or advertising under the NASD rules, the 1933 Act,
or the 1940 Act.
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4.8 The Company, the Trust, and LFII agree that the provisions of this
Article IV is not intended to designate or otherwise imply that the Company is
an underwriter or distributor of shares of the Trust.
ARTICLE V. Fees and Expenses
5.1. The Trust and LFDI shall pay no fee or other compensation to the
Company under this Agreement, except that if the Trust or any Series adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
LFDI may make payments to the Company or to the underwriter for the Variable
Insurance Products if and in amounts agreed to by LFDI in writing and such
payments will be made out of existing fees payable to LFDI by the Trust for this
purpose. No such payments shall be made directly by the Trust. Currently, no
such plan pursuant to Rule 12b-1 or payments are contemplated.
5.2. All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. At its expense, the Trust shall see to it
that all its shares are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent deemed advisable by the
Trust, in accordance with applicable state laws prior to their sale. The Trust
shall bear the expenses of registration and qualification of the Trust's shares,
preparation and filing of the Trust's registration statement, registration
statement amendments, Series prospectuses, proxy materials and reports, setting
the prospectus in type, setting in type and printing the proxy materials and
reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, and all taxes on the issuance or transfer
of the Trust's shares.
5.3. The Company shall bear the expenses of distributing the Trust's proxy
materials and reports to Owners.
ARTICLE VI. Diversification
6.1. The Trust will at all times invest money from the Variable
Insurance Products in such a manner as to ensure that, insofar as such
investment is required to assure such treatment, the Variable
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Insurance Products will be treated as variable contracts under the Code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Trust currently complies with and at all times will continue to comply with
Section 817(h) of the Code and the Treasury Regulations thereunder relating to
the diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such Section or
Regulations, and will notify the Company immediately upon having a reasonable
basis to believe any Series has ceased to comply or may not so comply in the
future and will immediately take all necessary steps to adequately diversify the
Series to achieve compliance within the grace period afforded by Regulation
1.817-5 of the Code.
ARTICLE VII. Potential Conflicts
7.1. The Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the Owners of separate accounts
of the Participating Insurance Companies investing in the Trust. A material
irreconcilable conflict may arise for a variety of reasons, including: (a) an
action by any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretive letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Series are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance policy owners; or (f) a decision by an insurer to disregard the voting
instructions of Owners. The Trustees shall promptly inform the Participating
Insurance Companies if they determine that a material irreconcilable conflict
exists and the implications thereof.
7.2. The Company will report to the Trustees any potential or existing
conflicts (including the occurrence of any event specified in paragraph 7.1
which may give rise to such a conflict) of which it is aware. The Company will
assist the Trustees in carrying out their responsibilities under the Shared
Funding Exemptive Order, by providing the Trustees with all information
reasonably necessary for the Trustees to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to inform the
Trustees whenever Owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Trust's Trustees, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists, the Company and other Participating Insurance Companies for which a
material irreconcilable conflict is relevant shall, at their expense and to the
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extent reasonably practicable (as determined by a majority of the disinterested
Trustees), take whatever steps are necessary to remedy or eliminate the material
irreconcilable conflict, up to and including: (1), withdrawing the assets
allocable to some or all of the separate accounts of Participating Insurance
Companies from the Trust or any Series and reinvesting such assets in a
different investment medium, including (but not limited to) another Series of
the Trust, or submitting the question whether such segregation should be
implemented to a vote of all affected Owners and, as appropriate, segregating
the assets of any appropriate group (i.e., annuity contract owners, life
insurance contract owners, or variable contract owners of one or more of the
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Owners the option of making such a change; (2),
establishing a new registered management investment company or managed separate
account; and (3) obtaining SEC approval.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Owner voting instructions and that decision represents
a minority position or would preclude a majority vote, the Company may be
required, at the Trust's election, to withdraw the affected Separate Account's
investment in the Trust and terminate this Agreement; provided, however that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested Trustees. Any such withdrawal and termination must take place
within six months after the Trust gives written notice that this provision is
being implemented, and until the end of that six-month period LFDI and Trust
shall continue to accept and implement orders by the Company for the purchase
(and redemption) of shares of the Trust.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Separate Account's investment in the Trust and terminate this Agreement
within six months after the Trustees inform the Company in writing that they
have determined that such decision has created a material irreconcilable
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Until the end of the
foregoing six-month period, LFDI and Trust shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Trust.
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7.6. For purposes of Sections 7.3. through 7.6. of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in no event
will the Trust be required to establish a new funding medium for the Variable
Insurance Products. The Company shall not be required to establish a new funding
medium for the Variable Insurance Products if an offer to do so has been
declined by vote of a majority of Owners materially adversely affected by the
material irreconcilable conflict. If the Trustees determine that any proposed
action does not adequately remedy any material irreconcilable conflict, then the
Company will withdraw the affected Separate Account's investment in the Trust
and terminate this Agreement within six (6) months after the Trustees inform the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Trust and/or the Company, as appropriate, shall take such steps as
may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.4., 3.5., 7.1., 7.2., 7.3., 7.4., and 7.5. of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
(a) The Company agrees to indemnify and hold harmless LASC, the LFDI, the
Trust and each of its Trustees, officers, employees and agents and each person,
if any, who controls the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually the "Indemnified
Party" for purposes of this Article VIII) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company, which consent shall not be unreasonably withheld) or
expenses (including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal
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counsel fees incurred in connection therewith) (collectively, "Losses"), to
which the Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such Losses are related to
the sale or acquisition of Trust Shares or the Contracts and
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a disclosure document for
the Contracts or in the Contracts themselves or in sales literature generated or
approved by the Company on behalf of the Contracts or Accounts (or any amendment
or supplement to any of the foregoing) (collectively, "Company Documents" for
the purposes of this Article VIII), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided that this indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and was accurately derived from written information furnished to the
Company by or on behalf of the Trust for use in Company Documents or otherwise
for use in connection with the sale of the Contracts or Trust shares; or
(ii) arise out of or result from statements or representations
(other than statements or representations contained in and accurately derived
from Trust Documents as defined in Section 8.2(a)(i) below) or wrongful conduct
of the Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(iii) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust Documents as defined in
Section 8.2(a)(i) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
and accurately derived from written information furnished to the Trust by or on
behalf of the Company; or
(iv) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company.
(b) The Company shall not be liable under this indemnification provision
with respect to any Losses to which an Indemnified Party would otherwise be
subject by reason of such Indemnified
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Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Trust or LASC, whichever is applicable. The Company shall also not be liable
under this indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the Company
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure to notify
the Company of any such claim shall not relieve the Company from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Company to
such party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
(c) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust shares or the Contracts or the operation of
the Trust.
8.2 Indemnification By The Adviser
(a) The LASC agrees to indemnify and hold harmless the Company, the
underwriter of the Contracts and each of its directors and officers and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" and individually an
"Indemnified Party" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of LASC, which consent shall not be unreasonably withheld)
or expenses (including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal counsel
fees incurred in connection therewith) (collectively, "Losses") to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such Losses are related to the sale or acquisition of the
Trust's Shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration Statement,
prospectus or sales literature of the Trust (or any amendment or supplement to
any of the foregoing) (collectively, the "Trust Documents") or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
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furnished to LASC or Trust by or on behalf of the Company for use in the
Registration Statement or prospectus for the Trust or in sales literature (or
any amendment or supplement) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the disclosure documents
or sales literature for the Contracts not supplied by LASC or persons under its
control) or wrongful conduct of the Trust, LASC or LFDI or persons under their
control, with respect to the sale or distribution of the Contracts or Trust
shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a disclosure document or sales literature
covering the Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Trust; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to comply with
the qualification representation specified in Section xx.x of this Agreement and
the diversification requirements specified in Section xx.x of this Agreement);
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by LASC in this Agreement or arise out of or
result from any other material breach of this Agreement by LASC; as limited by
and in accordance with the provisions of Sections 5.2(b) and 5.2(c) hereof.
(b) The LASC shall not be liable under this indemnification provision with
respect to any Losses to which an Indemnified Party would otherwise be subject
by reason of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to each Company or the Account, whichever is applicable.
(c) The LASC shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified LASC in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall
17
<PAGE> 18
have received notice of such service on any designated agent), but failure to
notify LASC of any such claim shall not relieve LASC from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, LASC will be entitled to
participate, at its own expense, in the defense thereof. The LASC also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LASC to such party of LASC's election to
assume the defense thereof, the Indemnified Party shall bear the expenses of
any additional counsel retained by it, and LASC will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) The Company agrees promptly to notify LASC of the commencement of any
litigation or proceedings against it or any of its officers or directors in
connection with the issuance or sale of the Contracts or the operation of each
Account.
8.3 Indemnification By The Trust
(a) The Trust agrees to indemnify and hold harmless the Company, and each
of its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust, which consent shall not be unreasonably withheld) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith or willful
misconduct of the Board or any member thereof, are related to the operations of
the Trust, and arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or arise out
of or result from any other material breach of this Agreement by the Trust; as
limited by and in accordance with the provisions of Section 5.3(b) and 5.3(c)
hereof. It is understood and expressly stipulated that neither the holders of
shares of the Trust nor any Trustee, officer, agent or employee of the Trust
shall be personally liable hereunder, nor shall any resort be had to other
private property for the satisfaction of any claim or obligation hereunder, but
the Trust only shall be liable.
(b) The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against any Indemnified Party as such may
18
<PAGE> 19
arise from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to the Company, the Trust, LASC or each Account, whichever is
applicable.
(c) The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Trust in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claims shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve the Trust from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Trust will be entitled to participate, at its own
expense, in the defense thereof. The Trust also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Trust to such party of the Trust's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trust will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other than
reasonable costs of investigation.
(d) The Company and LASC agree promptly to notify the Trust of the
commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either the Account,
or the sale or acquisition of share of the Trust.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts, without giving effect to conflict of laws principles provided,
however, that if such laws or any of the provisions of this Agreement conflict
with applicable provisions of the 1940 Act, the latter shall control.
9.2. This Agreement shall be made subject to the provisions of the 1933,
1934, and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes,
19
<PAGE> 20
rules and regulations as the SEC may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon six months advance written notice to
the other parties; or
(b) at the option of the Company to the extent that shares of a Series are
not reasonably available to meet the requirements of the Variable Insurance
Products as determined by the Company, provided however, that such termination
shall apply only to the Series not reasonably available. Prompt notice of the
election to terminate for such cause shall be furnished by the Company; or
(c) at the option of the Trust, LASC or LFDI, if formal administrative
proceedings are instituted against the Company by the NASD, the SEC, the
Insurance Commissioner or any other regulatory body regarding the duties of the
Company under this Agreement or related to the sale of the Variable Insurance
Products, with respect to the operation of a Separate Account, or the purchase
of the Trust shares, provided, however, that the Trust or LFDI, as the case may
be, shall determine in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of the Company to perform its obligations under this Agreement; or
(d) at the option of the Company, if formal administrative proceedings are
instituted against the Trust, LASC or LFDI by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body, provided,
however, that the Company determines in its sole judgment exercised in good
faith, that any such administrative proceedings will have a material adverse
effect upon the ability of the Trust, LASC or LFDI to perform its respective
obligations under this Agreement; or
(e) with respect to a Separate Account, upon requisite authority to
substitute the shares of another investment company for shares of the
corresponding Series of the Trust in accordance with the terms of the Variable
Insurance Products for which those Series shares had been selected to serve as
the underlying investment media. The Company will give the Trust 30 days' prior
written notice the date of any proposed action to replace the Trust shares; or
(f) at the option of the Company, in the event any of the Trust's shares
are not registered, issued or sold in accordance with applicable federal and any
state law or such law precludes the use of
20
<PAGE> 21
such shares as the underlying investment media of the Variable Insurance
Products issued or to be issued by the Company; or
(g) at the option of the Company, if the Trust ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes that the
Trust may fail to so qualify; or
(h) at the option of the Company, if the Trust fails to meet the
diversification requirements specified in Article VI. hereof; or
(i) at the option of the Trust, LASC or LFDI, if:
(1) the Trust, LASC or LFDI, respectively, shall determine, in their
sole judgment reasonably exercised in good faith, that the Company has suffered
a material adverse change in its business or financial condition or is the
subject of material adverse publicity and that such material adverse publicity
will have a material adverse impact upon the business and operations of the
Trust, LASC or LFDI,
(2) the Trust, LASC or LFDI shall notify the Company in writing of
such determination and its intent to terminate this Agreement, and
(3) after considering the actions taken by the Company and any other
changes in circumstances since the giving of such notice, such determination of
the Trust, LASC or LFDI shall continue to apply on the 60th day following the
giving of such notice, which 60th day shall be the effective date of
termination; or
(j) at the option of the Company, if
(1) the Company shall determine, in its sole judgment reasonably
exercised in good faith, that the Trust, LASC or LFDI has suffered a material
adverse change in its business or financial condition or is the subject of
material adverse publicity and such material adverse publicity will have a
material adverse impact upon the business and operations of the Company or the
sale of the Contracts, and
(2) after making such determination, the Company has notified the
Trust, LASC and LFDI in writing of such determination and of its intent to
terminate the Agreement, and
(3) after considering the actions taken by the Trust, LASC and/or
LFDI and any other changes in circumstances since the giving of such notice,
such determination shall continue to apply on
21
<PAGE> 22
the 60th day following the giving of such notice, which 60th day shall be the
effective date of termination; or
(k) at the option of either the Trust or LFDI, if the Company gives the
Trust and LFDI the written notice specified in Section 10.3.(a). hereof and at
the time such notice was given there was no notice of termination outstanding
under any other provision of this Agreement; provided, however any termination
under this Section 10.1.(k). shall be effective 45 days after the notice
specified in 10.3.(a). was given; or
(l) upon another Party's failure to cure a material breach of any
provision of this Agreement within thirty (30) days after written notice
thereof.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1.(a). may be exercised for any
reason or for no reason.
10.3. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate, which notice shall set forth the basis for such termination.
Furthermore,
(a) in the event that any termination is based upon the provisions of
Article VII., or the provision of Section 10.1.(a), 10.1.(i), 10.1.(j) or
10.1.(k) of this Agreement, such prior written notice shall be given in advance
of the effective date of termination as required by such provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1.(c) or 10.1.(d) of this Agreement, such prior written notice shall
be given at least ninety (90) days before the effective date of termination.
10.4. Effect of Termination. Notwithstanding any termination of this
Agreement, the Trust, LASC and LFDI shall, at the option of the Company,
continue to make available additional shares of the Trust pursuant to the terms
and conditions of this Agreement, for all Variable Insurance Products in effect
on the effective date of termination of this Agreement (hereinafter referred to
as "Existing Products"). Specifically, without limitation, the Owners of the
Existing Products shall be permitted to reallocate investments in the Trust,
redeem investments in the Trust and/or invest in the Trust upon the making of
additional purchase payments under the Existing Products. The parties agree that
this Section 10.4 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
22
<PAGE> 23
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Company:
Sage Life Assurance of America, Inc.
300 Atlantic Street, Suite 302
Stamford, CT 06903
Attn: James F. Bronsdon, Esquire
If to the Trust:
c/o Colonial Management Associates, Inc.
600 Atlantic Avenue
Boston, MA 02210
Attn.: Secretary
If to LASC:
c/o Keyport Life Insurance Company
125 High Street
Boston, MA 02210
Attn.: Secretary
If to LFDI:
One Financial Center
23
<PAGE> 24
Boston, Massachusetts 02111
Attention: President
With a copy to: General Counsel
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Trust must look solely to the property
of the Trust for the enforcement of any claims against the Trust hereunder and
otherwise understand that the Trustees, officers, agents or shareholders of the
Trust shall have no personal liability for any obligations entered into by or on
behalf of the Trust.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the Owners and all information reasonably identified as confidential in
writing be any other party hereto and, except as permitted by this Agreement,
shall not disclose, disseminate or utilize such names and addresses and other
confidential information until such time as it may come into the public domain
without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be effected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, the Internal Revenue Service and state insurance regulators) and shall
permit each other and such authorities reasonable access to its books and
records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
12.7. The Trust and LFDI agree that to the extent any advisory or other
fees received by the Trust, LFDI, or LASC are determined to be unlawful in
appropriate legal or administrative proceedings, the Trust shall indemnify and
reimburse the Company for any out-of-pocket expenses and
24
<PAGE> 25
actual damages the Company has incurred as a result of any such proceeding,
provided however that the provisions of Section 8.2(b) and 8.2(c) of this
Agreement. shall apply to such indemnification and reimbursement obligation.
Such indemnification and reimbursement obligation shall be in addition to any
other indemnification and reimbursement obligations of the Trust under this
Agreement.
12.8. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligation,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.9. Except as otherwise expressly provided in this Agreement, neither
the Trust, its investment adviser, its principal underwriter, or any affiliates
thereof, or LFII, shall use any trademark, trade name, service mark or logo of
the Company or any of its affiliates, or any variation of any such trademark,
trade name, service mark or logo, without the Company's prior written consent,
the granting of which shall be at the Company's sole option.
12.10. Except as otherwise expressly provided in this Agreement, neither
the Company nor any of its affiliates shall use any trademark, trade name,
service mark or logo of the Trust, its investment adviser, its principal
underwriter, or any affiliates thereof, or LFII, or any variation of any such
trademark, trade name, service mark or logo, without the Trust's prior written
consent, the granting of which shall be at the Trust's sole option.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized officer and
its seal to be hereunder affixed hereto as of the date first set forth above.
SAGE LIFE ASSURANCE OF AMERICA, INC.
By:
Title:
LIBERTY VARIABLE INVESTMENT TRUST
By:
25
<PAGE> 26
Title:
LIBERTY ADVISORY SERVICES CORP.
By:
Title:
LIBERTY FUNDS DISTRIBUTOR, INC.
By:
Title:
26
<PAGE> 27
SCHEDULE A
Trust Series Available Under the Variable Insurance Products
[list Series]
Separate Accounts Utilizing the Series
[list Separate Accounts]
Variable Insurance Products Funded By the Separate Account
[list Variable Insurance Products]
27
<PAGE> 1
PARTICIPATION AGREEMENT
AMONG
MORGAN STANLEY UNIVERSAL FUNDS, INC.,
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
MILLER ANDERSON & SHERRERD, LLP
AND
SAGE LIFE ASSURANCE OF AMERICA, INC.
DATED AS OF
DECEMBER_____, 1998
<PAGE> 2
\
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I. Purchase of Fund Shares 2
ARTICLE II Representations and Warranties 5
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 7
ARTICLE IV. Sales Material and Information 9
ARTICLE V Fees and Expenses 11
ARTICLE VI. Diversification 12
ARTICLE VII. Potential Conflicts 12
ARTICLE VIII. Indemnification 14
ARTICLE IX. Applicable Law 20
ARTICLE X. Termination 20
ARTICLE XI. Notices 23
ARTICLE XII. Miscellaneous 24
SCHEDULE A Separate Accounts and Contracts A-1
SCHEDULE B Portfolios of Morgan Stanley Universal Funds, Inc. B-1
SCHEDULE C Proxy Voting Procedures C-1
</TABLE>
<PAGE> 3
THIS AGREEMENT, made and entered into as of the ___ day of
December, 1998 by and among SAGE LIFE ASSURANCE OF AMERICA, INC.
(hereinafter the "Company"), a Delaware corporation, on its own
behalf and on behalf of each separate account of the Company set
forth on Schedule A hereto as may be amended from time to time
(each such account hereinafter referred to as an "Account", and
collectively as the "Accounts"), and MORGAN STANLEY UNIVERSAL
FUNDS, INC. (hereinafter the "Fund"), a Maryland corporation, and
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. and MILLER
ANDERSON & SHERRERD, LLP (hereinafter collectively the "Advisers"
and individually the "Adviser"), a Delaware corporation and a
Pennsylvania limited liability partnership, respectively.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as (i) the investment vehicle for
separate accounts established by insurance companies for individual and group
life insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an
investment vehicle under their Variable Insurance Contracts enter into
participation agreements with the Fund and the Advisers (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of
shares, each representing the interest in a particular managed portfolio of
securities and other assets, any one or more of which may be made available
under this Agreement, as may be amended from time to time by mutual agreement of
the parties hereto for purchase by the Company for the Accounts (each such
portfolio made available under this Agreement (hereinafter, "Portfolio") is
listed in Schedule B which is attached hereto and incorporated herein); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 19, 1996 (File No. 812-10118), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940
Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by Variable
Annuity Product separate accounts of both affiliated and unaffiliated life
insurance companies and Qualified Plans (hereinafter the "Shared Funding
Exemptive Order"); and
<PAGE> 4
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, each Adviser is duly registered as an investment adviser
under the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, each Adviser manages certain Portfolios of the Fund; and
WHEREAS, Morgan Stanley & Co. Incorporated (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain
Variable Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution or under authority of the
Board of Directors of the Company, on the date shown for such Account on
Schedule A hereto, to set aside and invest assets attributable to the aforesaid
Variable Insurance Product; and
WHEREAS, the Company has registered or will register each Account
as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase, on behalf of each Account, shares
of the Portfolios to fund certain of the foresaid Variable Insurance Products
and the Underwriter is authorized to sell such shares to each such Account at
net asset value; and
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Purchase of Fund Shares
1.1. The Fund agrees to make available for purchase by the Company
shares of the Fund and shall execute orders placed for each Account on a daily
basis at the closing net asset value next computed after receipt by the Fund or
its designee of such order. For purposes of this Section 1.1, the Company shall
be the designee of the Fund
2
<PAGE> 5
for receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for
trading and on which the Fund calculates its net asset value pursuant to the
rules of the Securities and Exchange Commission.
1.2. The Fund, so long as this Agreement is in effect, agrees to
make its shares available indefinitely for purchase at the applicable closing
net asset value per share by the Company and its Accounts on those days on which
the Fund calculates its net asset value pursuant to rules of the Securities and
Exchange Commission and the Fund shall use reasonable efforts to calculate such
net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Directors of the Fund
(hereinafter the "Board") may refuse to permit the Fund to sell shares of any
Portfolio to any person, or suspend or terminate the offering of shares of any
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Portfolio.
1.3. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts and to certain
Qualified Plans. No shares of any Portfolio will be sold to the general public.
1.4 The Fund will not make its shares available for purchase by
any insurance company or separate account unless an agreement containing
provisions substantially the same as Article I, Section 2.5 of Article II,
Sections 5.1 and 5.2 of Article V and Articles VI and VII of this Agreement is
in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the closing net asset value next computed after
receipt by the Fund or its designee of the request for redemption. For purposes
of this Section 1.5 the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund, provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemption of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Variable Insurance
Products issued by the Company, under which amounts may be invested in the Fund
(hereinafter the "Contracts"), are listed on Schedule A attached hereto and
incorporated herein by
3
<PAGE> 6
reference, as such Schedule A may be amended from time to time by mutual written
agreement of all of the parties hereto. The Company will give the Fund and the
Adviser 45 days written notice of its intention to make available in the future,
as a funding vehicle under the Contracts, any other investment company or
portfolio of an investment company which has substantially similar investment
objectives and policies and invests in similar securities as any of the
Portfolios listed on Schedule B.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire, or
as may otherwise be provided by separate agreement, with the reasonable
expectation of receipt by the Fund by 2:00 p.m. Eastern Time on that day. For
purposes of Sections 2.9 and 2.10, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
The Fund shall pay for redeemed Fund shares on the next Business
Day after a request to redeem Fund shares is made in accordance with the
provisions of Section 1.5 hereof. Payment shall be in federal funds transmitted
by wire, or may otherwise be provided by separate agreement, with the reasonable
expectation of receipt by the Company by 3:00 p.m. Eastern time on that day.
With respect to the payment of the purchase price by the Company
and of the redemption proceeds by the Fund, the Company and the Fund may net
purchase and redemption orders with respect to each Portfolio and may transmit
one net payment per Portfolio.
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10 The Fund shall make the closing net asset value per share for
each Portfolio available to the Company on a daily basis as soon as reasonably
practical after the closing net asset value per share is calculated (normally by
6:30 p.m. Eastern time) and
4
<PAGE> 7
shall use its best efforts to make such closing net asset value per share
available by 7:00 p.m. Eastern time. If the Fund provides materially incorrect
closing net asset value per share information (as determined under SEC
guidelines), the Company shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct net asset value per share.
Any material error in the calculation or reporting of closing net asset value
per share, dividend, or capital gain information shall be reported promptly upon
discovery to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Delaware Insurance Law Section 2932(a) and has registered
or, prior to any issuance or sale of the Contracts, will register each Account
as a unit investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the State of
Maryland and all applicable federal and state laws, other than insurance laws,
and that the Fund is and shall remain registered under the 1940 Act. The Fund
shall amend the registration statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund.
2.3. The Fund represents and warrants that it is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and that it will remain qualified
(under Subchapter M or any successor or similar provision) and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4 Subject to Section 6.1 hereof, the Company represents that the
Contracts are currently treated as life insurance policies or annuity contracts,
under applicable provisions of the Code and that it will make every effort to
maintain such treatment and that it will notify the Fund immediately upon having
a reasonable basis for believing
5
<PAGE> 8
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.5. The Fund represents and warrants that to the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1 under the 1940
Act, the Fund undertakes to have a board of directors, a majority of whom are
not interested persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses and to promptly notify the Company
thereof.
2.6. The Fund makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Maryland and the Fund represents that their respective operations are
and shall at all times remain in material compliance with the laws of the State
of Maryland to the extent required to perform this Agreement. However, the Fund
represents and warrants that it will use its reasonable best efforts to ensure
that the investment policies, fees, and expenses of the Fund are and shall at
all times remain in compliance with applicable insurance and other applicable
laws of Delaware and any other applicable state as such laws are described by
and specifically requested in writing by the Company to the extent that said
compliance is reasonably necessary for the Fund to perform its duties under this
Agreement. The Fund shall furnish information not otherwise available to the
Company which is required by state insurance law to enable the Company to obtain
the authority needed to issue the Contracts in any applicable state.
2.7. The Fund represents and warrants that it is and shall remain
lawfully organized and validly existing under the laws of the State of Maryland
and that it does and will comply in all material respects with the 1940 Act and
the rules and regulations thereunder.
2.8. (a) Morgan Stanley Asset Management Inc. represents and
warrants that it is and shall remain duly organized and validly existing under
the laws of the state of Delaware; (b) Miller Anderson & Sherrerd, LLP
represents and warrants that it is and shall remain duly organized and validly
existing under the laws of the state of Pennsylvania; and (c) each Adviser
represents and warrants that it is and shall remain duly registered in all
material respects under all applicable federal and state securities laws and
that it will perform its obligations for the Fund in compliance in all material
respects with the laws of its state of domicile and any applicable state and
federal securities laws.
2.9 The Fund represents and warrants that its directors, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are
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<PAGE> 9
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid
blanket fidelity bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company. The Fund agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Company in the event
that such coverage no longer applies.
2.10. The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
covered by a blanket fidelity bond or similar coverage, in an amount not less
than the equivalent of U.S. $5 million. The aforesaid includes coverage for
larceny and embezzlement is issued by a reputable bonding company. The Company
agrees to make all reasonable efforts to see that this bond or another bond
containing these provisions is always in effect, and agrees to notify the Fund
and the Advisers in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1. The Fund or its designee shall provide the Company with as
many printed copies of the Fund's current prospectus and statement of additional
information as the Company may reasonably request. If requested by the Company,
in lieu of providing printed copies the Fund shall provide camera-ready film or
computer diskettes containing the Fund's prospectus and statement of additional
information, and such other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the prospectus and/or
statement of additional information for the Fund is amended during the year) to
have the prospectus for the Contracts and the Fund's prospectus printed together
in one document, and to have the statement of additional information for the
Fund and the statement of additional information for the Contracts printed
together in one document. Alternatively, the Company may print the Fund's
prospectus and/or its statement of additional information in combination with
other fund companies' prospectuses and statements of additional information.
3.2. Except as provided in this Section 3.2., all expenses of
preparing, setting in type and printing and distributing Fund prospectuses and
statements of additional information shall be the expense of the Company. For
prospectuses and statements of additional information provided by the Company to
its existing owners of Contracts who currently own shares of one or more of the
Fund's Portfolios, in order to update disclosure as required by the 1933 Act
and/or the 1940 Act, the cost of printing shall be borne by the Fund. If the
Company chooses to receive camera-ready film or computer diskettes in lieu of
receiving printed copies of the Fund's prospectus, the Fund shall
7
<PAGE> 10
bear the cost of typesetting to provide the Fund's prospectus to the Company
in the format in which the Fund is accustomed to formatting prospectuses, and
the Company shall bear the expense of adjusting or changing the format to
conform with any of its prospectuses. In such event, the Fund will reimburse
the Company in an amount equal to the product of x and y where x is the number
of such prospectuses distributed to owners of the Contracts who currently own
shares of one or more of the Fund's Portfolios, and y is the Fund's per unit
cost of typesetting and printing the Fund's prospectus. The same procedures
shall be followed with respect to the Fund's statement of additional
information. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of printing, typesetting, and
distributing any prospectuses or statements of additional information other
than those actually distributed to existing owners of the Contracts who
currently own shares of one or more of the Fund's Portfolios.
3.3. The Fund's statement of additional information shall be
obtainable by Contract owners from the Fund, the Company or such other person as
the Fund may designate, as agreed upon by the parties.
3.4. The Fund, at its expense, shall provide the Company with
copies of its proxy statements, reports to shareholders, and other
communications (except for prospectuses and statements of additional
information, which are covered in section 3.1) to shareholders in such quantity
as the Company shall reasonably require for distributing to Contract owners.
3.5. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have
been received in the same proportion as Fund
shares of such Portfolio for which instructions
have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund and the Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating
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<PAGE> 11
Insurance Companies shall be responsible for ensuring that each of their
separate accounts participating in the Fund calculates voting privileges in a
manner consistent with the standards set forth on Schedule C, which standards
will also be provided to the other Participating Insurance Companies.
3.6. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
directors and with whatever rules the Commission may promulgate with respect
thereto.
3.7. The Fund shall use reasonable efforts to provide Fund
prospectuses for the Portfolios, Fund reports to shareholders, proxy materials
and other Fund communications (or camera-ready equivalents) to the Company
sufficiently in advance of the Company's mailing dates to enable the Company to
complete, at reasonable cost, the printing, assembling and/or distribution of
the communications in accordance with applicable laws and regulations.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or the Adviser(s) is named, at least five Business
Days prior to its use. No such material shall be used if the Fund or its
designee reasonably objects to such use within five Business Days after receipt
of such material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund. The Fund agrees to respond to
any request for approval on a prompt and timely basis. The Company shall adopt
and implement procedures reasonably designed to ensure that "broker only"
materials including information about the Fund are not distributed to existing
or prospective owners, and the Fund shall not be liable for any losses, damages,
or expenses relating to the improper use of such broker only materials.
9
<PAGE> 12
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company, its separate account(s) and/or
the Contracts are named at least five Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within five Business Days after receipt of such material.
4.4. The Fund and the Advisers shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company. The Company agrees to
respond to any request for approval on a prompt and timely basis. The Fund shall
adopt and implement procedures reasonably designed to ensure that "broker only"
materials including information about the Company or the Contracts are not
distributed to existing or prospective owners, and the Company shall not be
liable for any losses, damages or expenses relating to the improper use of such
broker only materials.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares, which are
relevant to the Company or the Contracts.
The Fund shall provide the Company with as much notice as is
reasonably practicable (but in any event, such notice shall be provided at least
thirty days prior to the anticipated date of such solicitation or change) of any
proxy solicitation for a Portfolio and of any material changes in the
prospectuses or registration statements relating to a Portfolio or its shares,
particularly any changes resulting in a change to a prospectus or registration
statement relating to the Contracts.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
investment in the Fund under the Contracts.
4.7. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to, any of the
following that refer to
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<PAGE> 13
the Fund or any affiliate of the Fund: advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboards, motion pictures, or other public media), sales literature (i.e., any
written communication distributed or made generally available to customers or
the public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, and registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy materials, and any other
material constituting sales literature or advertising under the NASD rules, the
1933 Act, or the 1940 Act.
4.8. The Company, the Fund, and the Advisers agree that the
provisions of this Article IV are not intended to designate nor otherwise imply
that the Company is an underwriter or distributor of shares of the Fund.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund shall pay no fee or other compensation to the Company
under this agreement, except that if the Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
the Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. Except as otherwise
set forth in the Section 3.2 of this Agreement, the Fund shall bear the expenses
for the cost of registration and qualification of the Fund's shares, preparation
and filing of the Fund's prospectus and registration statement, proxy materials
and reports, setting the prospectus in type, setting in type and printing the
proxy materials and reports to shareholders, the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
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<PAGE> 14
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as
variable contracts under the Code and the regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund currently complies with
and at all times will continue to comply with Section 817(h) of the Code and
Treasury Regulation 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulations. In the event of a breach of
this Article VI by the Fund, or upon having a reasonable basis to believe any
Portfolio has ceased to comply or may not so comply in the future, it will take
all necessary steps (a) to immediately notify Company of such breach or
suspected breach and (b) to adequately diversify the Fund so as to achieve
compliance within the grace period afforded by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by Variable Insurance Product owners; or (f) a decision by a
Participating Insurance Company to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority
of its disinterested members, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent
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<PAGE> 15
reasonably practicable (as determined by a majority of the disinterested
directors), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question whether such segregation should be implemented to a vote of all
affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance policy owners,
or variable contract owners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected contract
owners the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account (at the Company's expense); provided, however that such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.5 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
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<PAGE> 16
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company
8.1(a) The Company agrees to indemnify and hold harmless the Fund and
each member of the Board and Fund officers, and each Adviser and each director
and officer of each Adviser, and each person, if any, who controls the Fund or
the Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in the registration statement or prospectus for the
Contracts or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished to the Company by or on behalf of the
Fund for use in the registration statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment
or supplement) or
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<PAGE> 17
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained
in the registration statement, prospectus or sales literature of the
Fund not supplied by the Company, or persons under its control and
other than statements or representations authorized by the Fund or
an Adviser) or unlawful conduct of the Company or persons under its
control, with respect to the sale or distribution of the Contracts
or Fund shares; or
(iii) arise out of or as a result of any untrue
statement or alleged untrue statement of a material fact contained
in a registration statement, prospectus, or sales literature of the
Fund or any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance upon
and in conformity with information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any failure by the
Company to provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material
breach of any representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon
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<PAGE> 18
such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but
failure to notify the Company of any such claim shall not relieve
the Company from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own expense, in
the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party
of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings
against them or any of their officers or directors in connection
with the issuance or sale of the Fund shares or the Contracts or
the operation of the Fund.
8.2. Indemnification by the Advisers
8.2(a). Each Adviser agrees, with respect to each Portfolio
that it manages, to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" and individually,
"Indemnified Party," for purposes of this Section 8.2) against any
and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Adviser) or
litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of
shares of the Portfolio that it manages or the Contracts and:
(i)arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in the registration statement or prospectus or
sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the
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<PAGE> 19
omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Fund by or
on behalf of the Company for use in the registration
statement or prospectus for the Fund or in sales literature
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature for the Contracts not supplied by the Fund
or persons under its control and other than statements or
representations authorized by the Company) or unlawful
conduct of the Fund, Adviser(s) or Underwriter or persons
under their control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue
statement or alleged untrue statement of a material fact
contained in a registration statement, prospectus, or sales
literature covering the Contracts, or any amendment thereof
or supplement thereto, or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was
made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement including, without limitation, the
Fund's obligation to comply with Article VI hereto; or
(v) arise out of or result from any material breach
of any representation and/or warranty made by the Adviser
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Adviser; as
limited
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<PAGE> 20
by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2(b). An Adviser shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and
duties under this Agreement.
8.2(c). An Adviser shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified the Adviser in writing within a reasonable time after the
summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified
Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify
the Adviser of any such claim shall not relieve the Adviser from
any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to
participate, at its own expense, in the defense thereof. The
Adviser also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After
notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and
the Adviser will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Adviser
of the commencement of any litigation or proceedings against it or
any of its officers or directors in connection with the issuance
or sale of the Contracts or the operation of each Account.
8.3. Indemnification by the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person,
if any, who controls the Company within the meaning of Section 15
of the 1933
18
<PAGE> 21
Act (hereinafter collectively, the "Indemnified Parties" and
individually, "Indemnified Party," for purposes of this Section
8.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of
the Fund) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and result from
the gross negligence, bad faith or willful misconduct of the Board
or any member thereof, and:
(i) arise as a result of any failure by the
Fund to provide the services and furnish the
materials under the terms of this Agreement
including, without limitation, the Fund's obligation
to comply with Article VI hereto; or
(ii) arise out of or result from any material
breach of any representation and/or warranty made by
the Fund in this Agreement or arise out of or result
from any other material breach of this Agreement by
the Fund;
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and
duties under this Agreement.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified the Fund in writing within a reasonable time after the
summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified
Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify
the Fund of any such claim shall not relieve the Fund from any
liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to
participate, at its own expense, in the defense thereof. The Fund
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After
19
<PAGE> 22
notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and
the Fund will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company agrees promptly to notify the Fund of
the commencement of any litigation or proceedings against it or
any of its respective officers or directors in connection with
this Agreement, the issuance or sale of the Contracts, with
respect to the operation of either Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the
State of New York, without regard to conflict of laws principles.
9.2. This Agreement shall be subject to the provisions of
the 1933, 1934 and 1940 Acts, and the rules and regulations and
rulings thereunder, including such exemptions from those statutes,
rules and regulations as the Securities and Exchange Commission
may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and
effect until the first to occur of:
(a) termination by any party for any reason by six months
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the
Fund and the Adviser with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the
Fund and the Adviser with respect to any Portfolio in the event
any of the Portfolio's shares are not registered, issued or sold
in accordance with
20
<PAGE> 23
applicable state and/or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts
issued or to be issued by the Company; or
(d) termination by the Company by written notice to the
Fund and the Adviser with respect to any Portfolio in the event
that such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code or under any successor or
similar provision, or if the Company reasonably believes that the
Fund may fail to so qualify; or
(e) termination by the Company by written notice to the
Fund and the Adviser with respect to any Portfolio in the event
that such Portfolio falls to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by the Fund by written notice to the
Company if the Fund shall determine, in its sole judgment
exercised in good faith, that the Company and/or its affiliated
companies has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the
Fund and the Adviser, if the Company shall determine, in its sole
judgment exercised in good faith, that either the Fund or an
Adviser has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity; or
(h) termination by the Fund or the Adviser by written
notice to the Company, if the Company gives the Fund and the
Adviser the written notice specified in Section 1.6 hereof and at
the time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement; provided,
however any termination under this Section 10.1(h) shall be
effective sixty (60) days after the notice specified in Section
1.6 was given; or
(i) termination by the Company upon the Fund's failure to
cure a material breach of any provision of this Agreement within
thirty days after written notice thereof; or
21
<PAGE> 24
(j) termination by the Fund upon the Company's failure to
cure a material breach of any provision of this Agreement within
thirty days after written notice thereof.
10.2. Notwithstanding any termination of this Agreement,
the Fund shall at the option of the Company, continue to make
available additional shares of a Portfolio pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on
the effective date of termination of this Agreement (hereinafter
referred to as "Existing, Contracts"). Specifically, without
limitation, the owners of the Existing Contracts shall be
permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the
Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2
shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by
Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable
to the Contracts (as distinct from Fund shares attributable to the
Company's assets held in the Account) except (i) as necessary to
implement Contract Owner initiated or approved transactions, or
(ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or
(iii) as permitted by an order of the Securities and Exchange
Commission pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund the opinion
of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of
the Contracts, the Company shall not prevent Contract Owners from
allocating payments to a Portfolio that was otherwise available
under the Contracts without first giving the Fund 90 days prior
written notice of its intention to do so.
22
<PAGE> 25
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by
registered or certified mail to the other party at the address of
such party set forth below or at such other address as such party
may from time to time specify in writing to the other party.
If to the Fund:
Morgan Stanley Universal Funds, Inc.
c/o Morgan Stanley Dean Witter Investment
Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to Adviser:
Morgan Stanley Dean Witter Investment Management
Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to Adviser:
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
Attention: Lorraine Truten
If to the Company:
Sage Life Assurance of America, Inc.
300 Atlantic Street, Suite 302
Stamford, CT 06903
Attention: James F. Bronsdon, Esq.
23
<PAGE> 26
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to
the property of the Fund for the enforcement of any claims against
the Fund as neither the Board, officers, agents or shareholders
assume any personal liability for obligations entered into on
behalf of the Fund.
12.2. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as
confidential the names and addresses of the owners of the
Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or
utilize such names and addresses and other confidential
information until such time as it may come into the public domain
without the express written consent of the affected party.
12.3. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate
any of the provisions hereof or otherwise affect their
construction or effect.
12.4. This Agreement may be executed simultaneously in two
or more counterparts, each of which taken together shall
constitute one and the same instrument.
12.5. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other
party and all appropriate governmental authorities (including
without limitation the Securities and Exchange Commission, the
National Association of Securities Dealers and state insurance
regulators) and shall permit each other and such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the
transactions contemplated hereby. Notwithstanding the generality
of the foregoing, each party hereto further agrees to furnish the
California Insurance Commissioner with any information or reports
in connection with services provided under this Agreement which
such Commissioner may request in order to ascertain whether the
insurance operations of the Company are being conducted in a
manner consistent with the California Insurance Regulations and
any other applicable law or regulations.
24
<PAGE> 27
12.7. The rights, remedies and obligations contained in
this Agreement are cumulative and are in addition to any and all
rights, remedies and obligations at law or in equity, which the
parties hereto are entitled to under state and federal laws.
12.8 This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior
written consent of all parties hereto; provided, however, that a
change of control of an Adviser shall not be deemed an assignment
for purposes of this Agreement.
12.9 The Company shall, upon request by the Fund or an
Adviser, furnish, or cause to be furnished, to the Fund or its
designee copies of the following publicly available reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report
(prepared under generally accepted accounting principles
("GAAP"), if any), as soon as practical and in any event
within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory)
(and GAAP, if any), as soon as practical and in any event
within 45 days after the end of each quarterly period:
(c) any financial statement, proxy statement, notice
or report of the Company sent to stockholders and/or
policyholders, as soon as practical after the delivery
thereof to stockholders;
(d) any registration statement (without exhibits)
and financial reports of the Company filed with the
Securities and Exchange Commission or any state insurance
regulator, as soon as practical after the filing thereof;
(e) any other publicly available report submitted to
the Company by independent accountants in connection with
any annual, interim or special audit made by them of the
books of the Company, as soon as practical after the
receipt thereof.
12.10 Except as otherwise expressly provided in this
Agreement, none of the Fund, its Advisers, the Fund's principal
underwriter, or any affiliates thereof, shall use any trademark,
trade name, service mark or logo of the Company or any of its
affiliates, or any variation of any such
25
<PAGE> 28
trademark, trade name, service mark or logo, without the Company's
prior written consent, the granting of which shall be at the
Company's sole option.
12.11. Except as otherwise expressly provided in this
Agreement, neither the Company nor any of its affiliates shall use
any trademark, trade name, service mark or logo of the Fund, its
Advisers, its principal underwriter, or any affiliates thereof, or
any variation of any such trademark, trade name, service mark or
logo, without the respective party's prior written consent, the
granting of which shall be at such party's sole option.
26
<PAGE> 29
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
SAGE LIFE ASSURANCE OF AMERICA, INC.
By:
--------------------------
Name:
Title:
MORGAN STANLEY UNIVERSAL FUNDS, INC.
By:
--------------------------
Name:
Title:
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
By:
--------------------------
Name:
Title:
MILLER ANDERSON & SHERRERD, LLP
By:
--------------------------
Name:
Title:
27
<PAGE> 30
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
NAME OF SEPARATE ACCOUNT AND FORM NUMBER AND NAME OF CONTRACT
DATE ESTABLISHED BY BOARD OF DIRECTORS FUNDED BY SEPARATE ACCOUNT
A-1
<PAGE> 31
SCHEDULE B
<TABLE>
<CAPTION>
MORGAN STANLEY UNIVERSAL FUNDS PORTFOLIOS
AVAILABLE UNDER THE VARIABLE INSURANCE
PRODUCTS PORTFOLIO ADVISER
- ------------------------------------------ -----------------
<S> <C>
Value Miller Anderson & Sherrerd, LLP
Mid Cap Value Miller Anderson & Sherrerd, LLP
Global Equity Morgan Stanley Dean Witter Investment
Management Inc.
</TABLE>
B-l
<PAGE> 32
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
- - The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
- - Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
- - Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
- - The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting,
instruction solicitation material. The Fund will provide the last Annual
Report to the Company pursuant to the terms of Section 3.3 of the
Agreement to which this Schedule relates.
- - The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company at its expense shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
C-1
<PAGE> 33
- name (legal name as found on account registration)
- address
- fund or account number
- coding to state number of units
- individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
- - During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
- Voting Instruction Card(s)
- One proxy notice and statement (one document)
- return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
- "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly as
possible and that their vote is important. One copy will be supplied
by the Fund.)
- cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
- - The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
- - Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including,) the meeting, counting backwards.
- - Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
C-2
<PAGE> 34
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not
been required by the Fund in the past.
- - Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
- - If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are
usually remedied individually.
- - There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
- - The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) The Fund must
review and approve tabulation format.
- - Final tabulation in shares is verbally given by the Company to the Fund
on the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
- - A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
C-3
<PAGE> 35
- - The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
- - All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
C-4
<PAGE> 1
EXHIBIT 8(a)(vi)
PARTICIPATION AGREEMENT
By and Among
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
SAGE LIFE ASSURANCE OF AMERICA, INC.
and
OPPENHEIMERFUNDS, INC.
THIS AGREEMENT, made and entered into as of the ___ day of
January, 1999 by and among Sage Life Assurance of America, Inc, a Delaware
corporation (hereinafter the "Company") on its own behalf and on behalf of each
separate account of the Company named in Schedule 1 to this Agreement, as may be
amended from time to time by mutual consent (each account referred to as the
"Account"), Oppenheimer Variable Account Funds, an open-end diversified
management investment company organized under the laws of the State of
Massachusetts (hereinafter the "Fund") and OppenheimerFunds, Inc., a Colorado
Corporation (hereinafter the "Adviser").
WHEREAS, the Fund engages in business as an open-end
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by insurance
companies (hereinafter "Participating Insurance Companies"); and
WHEREAS, beneficial interests in the Fund are divided into
several series of shares, each representing the interest in a particular managed
portfolio (collectively the "Portfolios") of securities and other assets (the
Portfolios covered by this Agreement are specified in Schedule 2 attached hereto
as may be amended from time to time by mutual consent); and
WHEREAS, the Fund has obtained an order from the Securities
and Exchange Commission (alternatively referred to as the "SEC" or the
"Commission"), dated July 16, 1986 (File No. 812-6234), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
<PAGE> 2
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Mixed and Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is registered as an investment adviser
under the Investment Advisers Act of 1940 and serves as the investment adviser
to the Fund;
WHEREAS, the Company has registered or will register certain
variable annuity and/or life insurance contracts (hereinafter "Contracts") under
the 1933 Act (unless an exemption from registration is available); and
WHEREAS, the Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company under the insurance laws of the State of Tennessee, to set aside and
invest assets attributable to the Contracts. (The Contract(s) and the Account(s)
covered by the Agreement are specified in Schedule 2 attached hereto, as may be
amended from time to time by mutual consent); and
WHEREAS, the Company has registered the Account as a unit
investment trust under the 1940 Act (unless an exemption from registration is
available); and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios named
in Schedule 2 on behalf of the Account to fund the Contracts named in Schedule 3
and the Fund is authorized to sell such shares to unit investment trusts such as
the Account at net asset value;
-2-
<PAGE> 3
NOW, THEREFORE, in consideration of their mutual promises, the
Fund, the Adviser and the Company agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the order for the shares of the Fund. For purposes
of this Section 1.1, the Company shall be the designee of the Fund for receipt
of such orders from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives written (or facsimile)
notice of such order on the next following Business Day by no later than 10:00
A.M. New York time; however, the Company undertakes to use its best efforts to
provide such notice to the Fund by no later than 9:30 A.M. New York time.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the SEC.
1.2. The Company shall pay for Fund shares on the next
Business Day after an order to purchase Fund shares is made in accordance with
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire
pursuant to instructions of the Fund's Treasurer or by a credit for any shares
redeemed.
1.3. The Fund agrees to make an indefinite number of Fund
shares available for purchase at the applicable net asset value per share by the
Company for their separate Accounts listed in Schedule 2, on those days on which
the Fund calculates its net asset value pursuant to rules of the SEC; provided,
however, that the Board of Trustees of the Fund (hereinafter the "Trustees") may
refuse to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Trustees, acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, in the best interests of the shareholders
of any Portfolio.
-3-
<PAGE> 4
1.4. The Fund agrees that shares of the Fund will be sold only
to Participating Insurance Companies and their separate accounts, qualified
pension and retirement plans or such other persons as are permitted under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and regulations promulgated thereunder (collectively,
"Qualified Investors"), and/or to one or more registered investment companies
that restrict the sale of shares of such registered investment companies to
Qualified Investors, the sale of which will not impair the tax treatment
currently afforded the contracts.
1.5. The Fund shall not sell Fund shares to any insurance
company or separate account unless a contractual obligation is in effect with
respect to such sales to abide by the conditions of the Mixed and Shared Funding
Exemptive Order that are addressed in Section 3.4 and Article VII of this
Agreement.
1.6. The Fund agrees to redeem for cash, upon the Company's
request, any full or fractional shares of the Fund held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption. For
purposes of this Section 1.6, the Company shall be the designee of the Fund for
receipt of requests for redemption and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives written (or facsimile)
notice of such request for redemption on the next following Business Day by no
later than 10:00 A.M. New York time; however the Company undertakes to use its
best efforts to provide such notice to the Fund by no later than 9:30 A.M. New
York time.
1.7. The Fund shall pay for the Fund shares that are redeemed
within the time period specified in the Fund's prospectus or statement of
additional information, provided, however, that if the Fund does not pay for the
Fund shares that are redeemed on the next Business Day after a request to redeem
shares is made, then the Fund shall apply any such delay in redemptions
uniformly to all holders of shares of that Portfolio. Payment shall be in
federal funds transmitted by wire pursuant to the instructions of the
-4-
<PAGE> 5
Company or by a credit toward any shares purchased on the Business Day on which
the redemption payment is made.
1.8. The Company agrees to purchase and redeem the shares of
the Portfolios named in Schedule 2 offered by the then current prospectus and
statement of additional information of the Fund in accordance with the
provisions of such prospectus and statement of additional information.
1.9. Issuance and transfer of the Funds' shares will be by
book entry only. Stock certificates will not be issued to the Company or the
Account. Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.10. The Fund shall furnish notice as soon as reasonably
practicable to the Company of any income, dividends or capital gain
distributions payable on the Portfolio's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the Portfolio
shares in additional shares of that Portfolio. The Company reserves the right to
revoke this election and thereafter to receive all such dividends and
distributions in cash. The Fund shall notify the Company of the number of shares
so issued as payment of such dividends and distributions.
1.11. The Fund shall make the net asset value per share for
each Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6:30 p.m. New
York time. In the event the Fund is unable to meet the 6:30 p.m. time stated
herein, it shall provide additional time for the Company to place orders for the
purchase and redemption of shares. Such additional time shall be equal to the
additional time which the Fund takes to make the closing net asset value
available to the Company. If the Fund provides materially incorrect share net
asset value information, the Fund shall make an adjustment to the number of
shares purchased or redeemed for the Accounts to reflect the correct net asset
value per share. Any material error in the calculation or reporting of net asset
value per share, dividend or capital gains information shall be reported
promptly upon discovery to the Company.
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<PAGE> 6
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts
are or will be registered under the 1933 Act (unless an exemption from
registration is available) and, that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable state law and that it has registered the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, and that it will maintain such
registration for so long as any Contracts are outstanding or until registration
is no longer required under federal and state securities laws. The Company shall
amend the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Contracts or as may
otherwise be required by applicable law. The Company shall register and qualify
the Contracts for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2. Subject to Article VI hereof, the Company represents that
it believes that the Contracts are currently and at the time of issuance will be
treated as life insurance or annuity contracts under applicable provisions of
the Internal Revenue Code and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Adviser immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.3. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance and sold in accordance with applicable state and federal
law and that the Fund is and shall remain registered under the 1940 Act for as
long as the Fund shares are sold. The Fund shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its
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<PAGE> 7
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund.
2.4. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code and
that it will maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
2.5. If the Fund considers the adoption of one or more plans
under Rule 12b-1 under the 1940 Act to finance distribution expenses (a "12b-1
Plan"), the Company agrees to provide the Trustees any information as may be
reasonably necessary for the Trustees to determine whether to adopt a 12b-1 Plan
or Plans. The Fund shall notify the Company upon commencing to finance
distribution expenses pursuant to Rule 12b-1.
2.6. The Fund represents that it is lawfully organized and
validly existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply with applicable provisions of the 1940 Act.
2.7. The Adviser represents and warrants that it is and will
remain duly registered under all applicable federal and state securities laws
and that it shall perform its obligations for the Fund in compliance with any
applicable state and federal securities laws.
2.8. The Fund and Adviser each represent and warrant that all
of its respective Directors, Trustees, officers, employees, investment advisers,
and transfer agent of the Fund are and shall continue to be at all times covered
by a blanket fidelity bond (which may, at the Fund's election, be in the form of
a joint insured bond) or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Section 17(g)
and Rule 17g-1 of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable insurance company. The Adviser
agrees to make all
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<PAGE> 8
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Company in the event
that such coverage no longer applies.
2.9. The Company represents and warrants that all of its
directors, officers, employees, agents, investment advisers, and other
individuals and entities dealing with the money and/or securities of the Fund
are covered by a blanket fidelity bond or similar coverage in an amount not less
than the equivalent of U.S. $3 million. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable
insurance company. The Company agrees that any amount received under such bond
in connection with claims that derive from arrangements described in this
Agreement will be paid by the Company for the benefit of the Fund. The Company
agrees to make all reasonable efforts to see that this bond or another bond
containing these provisions is always in effect, and agrees to notify the Fund
and the Adviser in the event that such coverage no longer applies.
2.10. The Fund and Adviser represent that the Fund's
investment policies, fees and expenses are and shall at all times remain in
compliance with applicable state securities laws, if any, and the Fund and
Adviser represent that their respective operations are and shall at all times
remain in material compliance with applicable state securities laws to the
extent required to perform this Agreement. The Fund and the Adviser also
represent that they will comply with any applicable state insurance law
restrictions, as provided in advance and in writing by the Company to the Fund
and the Adviser, including the furnishing of information about the Fund not
otherwise available to the Company which is required by state insurance law to
enable the Company to obtain the authority needed to issue the Contracts in any
applicable state.
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1. At least annually, the Fund or the Adviser shall provide
the Company, free of charge, with as many copies of the current Fund's
prospectuses as the Company may reasonably request for distribution to existing
Contract owners whose Contracts are funded by a Portfolio. The Fund or the
Adviser shall provide the Company, at the Company's expense, with as many copies
of the current Fund's prospectus
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<PAGE> 9
as the Company may reasonably request for distribution to prospective purchasers
of Contracts. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a "camera ready" copy of the new
prospectuses as set in type or, at the request of the Company, as a diskette in
the form sent to the financial printer) and other assistance as is reasonably
necessary in order for the parties hereto once each year (or more frequently if
the Fund's prospectus is supplemented or amended) to have the prospectus for the
Contracts and the Fund's prospectus printed together in one document. With
respect to any Fund's prospectus that is printed in combination with any one or
more Contract prospectus (the "Prospectus Booklet"), the costs of printing
Prospectus Booklets for distribution to existing Contract owners shall be
prorated to the Fund based on (a) the ratio of the number of pages of the Fund's
prospectus included in the Prospectus Booklets to the number of pages in the
Prospectus Booklet as a whole; and (b) the ratio of the number of Contract
owners with Contract value allocated to the Fund to the total number of Contract
owners; provided, however, that the Company shall bear all printing expenses of
such combined documents where used for distribution to prospective purchasers or
to owners of existing Contracts not funded by the Portfolios.
3.2. The Fund's prospectus shall state that the statement of
additional information for the Fund is available from the Fund (or its transfer
agent). The Fund or its designee shall print and provide such Statement to the
Company and to any owner of a Contract or prospective owner who requests such
Statement at the Fund's expense.
3.3. The Fund or the Adviser, at its expense, shall provide
the Company with copies of the Fund's communications to shareholders and with
copies of the Fund's proxy material and semi-annual and annual reports to
shareholders (or may, at the Fund or the Adviser's option, reimburse the Company
for the pro rata cost of printing such materials) in such quantities as the
Company shall reasonably require, for distributing to Contract owners at the
Company's expense. Upon request, the Adviser shall be permitted to review and
approve the typeset form of such proxy material, communications and shareholder
reports prior to such printing.
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<PAGE> 10
3.4. If and to the extent required by law (or the Mixed and
Shared Funding Exemptive Order) the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with
instructions received from Contract owners or
participants; and
(iii) vote Fund shares for which no instructions have
been received in the same proportion as Fund
shares of such Portfolio for which instructions
have been received from the Company's Contract
owners;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable Contract owners. The Company
reserves the right to vote Fund shares held in any Account in its own right, to
the extent permitted by law.
3.5. The Fund will comply with all applicable provisions of
the 1940 Act requiring voting by shareholders.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, each piece of sales literature or other
promotional material in which the Fund or the Adviser is named, at least ten
business days prior to its use. No such material shall be used if the Fund or
its designee reasonably objects in writing to such use within ten business days
after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or the Adviser concerning
either of them in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or
prospectus for the Fund shares, as such registration statement and prospectus
may be amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature or other promotional material
approved by the Fund or its designee, except with the permission of the Fund.
The Fund agrees to
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<PAGE> 11
respond to any request for approval in a prompt and timely basis. The Company
shall adopt and implement procedures reasonably designed to ensure that
information promulgated or distributed by the Company or a subsidiary thereof,
or their respective employees or agents, concerning the Fund or the Adviser
which is intended only for use only by brokers or agents selling the Contracts
(i.e., information that is not intended for distribution to Contract owners or
prospective Contract owners) is so used, by their employees and neither the Fund
nor the Adviser shall be liable for any losses, damages, or expenses relating to
the improper use of such broker only materials. The parties hereto agree that
this section is not intended to designate or otherwise imply that the Company is
an underwriter or distributor of the Fund's shares.
4.3. The Adviser or Fund shall furnish or cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material which the Adviser or Fund prepared or caused to be
prepared, in which the Company or its separate account is named, at least ten
business days prior to its use. No such material shall be used if the Company or
its designee reasonably objects in writing to such use within five business days
after receipt of such material.
4.4. The Adviser and the Fund shall not give any information
or make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts, other than information or representations
contained in (i) the registration statement or prospectus for the Contracts, as
such registration statement and prospectus may be amended or supplemented from
time to time, (ii) reports for the Account which are in the public domain or
approved by the Company for distribution to Contract owners or participants, or
(iii) sales literature or other promotional material approved by the Company or
its designee, except with the permission of the Company. The Company agrees to
respond to any request for approval on a prompt and timely basis. The Adviser
shall adopt and implement procedures reasonably designed to ensure that
information promulgated or distributed by the Fund and/or the Adviser or any
subsidiary thereof, or their respective employees or agents, concerning the
Company, any of its affiliates, or the Contracts which is intended only for use
only by brokers or agents selling the shares (i.e., information that it not
intended for distribution to shareowners or prospective shareowners) is so used
by
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<PAGE> 12
their employees, and neither the Company nor any of its affiliates shall be
liable for any losses, damages, or expenses relating to the improper use of such
broker only materials. The parties agree that this section is not intended to
designate or otherwise imply that the Adviser is an underwriter or distributor
of the Contracts.
4.5. The Adviser will provide to the Company at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales literature and other
promotional materials prepared by or at the request of the Fund, the Adviser, or
any subsidiary of the Adviser, in which the Company or its separate account is
named, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to any Portfolio or its shares,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6. The Company will provide to the Fund at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, solicitations for voting instructions, sales
literature and other promotional materials in which the Fund (or any Portfolio)
or the Adviser is named, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, electronic media, or
other public media), sales literature (i.e., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other
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<PAGE> 13
communications distributed or made generally available to some or all agents or
employees, and proxy materials and any other material constituting sales
literature or advertising under NASD rules, the 1940 Act or the 1933 Act.
4.8. The Company agrees and acknowledges that the Adviser is
the sole owner of the OppenheimerFunds, Inc. clasped hands mark and that all use
of any designation comprised in whole or part of such mark under this Agreement
shall inure to the benefit of the Adviser or the Fund. The Company shall not use
such mark on its own behalf or on behalf of each Account in connection with
marketing the Contracts without prior written consent of the Adviser, which
consent shall not be unreasonably withheld, delayed or conditioned. Upon
termination of this Agreement for any reason, the Company shall cease all use of
any such mark.
4.9. Except as otherwise expressly provided in this Agreement
or as required by applicable law or regulation, neither the Fund nor the
Adviser, nor any subsidiary of the Adviser shall use any trademark, trade name,
service mark or logo of the Company or any of its affiliates, or any variation
of any such trademark, trade name, service mark or logo, without the Company's
prior written consent, the granting of which shall be at the Company's sole
option.
ARTICLE V. Fees and Expenses
5.1. The Fund and Adviser shall pay no fee or other
compensation to the Company under this Agreement, and the Company shall pay no
fee or other compensation to the Fund or Adviser, except as provided herein or
in any other written agreement.
5.2. All expenses incident to performance by each party of its
respective duties under this Agreement shall be paid by that party. The Fund
shall see to it that all its shares are registered and authorized for issuance
in accordance with applicable federal law and, if and to the extent advisable by
the Fund, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, the preparation of all statements and
notices required by
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<PAGE> 14
any federal or state law, and all applicable taxes on the issuance and transfer
of the Fund's shares to the Company.
5.3. The Company shall bear the expenses of distributing the
Fund's prospectus, proxy materials, communications and reports to Contract
owners and of printing and distributing the Fund's prospectus to prospective
Contract owners.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated as
variable contracts under the Internal Revenue Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund represents and
warrants that each Portfolio of the Fund will comply with Section 817(h) of the
Internal Revenue Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations (and any revenue rulings, revenue procedures, notices, and other
published announcements of the Internal Revenue Service interpreting these
sections). In the event of a breach of this Article VI by the Fund, it will take
all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify each Portfolio of the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation 1.817-5. The Fund and
Adviser represent that each Portfolio is qualified as a Regulated Investment
Company under Subchapter M of the Code and that they will maintain such
qualification (under Subchapter M or any successor provision).
ARTICLE VII. Potential Conflicts
7.1. The Board of Trustees of the Fund (the "Board") will
monitor the Fund for the existence of any material irreconcilable conflict
between the interests of the Contract owners of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
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<PAGE> 15
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance Contract owners; or (f) a decision by an insurer to disregard the
voting instructions of Contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company has received a copy of the Mixed and Shared
Funding Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. The Company agrees to be bound by the
responsibilities of a participating insurance company as set forth in the Mixed
and Shared Funding Exemptive Order, including without limitation the requirement
that the Company report any potential or existing conflicts of which it is aware
to the Board. The Company agrees to assist the Board in carrying out its
responsibilities in monitoring such conflicts under the Mixed and Shared Funding
Exemptive Order, by providing the Board in a timely manner with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructions are disregarded and by confirming in writing,
at the Fund's request, that the Company is unaware of any such potential or
existing material irreconcilable conflicts.
7.3. If it is determined by a majority of the Board, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists, the Company and the relevant Participating Insurance Companies shall, at
their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including:
(1) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting the question whether such segregation should be implemented to a
vote of all affected Contract owners and, as appropriate, segregating
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<PAGE> 16
the assets of any appropriate group (i.e., variable annuity Contract owners or
life insurance Contract owners, of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If the Company's disregard of voting instructions could
conflict with the majority of Contract owners voting instructions, and if the
Company and/or the Fund and the Adviser reasonably determine that a material
irreconcilable conflict (as set forth in the Mixed and Shared Funding Exemptive
Order) may arise as a result, then the Company may be required, at the Fund's
election, to withdraw the Account's investment in the Fund and terminate this
Agreement. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented. Until such withdrawal and termination is implemented, the Fund
shall continue to accept and implement orders by the Company for the purchase
and redemption of shares of the Fund. Such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the Account's investment in the Fund and terminate this Agreement
within six (6) months after the Fund informs the Company in writing that it has
determined that such decision has created an irreconcilable material conflict.
Until such withdrawal and termination is implemented, the Fund shall continue to
accept and implement orders by the Company for the purchase and redemption of
shares of the Fund, subject to applicable regulatory limitation. Such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.6. For purposes of Sections 7.3 through 7.6 of this
Agreement, a majority of the disinterested members of the Board shall determine
whether any proposed action adequately remedies any
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<PAGE> 17
irreconcilable material conflict, but in no event will the Fund be required to
establish a new funding medium for the Contracts. The Company shall not be
required by Section 7.3 to establish a new funding medium for the Contracts if
an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Board determines that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six (6)
months after the Board informs the Company in writing of the foregoing
determination, provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested members of the Board.
7.7. Upon request, the Company shall at least annually submit
to the Board such reports, materials or data as the Board may reasonably request
so that the Board may fully carry out the duties imposed upon it as delineated
in the Mixed and Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if deemed appropriate by the Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, the (a) the Fund and/or the Participating Insurance
Companies (including the Company), as appropriate, shall take such reasonable
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.4, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only
to the extent that terms and conditions substantially identical to such Sections
are contained in such Rule(s) as so amended or adopted.
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ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
(a). The Company agrees to indemnify and hold
harmless the Fund and the Adviser, each member of their Board of Trustees or
Board of Directors, each of their officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including reasonable legal
and other expenses), to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of
any material fact contained in the
registration statement, prospectus or
statement of additional information for
the Contracts or contained in sales
literature or other promotional material
for the Contracts (or any amendment or
supplement to any of the foregoing), or
arise out of or are based upon the
omission or the alleged omission to state
therein a material fact required to be
stated therein or necessary to make the
statements therein not misleading in light
of the circumstances which they were made;
provided that this agreement to indemnify
shall not apply as to any Indemnified
Party if such statement or omission or
such alleged statement or omission was
made in reliance upon and in conformity
with information furnished to the Company
by or on behalf of the Fund or the Adviser
for use in the registration statement,
prospectus or statement of additional
information for the Contracts or sales
literature (or any amendment or
supplement) or otherwise for use in
connection with the sale of the Contracts
or Fund shares; or
(ii) arise out of or as a result of statements
or representations by or on behalf of the
Company (other than statements or
representations contained in the Fund
registration statement, Fund prospectus or
sales literature or other promotional
material of the Fund not supplied by the
Company or persons under its control) or
wrongful conduct of the Company or persons
under its control, with respect to the
sale or distribution
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<PAGE> 19
of the Contracts or Fund shares, provided
any such statement or representation or
such wrongful conduct was not made in
reliance upon and in conformity with
information furnished to the Company by or
on behalf of the Advisor or the Fund; or
(iii) arise out of any untrue statement or
alleged untrue statement of a material
fact contained in the Fund registration
statement, Fund prospectus, statement of
additional information or sales literature
or other promotional material of the Fund
or any amendment thereof or supplement
thereto or the omission or alleged
omission to state therein a material fact
required to be stated therein or necessary
to make the statements therein not
misleading in light of the circumstances
in which they were made, if such statement
or omission was made in reliance upon
information furnished to the Fund or the
Adviser by or on behalf of the Company or
persons under its control; or
(iv) arise out of or result from any material
breach of any representation and/or
warranty made by the Company in this
Agreement or arise out of or result from
any other material breach of this
Agreement by the Company.
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2. Indemnification by Adviser and Fund
8.2(a)(1). The Adviser agrees to indemnify and hold harmless
the Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Adviser) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may become
subject under any statute, regulation, at common law or otherwise, insofar as
such losses, claims,
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<PAGE> 20
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of
any material fact contained in the
registration statement, prospectus,
statement of additional information or
sales literature of the Fund (or any
amendment or supplement to any of the
foregoing), or arise out of or are based
upon the omission or the alleged omission
to state therein a material fact required
to be stated therein or necessary to make
the statements therein not misleading in
light of the circumstances in which they
were made; provided that this agreement to
indemnify shall not apply as to any
Indemnified Party if such statement or
omission or such alleged statement or
omission was made in reliance upon and in
conformity with information furnished to
the Adviser or the Fund by or on behalf of
the Company for use in the Fund
registration statement, prospectus or
statement of additional information, or
sales literature or other promotional
material for the Contracts or of the Fund;
or
(ii) arise out of or as a result of statements
or representations (other than statements
or representations contained in the
Contracts or in the Contract registration
statement, the Contract prospectus,
statement of additional information, or
sales literature or other promotional
material for the Contracts not supplied by
the Adviser or the Fund or persons under
the control of the Adviser or the Fund
respectively) or wrongful conduct of the
Adviser or persons under its control, with
respect to the sale or distribution of the
Contracts, provided any such statement or
representation or such wrongful conduct
was not made in reliance upon and in
conformity with information furnished to
the Adviser or the Fund by or on behalf of
the Company; or
(iii) arise out of any untrue statement or
allegedly untrue statement of a material
fact contained in a registration
statement, prospectus, statement of
additional information or sales literature
covering the Contracts (or any amendment
thereof or supplement thereto), or the
omission or alleged omission to state
therein a material fact required to be
stated therein or necessary to make the
statement or statements therein not
misleading in light of the circumstances
in which they were made, if such statement
or omission was made in reliance upon
information furnished to the Company by or
on behalf of the Fund or persons under the
control of the Adviser; or
(iv) arise out of or result from any material
breach of any representation and/or
warranty made by the Adviser or the
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<PAGE> 21
Fund in this Agreement or arise out of or
result from any other material breach of
this Agreement by the Adviser or the Fund;
(v) arise out of or result from the materially
incorrect or untimely calculation or
reporting of the daily net asset value per
share or dividend or capital gain
distribution rate;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Adviser may
otherwise have.
8.2(a)(2) The Fund agrees to indemnify and hold harmless the
Indemnified Parties [as defined in Section 8.2(a)(1)] against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including reasonable legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the operations of the Fund or the sale of the Fund's shares and:
(i) arise out of or are based upon (a) any untrue
statement or alleged untrue statement of any
material fact or (b) the omission or the alleged
omission to state therein a material fact required
to be stated therein or necessary to make the
statements made therein, in light of the
circumstances in which they were made, not
misleading, if such fact, statement or omission is
contained in the registration statement for the Fund
or the Contracts, or in the prospectus or statement
of additional information for the Contracts or the
Fund, or in any amendment to any of the foregoing,
or in sales literature or other promotional material
for the Contracts or of the Fund, provided, however,
that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement, fact or
omission or such alleged statement, fact or omission
was made in reliance upon and in conformity with
information furnished to the Adviser or the Fund by
or on behalf of the Indemnified Party; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Contracts or in the
Contract registration statement, the Contract
prospectus, statement of additional information, or
sales literature or other promotional material for
the Contracts not supplied by the Adviser or the
Fund or persons under the control of the Adviser or
the Fund respectively) or wrongful conduct of the
Fund or persons under its control with respect to
the sale or distribution of Contracts, provided any
such statement or representation or such wrongful
conduct was not made in reliance upon and in
conformity with information furnished to the Adviser
or the Fund by or on behalf of the Company; or
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<PAGE> 22
(iii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund
(including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements specified in Article VI of this
Agreement);
(iv) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net
asset value per share or dividend or capital gain
distribution rate;
except to the extent provided in Section 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Fund may
otherwise have.
(b). The Fund and Adviser shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement.
8.3 Indemnification Procedure
Any person obligated to provide indemnification under this
Article VIII ("indemnifying party" for the purpose of this Section 8.3) shall
not be liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification under this
Article VIII ("indemnified party" for the purpose of this Section 8.3) unless
such indemnified party shall have notified the indemnifying party in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provisions of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice.
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<PAGE> 23
In case any such action is brought against the indemnified party, the
indemnifying party will be entitled to participate, at its own expense, in the
defense thereof. The indemnifying party also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the indemnifying party to the indemnified party of the
indemnifying party's election to assume the defense thereof, the indemnified
party shall bear the fees and expenses of any additional counsel retained by it,
and the indemnifying party will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation, unless (i) the indemnifying party and the indemnified party
shall have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include both
the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article VIII.
The indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of New
York.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
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<PAGE> 24
ARTICLE X. Termination
10.1 This Agreement shall terminate:
(a) at the option of any party upon six month's
advance written notice to the other parties unless otherwise agreed in a
separate written agreement among the parties; or
(b) at the option of the Company to the extent that
shares of Portfolios are not reasonably available to meet the requirements of
the Contracts as determined by the Company reasonably and in good faith; or
(c) at the option of the Fund or the Adviser upon
institution of formal proceedings against the Company by the NASD, the SEC, the
insurance commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the Contracts,
the administration of the Contracts, the operation of the Account, or the
purchase of the Fund shares, which would have a material adverse effect on the
Company's ability to perform its obligations under this Agreement; or
(d) at the option of the Company upon institution of
formal proceedings against the Fund or the Adviser by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Adviser's or the Fund's ability to
perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon
receipt of any necessary regulatory approvals or the vote of the Contract owners
having an interest in the Account (or any subaccount) to substitute the shares
of another investment company for the corresponding Portfolio shares of the Fund
in accordance with the terms of the Contracts for which those Portfolio shares
had been selected to serve as the underlying investment media. The Company will
give 45 days prior written notice to the Fund of the date of any proposed vote
or other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a
determination by a majority of the Board, or a majority of the disinterested
Board members, that an irreconcilable material
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<PAGE> 25
conflict exists among the interests of (i) all Contract owners of variable
insurance products of all separate accounts or (ii) the interests of the
Participating Insurance Companies investing in the Fund as delineated in Article
VII of this Agreement; or
(g) at the option of the Company if the Fund ceases
to qualify as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code, or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails
to meet the diversification requirements specified in Article VI hereof or if
the Company reasonably believes that the Fund will fail to meet such
requirements; or
(i) at the option of any party to this Agreement,
upon another party's failure to cure a material breach of any provision of this
Agreement within thirty days after written notice thereof; or
(j) at the option of the Company, if the Company
determines in its sole judgment exercised in good faith, that either the Fund or
the Adviser has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse impact
upon the business and operations of the Company; or
(k) at the option of the Fund or the Adviser, if the
Fund or Adviser respectively, shall determine in its sole judgment exercised in
good faith, that the Company has suffered a material adverse change in its
business, operations or financial condition since the date of this Agreement or
is the subject of material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Fund or the Adviser; or
(l) subject to the Fund's compliance with Article VI
hereof, at the option of the Fund in the event any of the Contracts are not
issued or sold in accordance with applicable requirements of federal and/or
state law.
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<PAGE> 26
10.2 Notice Requirement.
(a) In the event that any termination of this
Agreement is based upon the provisions of Article VII, such prior written notice
shall be given in advance of the effective date of termination as required by
such provisions.
(b) In the event that any termination of this
Agreement is based upon the provisions of Sections 10.1(b) - (d) or 10.1(g) -
(i), prompt written notice of the election to terminate this Agreement for cause
shall be furnished by the party terminating the Agreement to the non-terminating
parties, with said termination to be effective upon receipt of such notice by
the non-terminating parties.
(c) In the event that any termination of this
Agreement is based upon the provisions of Sections 10.1(j) or 10.1(k), prior
written notice of the election to terminate this Agreement for cause shall be
furnished by the party terminating this Agreement to the non-terminating
parties. Such prior written notice shall be given by the party terminating this
Agreement to the non-terminating parties at least 30 days before the effective
date of termination.
10.3 It is understood and agreed that the right to terminate
this Agreement pursuant to Section 10.1(a) may be exercised for any reason or
for no reason.
10.4. Effect of Termination.
(a) Notwithstanding any termination of this
Agreement pursuant to Section 10.1 of this Agreement and subject to Section 1.3
of this Agreement, the Company may require the Fund to continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement as provided in paragraph (b) below, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter referred to
as "Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to any terminations under
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<PAGE> 27
Article VII and the effect of such Article VII terminations shall be governed by
Article VII of this Agreement.
(b) If shares of the Fund continue to be made
available after termination of this Agreement pursuant to this Section 10.4, the
provisions of this Agreement shall remain in effect except for Section 10.1(a)
and thereafter the Fund, the Adviser, or the Company may terminate the
Agreement, as so continued pursuant to this Section 10.4, upon written notice to
the other party, such notice to be for a period that is reasonable under the
circumstances but need not be for more than 90 days.
10.5 Except as necessary to implement Contract owner initiated
or approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the
Account), and the Company shall not prevent Contract owners from allocating
payments to a Portfolio that was otherwise available under the Contracts, until
45 days after the Company shall have notified the Fund or the Adviser of its
intention to do so.
ARTICLE XI. Notices
Any notice shall be deemed duly given only if sent by hand,
evidenced by written receipt or by certified mail, return receipt requested, to
the other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party. All notices shall be deemed given on the date received or rejected by the
addressee.
If to the Fund:
Oppenheimer Variable Account Funds
6801 Tucson Way
Englewood, CO 80112
Attn: Treasurer
If to the Adviser:
OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0669
Attn: Andrew J. Donohue, Esq.
Executive Vice President and General Counsel
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<PAGE> 28
If to the Company:
Sage Life Assurance of America, Inc.
300 Atlantic Street - Suite 302
Stamford, CT 06901
Attn: James F. Bronsden, Esquire
With a copy to:
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
Attn: Kimberly J. Smith, Esquire
ARTICLE XII. Miscellaneous
12.1. The Company and the Adviser each understand and agree
that the obligations of the Fund under this Agreement are not binding upon any
shareholder or Trustee of the Fund personally, but bind only the Fund and the
Fund's property; the Company and the Adviser each represent that it has notice
of the provisions of the Declaration of Trust of the Fund disclaiming
shareholder and Trustee liability for acts or obligations of the Fund.
12.2. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as confidential and all
information reasonably identified as confidential in writing by any other party
hereto (including without limitation the names and addresses of the owners of
the Contracts) and, except as contemplated by this Agreement, shall not
disclose, disseminate or utilize such confidential information until such time
as it may come into the public domain without the express written consent of the
affected party.
12.3. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
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<PAGE> 29
12.6. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party
and all appropriate governmental authorities (including without limitation the
SEC, the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.8. Each party represents that the execution and delivery of
this Agreement and the consummation of the transactions contemplated herein have
been duly authorized by all necessary corporate or trust action, as applicable,
by such party and when so executed and delivered this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
12.9. Except as may otherwise be required under Article VII,
the rights, remedies and obligations contained in this Agreement are cumulative
and are in addition to any and all rights, remedies and obligations, at law or
in equity, which the parties hereto are entitled to under state and federal
laws.
12.10. It is understood by the parties that this Agreement is
not an exclusive arrangement in any respect.
12.11. The foregoing constitutes the entire Agreement between
the parties hereto, and shall not be modified, amended or assigned except by an
Agreement in writing signed by an authorized representative of each such party.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed as of the date specified
below.
SAGE LIFE ASSURANCE OF AMERICA, INC.
By its authorized officer,
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<PAGE> 30
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
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<PAGE> 31
OPPENHEIMER VARIABLE ACCOUNT FUNDS
By its authorized officer,
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
OPPENHEIMERFUNDS, INC.
By its authorized officer,
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
-31-
<PAGE> 32
SCHEDULE 1
SageGuard Series of Products Separate Account
The Sage Variable Annuity Account A
-32-
<PAGE> 33
SCHEDULE 2
Portfolios of Oppenheimer Variable Account Funds:
Oppenheimer Growth Fund
Oppenheimer Bond Fund
Oppenheimer Small Cap Growth Fund
-33-
<PAGE> 34
SCHEDULE 3
Deferred Variable Annuity (ASSET I)
Deferred Variable Annuity (ASSET II)
-34-
<PAGE> 1
EXHIBIT (8)(a)(viii)
PARTICIPATION AGREEMENT AMONG
SAGE LIFE ASSURANCE OF AMERICA, INC.
STEIN ROE VARIABLE INVESTMENT TRUST,
STEIN ROE & FARNHAM, INC.
AND
LIBERTY FUNDS DISTRIBUTOR, INC.
This Agreement, made and entered into as of this ______ day of
__________, 1999 by and among Sage Life Assurance of America, Inc. (the
"Company"), on its own behalf and on behalf of its Separate Accounts, each of
which is a segregated asset account of the Company, Stein Roe Variable
Investment Trust (the "Trust"), Stein Roe & Farnham, Inc. ("SR&F") and Liberty
Funds Distributor, Inc. ("LFDI").
WHEREAS, the Trust engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, "Variable Insurance Products") to be offered
by insurance companies which have entered into participation agreements
substantially identical to this Agreement (each hereinafter a "Participating
Insurance Company"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares (such series being hereinafter referred to individually as a
"Series" or collectively as the "Series") available for purchase by the Company
for the Separate Accounts and listed in Schedule A, which is attached hereto
and incorporated herein; and
WHEREAS, the Trust relies on an order from the Securities and Exchange
Commission ("SEC"), dated July 1, 1988 (File No. 812-7044), granting life
insurance companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder to the extent necessary to
permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
and
1
<PAGE> 2
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (the "1933 Act"); and
WHEREAS, SR&F serves as investment adviser to the Trust and is duly
registered as an investment adviser under the Investment Advisers Act of 1940
and applicable state securities laws; and provides certain administrative
services to the Trust; and
WHEREAS, Liberty Funds Services, Inc. ("LFSI") serves as transfer
agent to the Trust; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products (set forth in Schedule A, which is attached hereto and
incorporated herein) under the 1933 Act, unless exempt therefrom; and
WHEREAS, the Company has established duly organized, validly existing
segregated asset accounts (set forth in Schedule A, which is attached hereto
and incorporated herein) (the "Separate Accounts") by resolution of the Board
of Directors of the Company; and
WHEREAS, the Company has registered or will register certain Separate
Accounts as unit investment trusts under the 1940 Act, unless exempt therefrom;
and
WHEREAS, the Company may rely on certain provisions of the 1933 and
1940 Acts that exempt certain Separate Accounts and Variable Insurance Products
from the registration requirements of the Acts in connection with the sale of
Variable Insurance Products under certain tax-advantaged retirement programs,
described in Article II, Section 2.12 and as provided for by Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, LFDI serves as distributor of the Trust's shares and is
registered as a broker-dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Trust on behalf of
each Separate Account to fund certain Variable Insurance Products listed in
Schedule A and LFDI is authorized to sell such shares to the Separate Accounts
at net asset value as provided in Article I hereof;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Trust, SR&F and LFDI agree as follows:
2
<PAGE> 3
ARTICLE I. Sale of Fund Shares
1.1. LFDI will sell to the Company those shares of the Trust which
each Separate Account orders, executing such orders on a daily basis at the
closing net asset value next computed after receipt by the Separate Accounts of
purchase payments or for the business day on which transactions under Variable
Insurance Products are effected by the Separate Accounts. The Company will
notify the Trust of purchase orders by 9:30 a.m. Eastern time on the next
following Business Day. For purposes of this Section 1.1, LFSI shall be the
designee of the Trust to receive such orders from the Company on behalf of each
Separate Account and receipt by LFSI shall constitute receipt by the Trust.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Trust calculates its net asset value pursuant to
the rules of the SEC.
1.2. The Trust will make its shares available indefinitely for
purchase at the applicable closing net asset value per share by the Company and
its Separate Accounts on those days on which the Trust calculates its net asset
value pursuant to rules of the SEC, and the Trust shall use reasonable efforts
to calculate such net asset value on each Business Day, in accordance with
Section 1.11. Notwithstanding the foregoing, the Board of Trustees of the Trust
(the "Trustees") may refuse to sell shares of any Series to any person, or
suspend or terminate the offering of shares of any Series if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Trustees, acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Series.
1.3. The Trust and LFDI agree that shares of the Trust will be sold
only to Participating Insurance Companies and their Separate Accounts. No
shares of any Series will be sold to the general public.
1.4. The Trust and LFDI will not sell Trust shares to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Sections 2.5 and 2.12 of
Article II of this Agreement is in effect to govern such sales.
1.5. The Trust will redeem for cash, at the Company's request, any
full or fractional shares of the Trust held by the Company, executing such
requests on a daily basis at the closing net asset value next computed after
receipt by the Separate Accounts of redemption requests or for the Business Day
on which transactions under Variable Insurance Products are effected by the
Separate Accounts. The Company will notify the Trust of redemption requests by
9:30 a.m. Eastern time on the next following
3
<PAGE> 4
Business Day. For purposes of this Section 1.5, LFSI shall be the designee of
the Trust to receive requests for redemption from the Company on behalf of each
Separate Account, and receipt by such designee shall constitute receipt by the
Trust.
1.6. The Trust may suspend the redemption of any full or fractional
shares of the Trust (1) for any period (a) during which the New York Stock
Exchange is closed (other than customary weekend and holiday closings) or (b)
during which trading on the New York Stock Exchange is restricted; (2) for any
period during which an emergency exists (as determined by the SEC) as a result
of which (a) disposal by the Trust of securities owned by it is not reasonably
practicable or (b) it is not reasonably practicable for the Trust fairly to
determine the value of its net assets; or (3) for such other periods as the SEC
may by order permit for the protection of shareholders of the Trust.
1.7. The Company will purchase and redeem the shares of each Series
offered by the then current prospectus of the Trust and in accordance with the
provisions of such prospectus and statement of additional information (the
"SAI") (collectively referred to as the "Prospectus," unless otherwise
provided).
1.8. The Company shall pay for Trust shares on the next Business Day
after an order to purchase Trust shares is placed in accordance with the
provisions of Section 1.1. hereof. Payment shall be in federal funds
transmitted by wire, or may otherwise be provided by separate agreement, with
the reasonable expectation of receipt by the Trust by 2:00 p.m. Eastern time on
the next Business Day after the Trust (or its designee) receives the purchase
order.
The Trust shall pay for redeemed Trust shares on the next Business Day
after a request to redeem Trust shares is made in accordance with the
provisions of Section 1.5 hereof. Payment shall be in federal funds
transmitted by wire, or may otherwise be provided by separate agreement, with
the reasonable expectation of receipt by the Company by 2:00 p.m. Eastern time
on the next Business Day after the Trust (or its designee) receives the
redemption request.
With respect to the payment of the purchase price by the Company and
of the redemption proceeds by the Trust, the Company and the Trust may net
purchase and redemption orders with respect to each Series and may transmit one
net payment per Series.
1.9. Issuance and transfer of the Trust's shares will be by book entry
only. The Trust will not issue share certificates to either the Company or the
Separate Accounts. Shares ordered from the Trust
4
<PAGE> 5
will be recorded in an appropriate title for each Separate Account or the
appropriate subaccount of each Separate Account.
1.10. The Trust, through its designee LFSI, shall furnish same day
notice (by wire or telephone, followed by written confirmation) to the Company
of any income dividends or capital gain distributions payable on the shares of
any Series. The Company hereby elects to receive all such income, dividends
and capital gain distributions as are payable on the shares of each Series in
additional shares of that Series. The Company reserves the right to revoke
this election and to receive all such income, dividends and capital gain
distributions in cash. The Trust shall notify the Company through LFSI of the
number of shares so issued as payment of such income, dividends and
distributions.
1.11. The Trust shall make the closing net asset value per share for
each Series available to the Company on a daily basis as soon as reasonably
practical after closing the net asset value per share is calculated and shall
use its best efforts to make such closing net asset value per share available
by 6:30 p.m., Boston time. If the trust provides materially incorrect share
net asset value information (as determined under SEC guidelines), the Company
shall be entitled to an adjustment to the number of shares purchased or
redeemed to reflect the correct net asset value per share. Any material error
in the calculation or reporting of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to the
Company.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act to the extent required by the 1933 Act;
that the Contracts will be issued and sold in compliance in all material
respects with all applicable federal and state laws and that the sale of the
Contracts shall comply in all material respects with state insurance
suitability requirements. The Company further represents and warrants that it
is duly organized and in good standing under applicable law and that prior to
any issuance or sale of any Contract it has legally and validly established
each Separate Account as a segregated asset account under all applicable state
insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register each Separate Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts, to the extent required by the 1940 Act.
5
<PAGE> 6
2.2. The Trust represents and warrants that Trust shares sold pursuant
to this Agreement shall be registered under the 1933 Act to the extent required
by the 1933 Act, duly authorized for issuance and sold in compliance with the
laws of the Commonwealth of Massachusetts and all applicable federal and any
state securities laws and that the Trust is and shall remain registered under
the 1940 Act to the extent required by the 1940 Act. The Trust shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Trust shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Trust or LFDI.
2.3. The Trust represents and warrants that it currently is qualified
as a Regulated Investment Company under Subchapter M of the Code and that it
will make every effort to remain qualified (under Subchapter M or any successor
or similar provision) and that it will notify the Company immediately upon
having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.4. Subject to Sections 2.3 and 6.1 thereof, the Company represents
that the Contracts are currently treated as endowment, annuity or life
insurance contracts under applicable provisions of the Code and that it will
make every effort to maintain such treatment and that it will notify the Trust
and LFDI immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5. The Trust currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future consistent with
applicable law. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Trust undertakes to have its Trustees, a majority
of whom are not interested persons of the Trust, formulate and approve any plan
under Rule 12b-1 to finance distribution expenses.
2.6. The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Trust represents that it is currently in compliance and shall
at all times remain in compliance with the applicable insurance laws of
Delaware to the extent required to perform this Agreement and all other states
to the extent that the Participating Insurance Company advises the Trust, in
writing, of such laws or any changes in such laws, including the
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furnishing of information not otherwise available to the Company which is
required by state insurance law to enable the Company to obtain the authority
needed to issue the Contracts in any applicable state.
2.7. LFDI represents and warrants that it is duly organized and
validly existing under the laws of the Commonwealth of Massachusetts and that
it is, and will remain, a member in good standing of the NASD and registered as
a broker-dealer with the SEC. LFDI further represents that it will sell and
distribute the Trust shares in accordance with the laws of the Commonwealth of
Massachusetts and all applicable state and federal securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Trust represents and warrants that it is and shall remain
lawfully organized and validly existing under the laws of the Commonwealth of
Massachusetts and that it does and will comply in all material aspects with the
1940 Act and the rules and regulations thereunder.
2.9. SR&F represents and warrants that it is duly organized and
validly existing under the laws of the Commonwealth of Massachusetts and that
it is and will remain duly registered as an investment adviser in all material
aspects under all applicable federal and state securities laws and that it
shall perform its obligations for the Trust in compliance in all material
respects with all applicable laws of the Commonwealth of Massachusetts and any
applicable state and federal securities laws.
2.10. The Trust represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities having
access to securities or funds of the Trust are and shall continue to be at all
times covered by a joint fidelity bond in an amount not less than the minimum
coverage required by Rule 17g-1 or other applicable regulations under the 1940
Act with no deductible amount. The aforesaid bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable fidelity insurance
company. Such fidelity bond may be a joint bond with other investment
companies having the same investment adviser, sub-adviser, distributor or
transfer agent.
2.11. The Company represents and warrants that it will not transfer or
otherwise convey shares of the Trust, without the prior written consent of
LFDI.
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1. LFDI shall provide the Company with as many copies of the current
prospectus for each Series set forth on Schedule A, excluding the SAI, as the
Company may reasonably request in connection with delivery of the prospectus,
excluding the SAI, to shareholders and purchasers of the Contracts. If
requested by the Company in lieu thereof, the Trust shall provide such
documentation
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(including a final copy of the new prospectus, excluding the SAI, as set in
type at the Trust's expense) and other assistance as is reasonably necessary in
order for the Company once each year (or more frequently if a prospectus for a
Series is amended) to have the prospectus for the Contracts and the Series'
prospectuses, excluding the SAI, printed together in one document. With
respect to any Series prospectus that is printed in combination with any one or
more Contract prospectus (the "Prospectus Booklet"), the costs of printing
Prospectus Booklets for distribution to existing Contract owners shall be
prorated to the Trust based on (a) the ratio of the number of pages of the
Series prospectus included in the Prospectus Booklet to the number of pages in
the Prospectus Booklet as a whole; and (b) the ratio of the number of Contract
owners with Contract value allocated to the Series to the total number of
Contract owners, provided that the Trust shall not be required to pay the
Company more than $_______ during calendar year 1999 as its portion of the cost
printing Prospectus Booklets, as allocated pursuant to this Section.
3.2. Each Series prospectus shall state that the SAI for the Series is
available from LFDI and the Trust, at its expense, shall provide a final copy
of such SAI to LFDI for duplication and provision to any prospective owner who
requests the SAI and to any owner of a Contract ("Owners").
3.3. The Trust, at its expense, shall provide the Company with copies
of its proxy material, reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require for
distribution to Owners.
3.4. If and to the extent required by law, the Company and, so long as
and to the extent that the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for Owners, the Trust shall:
(i) solicit voting instructions from Owners;
(ii) vote the Trust shares in accordance with instructions received
from Owners; and
(iii) vote Trust shares for which no instructions have been received
in the same proportion as Trust shares of such Series for which instructions
have been received;
The Company reserves the right to vote Trust shares held in any
segregated asset account in its own right, to the extent permitted by law.
Each Participating Insurance Company shall be responsible for assuring that
each of its Separate Accounts participating in the Trust calculates voting
privileges in a manner consistent with the standards to be provided in writing
to the Participating Insurance Company.
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3.5. The Trust will comply with all provisions of the 1940 Act
requiring voting by shareholders. The Trust reserves the right to take all
actions, including but not limited to, the dissolution, merger, and sale of all
assets of the Trust upon the sole authorization of its Trustees, to the extent
permitted by the laws of the Commonwealth of Massachusetts and the 1940 Act.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust or SR&F or LFDI is named, at least 10 days prior to
its use. No such material shall be used if the Trust or its designee objects
to such use within 10 days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or a Prospectus for
Series shares, as such registration statement and Prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the
Trust, or in sales literature or other promotional material approved by the
Trust or its designee or by LFDI, except with the permission of the Trust or
LFDI or the designee of either. The Trust and LFDI agree to respond to any
request for approval on a prompt and timely basis. The Company shall adopt and
implement procedures reasonably designed to ensure that "broker only" materials
including information about the Trust or LFDI are not distributed to existing
or prospective owners, and neither the Trust nor LFDI shall be liable for any
losses, damages, or expenses relating to the improper use of such broker only
materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company, a Separate Account(s) and/or
the Contracts are named at least 10 days prior to its use. No such material
shall be used if the Company or its designee objects to such use within 10 days
after receipt of such material.
4.4. The Trust and LFDI shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, any Separate Account, or the Variable Insurance Products other than
the information or representations contained in a registration statement or
prospectus for such Variable Insurance Products, as such registration statement
and prospectus may be amended or supplemented from time to time, or in
published reports for such Separate Account which are in the public domain or
approved by the Company for distribution to
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Owners, or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company. The
Company agrees to respond to any request for approval on a prompt and timely
basis. The Trust and LFDI shall adopt and implement procedures reasonably
designed to ensure that "broker only" materials including information about the
Company or the Contracts are not distributed to existing or prospective owners,
and the Company shall not be liable for any losses, damages, or expenses
relating to the improper use of such broker only materials.
4.5. The Trust will provide to the Company at least one complete copy
of all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemption,
requests for no-action letters, and all amendments to any of the above, that
relate to the Trust or its shares, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
The Trust shall provide the Company with as much notice as is
reasonable practicable of any proxy solicitation for a Series and of any
material change in the prospectuses or registration statements relating to the
Trust or its shares, particularly any changes resulting in a change to a
prospectus or registration statement relating to the Contracts.
4.6. The Company will provide to the Trust at least one complete copy
of all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemption, requests for no-action letters, and all amendments
to any of the above, that relate to the Variable Insurance Products or any
Separate Account, contemporaneously with the filing of such document with the
SEC.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, SAIs, shareholder reports, proxy materials, and any other
material constituting sales literature or advertising under the NASD rules, the
1933 Act, or the 1940 Act.
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4.8 The Company, the Trust, and LFDI agree that the provisions of this Article
IV is not intended to designate or otherwise imply that the Company is an
underwriter or distributor of shares of the Trust.
ARTICLE V. Fees and Expenses
5.1. The Trust and LFDI shall pay no fee or other compensation to the
Company under this Agreement, except that if the Trust or any Series adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
LFDI may make payments to the Company or to the underwriter for the Variable
Insurance Products if and in amounts agreed to by LFDI in writing and such
payments will be made out of existing fees payable to LFDI by the Trust for
this purpose. No such payments shall be made directly by the Trust.
Currently, no such plan pursuant to Rule 12b-1 or payments are contemplated.
5.2. All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. At its expense, the Trust shall see to
it that all its shares are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent deemed advisable by the
Trust, in accordance with applicable state laws prior to their sale. The Trust
shall bear the expenses of registration and qualification of the Trust's
shares, preparation and filing of the Trust's registration statement,
registration statement amendments, Series prospectuses, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all
statements and notices required by any federal or state law, and all taxes on
the issuance or transfer of the Trust's shares.
5.3. The Company shall bear the expenses of distributing the Trust's
proxy materials and reports to Owners.
ARTICLE VI. Diversification
6.1. The Trust will at all times invest money from the Variable
Insurance Products in such a manner as to ensure that, insofar as such
investment is required to assure such treatment, the Variable Insurance
Products will be treated as variable contracts under the Code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Trust currently complies with and at all times will continue to comply with
Section 817(h) of the Code and the Treasury Regulations thereunder relating to
the diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such Section
or Regulations, and
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will notify the Company immediately upon having a reasonable basis to believe
any Series has ceased to comply or may not so comply in the future and will
immediately take all necessary steps to adequately diversify the Series to
achieve compliance within the grace period afforded by Regulation 1.817-5 of
the Code.
ARTICLE VII. Potential Conflicts
7.1. The Trustees will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the Owners of
separate accounts of the Participating Insurance Companies investing in the
Trust. A material irreconcilable conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Series are
being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance policy owners; or (f) a decision
by an insurer to disregard the voting instructions of Owners. The Trustees
shall promptly inform the Participating Insurance Companies if they determine
that a material irreconcilable conflict exists and the implications thereof.
7.2. The Company will report to the Trustees any potential or existing
conflicts (including the occurrence of any event specified in paragraph 7.1
which may give rise to such a conflict) of which it is aware. The Company will
assist the Trustees in carrying out their responsibilities under the Shared
Funding Exemptive Order, by providing the Trustees with all information
reasonably necessary for the Trustees to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to inform the
Trustees whenever Owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Trust's Trustees, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists, the Company and other Participating Insurance Companies for which a
material irreconcilable conflict is relevant shall, at their expense and to the
extent reasonably practicable (as determined by a majority of the disinterested
Trustees), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, up to and including: (1), withdrawing the
assets allocable to some or all of the separate accounts of Participating
Insurance Companies from the Trust or any Series and reinvesting such assets in
a different investment medium, including (but not limited to) another Series of
the Trust, or submitting the question whether such segregation should be
implemented to a vote of all affected Owners and, as appropriate, segregating
the
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assets of any appropriate group (i.e., annuity contract owners, life insurance
contract owners, or variable contract owners of one or more of the
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Owners the option of making such a change; (2),
establishing a new registered management investment company or managed separate
account; and (3) obtaining SEC approval.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Trust's election, to withdraw the affected
Separate Account's investment in the Trust and terminate this Agreement;
provided, however that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six months after the Trust gives written
notice that this provision is being implemented, and until the end of that
six-month period LFDI and Trust shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Trust.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Separate Account's investment in the Trust and terminate this
Agreement within six months after the Trustees inform the Company in writing
that they have determined that such decision has created a material
irreconcilable conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Until the end of the foregoing six-month period, LFDI and Trust
shall continue to accept and implement orders by the Company for the purchase
(and redemption) of shares of the Trust.
7.6. For purposes of Sections 7.3. through 7.6. of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in no
event will the Trust be required to establish a new funding medium for the
Variable Insurance Products. The Company shall not be required to establish a
new funding medium for the Variable Insurance Products if an offer to do so has
been declined by vote of a majority of Owners materially adversely affected by
the material irreconcilable conflict. If the Trustees determine that any
proposed action does not adequately remedy any material irreconcilable
conflict, then the Company
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will withdraw the affected Separate Account's investment in the Trust and
terminate this Agreement within six (6) months after the Trustees inform the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Trust and/or the Company, as appropriate, shall
take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4., 3.5., 7.1., 7.2., 7.3., 7.4., and 7.5. of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
(a) The Company agrees to indemnify and hold harmless SR&F, LFDI, the
Trust and each of its Trustees, officers, employees and agents and each person,
if any, who controls the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually the "Indemnified
Party" for purposes of this Article VIII) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company, which consent shall not be unreasonably withheld) or
expenses (including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal counsel
fees incurred in connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or regulation, or at
common law or otherwise, insofar as such Losses are related to the sale or
acquisition of Trust Shares or the Contracts and
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a disclosure
document for the Contracts or in the Contracts themselves or in sales
literature generated or approved by the Company on behalf of the Contracts or
Accounts (or any amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes of this Article VIII), or
arise out of or are based upon the omission or the alleged omission to
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state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this indemnity shall
not apply as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Company by or on behalf of
the Trust for use in Company Documents or otherwise for use in connection with
the sale of the Contracts or Trust shares; or
(ii) arise out of or result from statements or representations
(other than statements or representations contained in and accurately derived
from Trust Documents as defined in Section 8.2(a)(i) below) or wrongful conduct
of the Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(iii) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust Documents as
defined in Section 8.2(a)(i) or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information furnished to the
Trust by or on behalf of the Company; or
(iv) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company.
(b) The Company shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to the Trust or SR&F, whichever
is applicable. The Company shall also not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company of
any such claim
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shall not relieve the Company from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is brought against
the Indemnified Parties, the Company shall be entitled to participate, at its
own expense, in the defense of such action. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
(c) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust shares or the Contracts or the operation of
the Trust.
8.2 Indemnification By The Adviser
(a) SR&F agrees to indemnify and hold harmless the Company, the
underwriter of the Contracts and each of its directors and officers and each
person, if any, who controls the Company within the meaning of Section 15 of
the 1933 Act (collectively, the "Indemnified Parties" and individually an
"Indemnified Party" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of SR&F, which consent shall not be unreasonably withheld)
or expenses (including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal counsel
fees incurred in connection therewith) (collectively, "Losses") to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such Losses are related to the sale or acquisition of the
Trust's Shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement, prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing) (collectively, the "Trust Documents") or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or omission of
such alleged statement or omission was made in reliance upon and in conformity
with information furnished to SR&F or the Trust by or on behalf of the Company
for use in the Registration Statement
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or prospectus for the Trust or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts
or Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
disclosure documents or sales literature for the Contracts not supplied by SR&F
or persons under its control) or wrongful conduct of the Trust, SR&F or LFDI or
persons under their control, with respect to the sale or distribution of the
Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a disclosure document or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Trust; or
(iv) arise as a result of any failure by the Trust to provide
the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the qualification representation specified in Section 2.3 of this
Agreement and the diversification requirements specified in Section 6.1 of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by SR&F in this Agreement or arise out of
or result from any other material breach of this Agreement by SR&F; as limited
by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof.
(b) SR&F shall not be liable under this indemnification provision with
respect to any Losses to which an Indemnified Party would otherwise be subject
by reason of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties under
this Agreement or to each Company or the Account, whichever is applicable.
(c) SR&F shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified SR&F in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify SR&F of any such
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claim shall not relieve SR&F from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is brought against
the Indemnified Parties, SR&F will be entitled to participate, at its own
expense, in the defense thereof. SR&F also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from SR&F to such party of SR&F's election to assume the defense
thereof, the Indemnified Party shall bear the expenses of any additional
counsel retained by it, and SR&F will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
(d) The Company agrees promptly to notify SR&F of the commencement of
any litigation or proceedings against it or any of its officers or directors in
connection with the issuance or sale of the Contracts or the operation of each
Account.
8.3 Indemnification By The Trust
(a) The Trust agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Trust, which consent shall not be unreasonably
withheld) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements result from the gross negligence,
bad faith or willful misconduct of the Board or any member thereof, are related
to the operations of the Trust, and arise out of or result from any material
breach of any representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Trust; as limited by and in accordance with the provisions of
Section 8.3(b) and 8.3(c) hereof. It is understood and expressly stipulated
that neither the holders of shares of the Trust nor any Trustee, officer, agent
or employee of the Trust shall be personally liable hereunder, nor shall any
resort be had to other private property for the satisfaction of any claim or
obligation hereunder, but the Trust only shall be liable.
(b) The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against any Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
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<PAGE> 19
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Trust, SR&F or each Account, whichever is applicable.
(c) The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Trust in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claims shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve the Trust from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Trust will be entitled to participate, at its own
expense, in the defense thereof. The Trust also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Trust to such party of the Trust's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trust will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) The Company and SR&F agree promptly to notify the Trust of the
commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either the
Account, or the sale or acquisition of share of the Trust.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts, without giving effect to conflict of laws principles provided,
however, that if such laws or any of the provisions of this Agreement conflict
with applicable provisions of the 1940 Act, the latter shall control.
9.2. This Agreement shall be made subject to the provisions of the
1933, 1934, and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant (including, but not limited to, the Shared
Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
19
<PAGE> 20
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon six months advance written notice
to the other parties; or
(b) at the option of the Company to the extent that shares of a Series
are not reasonably available to meet the requirements of the Variable Insurance
Products as determined by the Company, provided however, that such termination
shall apply only to the Series not reasonably available. Prompt notice of the
election to terminate for such cause shall be furnished by the Company; or
(c) at the option of the Trust, SR&F or LFDI, if formal administrative
proceedings are instituted against the Company by the NASD, the SEC, the
Insurance Commissioner or any other regulatory body regarding the duties of the
Company under this Agreement or related to the sale of the Variable Insurance
Products, with respect to the operation of a Separate Account, or the purchase
of the Trust shares, provided, however, that the Trust or LFDI, as the case may
be, shall determine in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of the Company to perform its obligations under this Agreement; or
(d) at the option of the Company, if formal administrative proceedings
are instituted against the Trust, SR&F or LFDI by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body,
provided, however, that the Company determines in its sole judgment exercised
in good faith, that any such administrative proceedings will have a material
adverse effect upon the ability of the Trust, SR&F or LFDI to perform its
respective obligations under this Agreement; or
(e) with respect to a Separate Account, upon requisite authority to
substitute the shares of another investment company for shares of the
corresponding Series of the Trust in accordance with the terms of the Variable
Insurance Products for which those Series shares had been selected to serve as
the underlying investment media. The Company will give the Trust 30 days'
prior written notice the date of any proposed action to replace the Trust
shares; or
(f) at the option of the Company, in the event any of the Trust's
shares are not registered, issued or sold in accordance with applicable federal
and any state law or such law precludes the use of such shares as the
underlying investment media of the Variable Insurance Products issued or to be
issued by the Company; or
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<PAGE> 21
(g) at the option of the Company, if the Trust ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes that the
Trust may fail to so qualify; or
(h) at the option of the Company, if the Trust fails to meet the
diversification requirements specified in Article 6.2 hereof; or
(i) at the option of the Trust, SR&F or LFDI, if:
(1) the Trust, SR&F or LFDI, respectively, shall determine, in
their sole judgment reasonably exercised in good faith, that the Company has
suffered a material adverse change in its business or financial condition or is
the subject of material adverse publicity and that such material adverse
publicity will have a material adverse impact upon the business and operations
of the Trust, SR&F or LFDI,
(2) the Trust, SR&F or LFDI shall notify the Company in
writing of such determination and its intent to terminate this Agreement, and
(3) after considering the actions taken by the Company and any
other changes in circumstances since the giving of such notice, such
determination of the Trust, SR&F or LFDI shall continue to apply on the 60th
day following the giving of such notice, which 60th day shall be the effective
date of termination; or
(j) at the option of the Company, if
(1) the Company shall determine, in its sole judgment
reasonably exercised in good faith, that the Trust, SR&F or LFDI has suffered a
material adverse change in its business or financial condition or is the
subject of material adverse publicity and such material adverse publicity will
have a material adverse impact upon the business and operations of the Company
or the sale of the Contracts, and
(2) after making such determination, the Company has notified
the Trust, SR&F and LFDI in writing of such determination and of its intent to
terminate the Agreement, and
(3) after considering the actions taken by the Trust, SR&F
and/or LFDI and any other changes in circumstances since the giving of such
notice, such determination shall continue to apply on the 60th day following
the giving of such notice, which 60th day shall be the effective date of
termination; or
21
<PAGE> 22
(k) at the option of either the Trust or LFDI, if the Company gives
the Trust and LFDI the written notice specified in Section 10.3.(a). hereof and
at the time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement; provided, however any
termination under this Section 10.1.(k). shall be effective 45 days after the
notice specified in 10.3.(a). was given; or
(l) upon another Party's failure to cure a material breach of any
provision of this Agreement within 30 days after written notice thereof.
10.2. It is understood and agreed that the right of any party hereto
to terminate this Agreement pursuant to Section 10.1.(a). may be exercised for
any reason or for no reason.
10.3. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate, which notice shall set forth the basis for such termination.
Furthermore,
(a) in the event that any termination is based upon the provisions of
Article VII., or the provision of Section 10.1.(a), 10.1.(i), 10.1.(j) or
10.1.(k) of this Agreement, such prior written notice shall be given in advance
of the effective date of termination as required by such provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1.(c) or 10.1.(d) of this Agreement, such prior written notice shall
be given at least ninety (90) days before the effective date of termination.
10.4. Effect of Termination. Notwithstanding any termination of this
Agreement, the Trust, SR&F and LFDI shall, at the option of the Company,
continue to make available additional shares of the Trust pursuant to the terms
and conditions of this Agreement, for all Variable Insurance Products in effect
on the effective date of termination of this Agreement (hereinafter referred to
as "Existing Products"). Specifically, without limitation, the Owners of the
Existing Products shall be permitted to reallocate investments in the Trust,
redeem investments in the Trust and/or invest in the Trust upon the making of
additional purchase payments under the Existing Products. The parties agree
that this Section 10.4 shall not apply to any terminations under Article VII
and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
ARTICLE XI. Notices
22
<PAGE> 23
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Company:
Sage Life Assurance of America, Inc.
300 Atlantic Street, Suite 302
Stamford, CT 06903
Attn: James F. Bronsdon, Esquire
If to SR&F or the Trust:
One South Wacker Drive
Chicago, IL 60606
Attn.: Secretary
If to LFDI:
One Financial Center
Boston, Massachusetts 02111
Attention: President
With a copy to: General Counsel
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Trust must look solely to the
property of the Trust for the enforcement of any claims against the Trust
hereunder and otherwise understand that the Trustees, officers, agents or
shareholders of the Trust shall have no personal liability for any obligations
entered into by or on behalf of the Trust.
23
<PAGE> 24
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the Owners and all information reasonably identified as
confidential in writing be any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come
into the public domain without the express written consent of the affected
party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be effected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, the Internal Revenue Service and state insurance regulators) and shall
permit each other and such authorities reasonable access to its books and
records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
12.7. The Trust and LFDI agree that to the extent any advisory or
other fees received by the Trust, LFDI, or SR&F are determined to be unlawful
in appropriate legal or administrative proceedings, the Trust shall indemnify
and reimburse the Company for any out-of-pocket expenses and actual damages the
Company has incurred as a result of any such proceeding, provided however that
the provisions of Section 8.2(b) and 8.2(c) of this Agreement. shall apply to
such indemnification and reimbursement obligation. Such indemnification and
reimbursement obligation shall be in addition to any other indemnification and
reimbursement obligations of the Trust under this Agreement.
12.8. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligation, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.9. Except as otherwise expressly provided in this Agreement, neither the
Trust, its investment adviser, its principal underwriter, or any affiliates
thereof, or LFDI, shall use any trademark, trade name, service mark or logo of
the Company or any of its affiliates, or any variation of any such
24
<PAGE> 25
trademark, trade name, service mark or logo, without the Company's prior
written consent, the granting of which shall be at the Company's sole option.
12.10. Except as otherwise expressly provided in this Agreement, neither the
Company nor any of its affiliates shall use any trademark, trade name, service
mark or logo of the Trust, its investment adviser, its principal underwriter,
or any affiliates thereof, or LFDI, or any variation of any such trademark,
trade name, service mark or logo, without the Trust's prior written consent,
the granting of which shall be at the Trust's sole option.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
officer and its seal to be hereunder affixed hereto as of the date first set
forth above.
SAGE LIFE ASSURANCE OF AMERICA, INC.
By:
Title:
STEIN ROE VARIABLE INVESTMENT TRUST
By:
Title:
STEIN ROE & FARNHAM, INC.
By:
Title:
LIBERTY FUNDS DISTRIBUTOR, INC.
By:
Title:
25
<PAGE> 26
SCHEDULE A
Trust Series Available Under the Variable Insurance Products
[list Series]
Separate Accounts Utilizing the Series
[list Separate Accounts]
Variable Insurance Products Funded By the Separate Account
[list Variable Insurance Products]
26
<PAGE> 1
EXHIBIT 8(a)(ix)
PARTICIPATION AGREEMENT
AMONG
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
AND
SAGE LIFE ASSURANCE OF AMERICA, INC.
THIS AGREEMENT, made and entered into as of this_______ day of
_______________, 1999 by and among Sage Life Assurance of America, Inc.
(hereinafter, the "Company"), a Delaware insurance company, on its own behalf
and on behalf of each segregated asset account of the Company set forth on
Schedule A hereto as may be amended from time to time (each account hereinafter
referred to as an "Account" and collectively as the "Accounts"), and T. Rowe
Price Equity Series, Inc., a corporation organized under the laws of Maryland
(each hereinafter referred to as the "Fund") and T. Rowe Price Investment
Services, Inc. (hereinafter the "Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is or will be available to act as the investment vehicle
for separate accounts established for variable life insurance and variable
annuity contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, T. Rowe Price Associates, Inc. (referred to as the "Adviser")
is duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and any applicable state securities laws and manages certain
Portfolios of the Fund; and
<PAGE> 2
WHEREAS, the Company has issued or will issue certain variable life
insurance or variable annuity contracts (including any certificates thereunder)
supported wholly or partially by the Account (the "Contracts"), and said
Contracts are listed in Schedule A hereto, as it may be amended from time to
time by mutual written agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Contracts;
and
WHEREAS, the Company has registered or will register the Account as a
unit investment trust under the 1940 Act or will not register the Account in
proper reliance upon an exclusion from registration under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD") and serves as principal
underwriter of the shares of the Fund; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios
available for purchase at the applicable net asset value per share by the
Company and the Account on those days on which the Fund calculates its net asset
value pursuant to rules of the SEC, and the Fund shall use its best efforts to
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction, or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Designated Portfolio.
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<PAGE> 3
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Designated Portfolios will be sold to the general public. The Fund
and the Underwriter will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I, VI, and VII of this Agreement is in effect to govern such
sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by close of the New York Stock
Exchange and the Fund receives notice of such order by 9:30 a.m. Baltimore time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares one Business Day after receipt
of an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. Baltimore time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 3:00 p.m. Baltimore time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For purposes
of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares. The
Company hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on Designated Portfolio shares in additional shares
of that Portfolio. The Company reserves the right to revoke this election and to
receive all such income
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<PAGE> 4
dividends and capital gain distributions in cash. The Fund shall notify the
Company of the number of shares so issued as payment of such dividends and
distributions.
1.10 The Fund shall make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated (normally
by 6:30 p.m. Baltimore time) and shall use its best efforts to make such net
asset value per share available by 7 p.m. Baltimore time. If the net asset value
is materially incorrect through no fault of the Company, the Company on behalf
of each Account, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct net asset value per share in
accordance with Fund procedures. Any material error in the net asset value shall
be reported to the Company promptly upon discovery. Any administrative or other
costs or losses incurred for correcting underlying Contract owner accounts shall
be at Company's expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act or that the Contracts are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act. The Company further represents and warrants that the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws and that the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account under the Delaware insurance laws and has registered
or, prior to any issuance or sale of the Contracts, will register the Account as
a unit investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts or that it has not
registered the Account in proper reliance upon an exclusion from registration
under the 1940 Act.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall at all times be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the state of
Delaware and all applicable federal and state securities laws and that the Fund
is and shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board, a majority of whom are not interested persons of the Fund,
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<PAGE> 5
formulate and approve any plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses and the Fund agrees to notify the Company of any
such plan as soon as reasonably practicable.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Delaware to the extent required to perform this Agreement.
2.5 The Fund represents and warrants that it is and shall remain
lawfully organized and validly existing under the laws of the State of Maryland
and that it does and will comply in all material respects with the 1940 Act and
the rules and regulations thereunder.
2.6 The Underwriter represents and warrants that it is duly organized
and validly existing under the laws of the State of Maryland and that it is and
shall remain a member in good standing of the NASD and is and shall remain
registered as a broker-dealer with the SEC. The Underwriter further represents
that it will sell and distribute the Fund shares in accordance with the laws of
the State of Delaware and any applicable state and federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is duly
organized and validly existing under the laws of the State of Maryland and that
it is and shall remain duly registered under all applicable federal and state
securities laws and that the Adviser shall perform its obligations for the Fund
in compliance in all material respects with the laws of the State of Delaware
and any applicable state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. The Fund agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Company in the event that such coverage no longer applies.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any amounts
received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund. The Company agrees to make all reasonable efforts to see
that this bond or another bond containing these provisions is always in effect,
and agrees to notify the Fund and the Underwriter in the event that such
coverage no longer applies. The Company agrees to exercise its best efforts to
ensure that other individuals/entities not employed or
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<PAGE> 6
controlled by the Company and dealing with the money and/or securities of the
Fund maintain a similar bond or coverage in a reasonable amount.
ARTICLE III. Prospectuses, Statements of Additional Information, and Proxy
Statements; Voting
3.1 Until such time as the net assets of the Fund that are attributable
to variable life or variable annuity contracts offered by the Company and its
affiliates ("Company-Originated Assets") equal or exceed $25 million:
(a) The Underwriter at least annually shall provide the Company,
free of charge, with as many copies of the current prospectuses
for the Designated Portfolios as the Company may reasonably
request for distribution to existing Contract owners whose
Contracts are funded by such Designated Portfolios. The
Underwriter shall provide the Company, at the Company's expense,
with as many copies of the current prospectuses for the
Designated Portfolios as the Company may reasonably request for
distribution to prospective purchasers of Contracts. If requested
by the Company in lieu thereof, the Fund shall provide such
documentation (including a "camera ready" copy of the new
prospectuses as set in type or, at the request of the Company, as
a diskette in the form sent to the financial printer) and other
assistance as is reasonably necessary in order for the parties
hereto once each year (or more frequently if the prospectuses for
the Designated Portfolios are supplemented or amended) to have
the prospectus for the Contracts and the prospectuses for the
Designated Portfolios printed together in one document. With
respect to any prospectuses of the Designated Portfolios that are
printed in combination with any one or more Contract prospectus
(the "Prospectus Booklet"), the costs of printing Prospectus
Booklets for distribution to existing Contract owners shall be
prorated to the Underwriter based on (a) the ratio of the number
of pages of the prospectuses for the Designated Portfolios
included in the Prospectus Booklet to the number of pages in the
Prospectus Booklet as a whole; and (b) the ratio of the number of
Contract owners with Contract value allocated to the Designated
Portfolios to the total number of Contract owners; provided,
however, that the Company shall bear all printing expenses of
such combined documents where used for distribution to
prospective purchasers or to owners of existing Contracts not
funded by the Designated Portfolios; and provided further, that
the Underwriter's reimbursement obligation for prospectus
printing expenses under this subparagraph (a) shall not exceed
$10,000 per year. The Underwriter may request a statement from
the Company showing how the printing expenses were prorated and
the number of Contract owners with Contract value allocated to
the Designated Portfolios.
(b) The prospectuses for the Designated Portfolios shall state
that the current Statements of Additional Information (the SAI")
for the Designated Portfolios are available from the Company. The
Underwriter, at its expense, shall print and provide as many
copies of the SAI as the Company may reasonably request for
distribution to existing Contract owners whose Contract are
funded by such Designated Portfolios. The Underwriter, at the
Company's expense, shall print and provide such SAI to the
Company (or a master of such SAI suitable for duplication by the
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<PAGE> 7
Company) for distribution to a prospective purchaser who requests
such SAI or to an owner of a Contract not funded by the
Designated Portfolios.
3.2 After such time that Company-Originated assets equal or exceed
$25 million the Underwriter will have no further reimbursement
obligation under Section 3.1(a):
(a) The Underwriter shall provide the company (at the company's
expense) with as many copies of the fund's current prospectus
(describing only the Designated Portfolios listed on Schedule A)
as the Company may reasonably request. If requested by the
Company in lieu thereof the Fund shall provide such documentation
(including a final copy of the new prospectus as set in type or
on a diskette, at the Fund's expense) and other assistance as is
reasonably necessary in order for the Company (at the Company's
expense) once each year (or more frequently if the prospectus for
the Fund is amended) to have the prospectus (which shall include
an offering memorandum if any) for the Contracts, and the Fund's
prospectus printed together in one document (such printing to be
at the Company's expense).
(b) The Fund's prospectus shall state that the current Statement
of Additional Information ("SAI") for the Fund is available from
the Company (or, in the Fund's discretion, from the Fund), and
the Underwriter (or the Fund), at its expense, shall print, or
otherwise reproduce, and provide a copy of such SAI free of
charge to the Company for itself and for any owner of a Contract
who requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies
of its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company reports to shareholders in such
quantity as the Company shall reasonably request for use in connection with
offering the Variable Contracts issued by the Company. If requested by the
Company in lieu thereof, the Underwriter shall provide such documentation (which
may include a final copy of the Fund's annual and semi-annual reports as set in
type or on diskette) and other assistance as is reasonably necessary in order
for the Company (at the Company's expense) to print such shareholder
communications for distribution to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
Designated Portfolio for which instructions have been
received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
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<PAGE> 8
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c)of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops or uses and in which the Fund (or a Portfolio
thereof) or the Adviser or the Underwriter is named, at least five Business Days
prior to its use. No such material shall be used if the Fund or its designee
reasonably object to such use within five Business Days after receipt of such
material. The Fund or its designee reserves the right to reasonably object to
the continued use of such material, and no such material shall be used if the
Fund or its designee so object.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus or SAI for
the Fund shares, as such registration statement and prospectus or SAI may be
amended or supplemented from time to time, or in reports or proxy statements for
the Fund, or in published reports for the Fund which are in the public domain or
approved by the Fund for distribution to shareholders, or in sales literature or
other promotional material approved by the Fund or its designee or by the
Underwriter, except with the permission of the Fund or the Underwriter or the
designee of either. If the Fund or Underwriter produces information concerning
the Company, any of its affiliates, or the Contracts which is intended for use
only by brokers or agents (i.e., information that is not intended for
distribution to Contract owners or prospective Contract owners), the fund or
Underwriter shall add an appropriate legend on the cover designating the
materials as "broker only" and not intended for distribution to members of the
public. Neither the Company nor any of its affiliates shall be liable for any
losses, damages, or expenses relating to the improper use of "broker only"
materials produced and used by the Fund or Underwriter.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, its Account and/or the Contracts, is
named at least five Business Days prior to its use. No such material shall be
used if the Company reasonably objects to such use within five Business days
after receipt of such material. The Company reserves the right to reasonably
object to the continued use of such material and no such material shall be used
if the Company so objects.
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<PAGE> 9
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company. If the Company produces
information concerning the Fund or any of its affiliates which is intended for
use only by brokers or agents (i.e., information that is not intended for
distribution to contract owners or prospective Contract owners), the Company
shall add an appropriate legend on the cover designating the materials as
"broker only" and not intended for distribution to members of the public.
Neither the Fund nor any of its affiliates shall be liable for any losses,
damages, or expenses relating to the improper use of "broker only" materials
produced and used by the Company or its affiliates.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within a reasonable time after the filing of
such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Account, within a
reasonable time after the filing of such document(s) with the SEC or other
regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, any other communications distributed
or made generally available with regard to the Funds, and any other material
constituting sales literature or advertising under the NASD rules, the 1933 Act,
or the 1940 Act.
4.8 The Company, the Fund, and the Underwriter agree that the provisions
of this Article IV are not intended to designate nor otherwise imply that the
Company is an underwriter or distributor of shares of the Fund or that the Fund
and the Underwriter is an underwriter or distributor of the Contracts.
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<PAGE> 10
ARTICLE V. Fees and Expenses
5.1 Subject to Article III hereof, the Fund and the Underwriter shall
pay no fee or other compensation to the Company under this Agreement, except
that if the Fund or any Portfolio adopts and implements a plan pursuant to Rule
12b-1 to finance distribution expenses pursuant to the requirements of Section
2.3 hereof, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund, except as otherwise provided herein. At its
expense, the Fund shall see to it that all its shares are registered and
authorized for issuance in accordance with applicable federal law and, if and to
the extent deemed advisable by the Fund, in accordance with applicable state
laws prior to their sale. The Fund shall bear the expenses for the cost of
registration and qualification of the Fund's shares, preparation and filing of
the Fund's registration statement, registration statement amendments,
prospectuses, proxy materials and reports, setting the prospectus and SAI in
type, setting in type and printing the proxy, materials and reports to
shareholders (including the costs of printing a prospectus that constitutes an
annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials, and reports to Contract owners and prospective
Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest the assets of each Designated Portfolio in such
a manner as to ensure that the Contracts will be treated as annuity, endowment,
or life insurance contracts, whichever is appropriate, under the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations issued
thereunder (or any successor provisions). Without limiting the scope of the
foregoing, each Designated Portfolio of the Fund currently complies and will
continue to comply with Section 817(h) of the Code and Treasury Regulation
Section 1.817-5, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts, and any amendments or other modifications or successor provisions to
such Section or Regulations. In the event of a breach of this Article VI by the
Fund, it will take all reasonable and necessary steps (a) to notify the Company
of such breach as soon as reasonably practicable and (b) to adequately diversify
the Fund so as to achieve compliance within the grace period afforded by
Regulation 817.5.
6.2 The Fund represents that each Designated Portfolio is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
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<PAGE> 11
6.3 Subject to Sections 6.1 and 6.2 hereof, the Company represents that
the Contracts are currently, and at the time of issuance shall be, treated as
life insurance, endowment contracts, or annuity insurance contracts, under
applicable provisions of the Code, and that it will make every effort to
maintain such treatment, and that it will notify the Fund and the Underwriter
immediately upon having a reasonable basis for believing the Contracts have
ceased to be so treated or that they might not be so treated in the future.
ARTICLE VII. Potential Conflicts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the
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<PAGE> 12
disinterested members of the Board. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the end of that six month period the
Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 or 7.4 to establish
a new funding medium for the Contract if an offer to do so has been declined by
vote of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent Rule 6e-3(T) are amended, Rule 6e-3 is adopted,
to provide exemptive relief from any provision of the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as defined in
the shared Funding Exemptive Order) on terms and conditions materially different
from those contained in the Shared funding Exemptive Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the
Fund and the Underwriter and each of their officers and directors and each
person, if any, who controls the Fund or the Underwriter within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 8.1) against any and all losses, claims, damages, liabilities
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<PAGE> 13
(including amounts paid in settlement with the written consent of the Company)
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the Registration Statement, prospectus (which shall
include an offering memorandum, if any), or statement of
additional information ("SAI") for the Contracts or
contained in the Contracts or sales literature or other
promotional material for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of
the Fund for use in the Registration Statement, prospectus
or SAI for the Contracts or in the Contracts or sales
literature or other promotional material (or any amendment
or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature or other promotional material of the Fund
not supplied by the Company or persons under its control)
or wrongful conduct of the Company or persons under its
authorization or control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, SAI, or sales literature or other
promotional material of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading if such a statement or omission was made in
reliance upon and in conformity with information furnished
to the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company
to provide the services and furnish the materials under
the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the qualification requirements specified in Section
6.3 of this Agreement); or
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<PAGE> 14
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of its obligations or
duties under this Agreement or its obligations and duties to the Fund or
Underwriter, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings against them in connection
with the Agreement, the issuance or sale of the Fund Shares or the Contracts, or
the operation of the Fund.
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it's directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
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<PAGE> 15
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the Registration Statement or
prospectus or SAI or sales literature or other
promotional material of the Fund (or any amendment
or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged
omission to state therein a material fact required
to be stated therein or necessary to make the
statements therein not misleading, provided that
this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission
or such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Underwriter or Fund by or on behalf
of the Company for use in the Registration Statement
or prospectus for the Fund or in sales literature or
other promotional material (or any amendment or
supplement) or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Registration
Statement, prospectus or sales literature or other
promotional material for the Contracts not supplied
by the Underwriter or persons under its control) or
wrongful conduct of the Fund or Underwriter or
persons under their authorization or control, with
respect to the sale or distribution of the Contracts
or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
Registration Statement, prospectus, SAI, or sales
literature or other promotional material of the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statement or
statements therein not misleading, if such statement
or omission was made in reliance upon information
furnished to the Company by or on behalf of the
Fund; or
(iv) arise as a result of any material failure by the
Fund to provide the services and furnish the
materials under the terms of this Agreement
(including a failure, whether unintentional or in
good faith or otherwise, to comply with the
diversification and other qualification requirements
specified in Sections 6.1 and 6.2 of this
Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the
Underwriter in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
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<PAGE> 16
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund) or litigation
(including legal and other expenses) to which the Indemnified Parties may be
required to pay or may become subject under any statute or regulation, at common
law or otherwise, insofar as such losses, claims, expenses, damages, liabilities
or expenses (or actions in respect thereof) or settlements, are related to the
operations of the Fund and:
(i) arise as a result of any material failure by the
Fund to provide the services and furnish the
materials under the terms of this Agreement
(including a failure, whether unintentional or in
good faith or otherwise, to comply with the
diversification and other qualification requirements
specified in-Sections 6.1 and 6.2 of this
Agreement); or
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<PAGE> 17
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund
in this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the expense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense; provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland,
without giving effect to conflict of laws principles.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
-17-
<PAGE> 18
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to
some or all Designated Portfolios, by six (6) months'
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Designated
Portfolio based upon the Company's determination that
shares of the Fund are not reasonably available to meet
the requirements of the Contracts; provided that such
termination shall apply only to the Designated Portfolio
not reasonably available; or
(c) termination by the Company by written notice to the Fund
and the Underwriter in the event any of the Designated
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or
such law precludes the use of such shares as the
underlying investment media of the Contracts issued or to
be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against
the Company by the NASD, the SEC, the Insurance
Commissioner or like official of any state or any other
regulatory body regarding the Company's duties under this
Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the Fund
shares; provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good faith,
that any such administrative proceedings will have a
material adverse effect upon the ability of the Company to
perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund
or Underwriter by the NASD, the SEC, or any state
securities or insurance department or any other regulatory
body; provided, however, that the Company determines in
its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Designated
Portfolio in the event that such Designated Portfolio
ceases to qualify as a Regulated Investment Company under
Subchapter M or fails to comply with the Section 817(h)
diversification requirements specified in Article VI
hereof, or if the Company reasonably believes that such
Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice
to the Company in the event that the Contracts fail to
meet the qualifications specified in Section
-18-
<PAGE> 19
6.3 hereof; or if the Fund or Underwriter reasonably
believes that such Contracts may fail to so qualify; or
(h) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of
the Fund or the Underwriter respectively, shall determine,
in their sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its
business, operations, financial condition, or prospects
since the date of this Agreement or is the subject of
material adverse publicity and have a reasonable belief
that such material adverse publicity will have a material
adverse impact upon the business and operations of the
Company;
(i) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in
its sole judgment exercised in good faith, that the Fund
or the Underwriter has suffered a material adverse change
in its business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity and have a
reasonable belief that such material adverse publicity
will have a material adverse impact upon the business and
operations of the Fund or the Underwriter;
(j) termination by the Company upon the Fund's failure to cure
a material breach of any provision of this Agreement
within thirty days after written notice thereof; or
(k) termination by the Fund or Underwriter upon the Company's
failure to cure a material breach of any provision of this
Agreement within thirty days after written notice thereof.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be permitted
to reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement.
10.3 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
-19-
<PAGE> 20
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
Sage Life Assurance of America, Inc.
300 Atlantic Street
Suite 302
Stamford, CT 06901
Attention: James F. Bronsdon, Esq.
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
ARTICLE XII. Miscellaneous
12.1 All references herein to the Fund are to each of the undersigned
Funds as if this agreement were between such individual Fund and the Underwriter
and the Company. All references herein to the Adviser relate solely to the
Adviser of such individual Fund, as appropriate. All persons dealing with a Fund
must look solely to the property of such Fund, and in the case of a series
company, the respective Designated Portfolio listed on Schedule A hereto as
though such Designated Portfolio had separately contracted with the Company and
the Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
-20-
<PAGE> 21
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. Notwithstanding the generality of the foregoing, each party
hereto further agrees to furnish the Delaware Insurance Commissioner with any
information or reports in connection with services provided under this Agreement
which such Commissioner may request in order to ascertain whether the variable
annuity operations of the Company are being conducted in a manner consistent
with Delaware variable annuity laws and regulations and any other applicable law
or regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies, and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.9 Except as otherwise expressly provided in this Agreement, neither
the Fund, its Adviser, its Underwriter, or any affiliates thereof, shall use any
trademark, trade name, service mark or logo of the Company or any of its
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without the Company's prior written consent, the granting of which shall
be at the Company's sole option.
12.10 Except as otherwise expressly provided in this Agreement, neither
the Company nor any of its affiliates shall use any trademark, trade name,
service mark or logo of the Fund, its Adviser, its Underwriter, or any
affiliates thereof, or any variation of any such trademark, trade name, service
mark or logo without the Fund's or Adviser's prior written consent, the granting
of which shall be at the Fund's or Adviser's sole option.
-21-
<PAGE> 22
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
COMPANY: SAGE LIFE ASSURANCE OF AMERICA, INC.
By its authorized officer
By:
---------------------------------------
Title:
------------------------------------
Date:
-------------------------------------
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By:
---------------------------------------
Title: Vice President
------------------------------------
Date:
-------------------------------------
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By:
---------------------------------------
Title: Vice President
------------------------------------
Date:
-------------------------------------
-22-
<PAGE> 23
SCHEDULE A
Name of Separate Account Contracts Funded by
and Date Established Separate Account Designated Portfolios
by Board of Directors
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
-23-
<PAGE> 1
EXHIBIT (8)(b)
FORM OF SERVICE AGREEMENT
THIS AGREEMENT, made as of the _____ day of _______________, 1998 (the
"Effective Date") by and between Sage Life Assurance of America, Inc. (the
"Client Company"), having its principal office and place of business at 300
Atlantic Street, Suite 302, Stamford, CT 06901 and Financial Administrative
Services, Inc. ("FAS"), having its principal office and place of business at
1290 Silas Deane Highway, Wethersfield, CT 06109-4303.
RECITALS:
WHEREAS, Client Company desires to retain FAS to provide those
services described in Exhibit A (the "Services"), for those products of Client
Company described in Exhibit B (the "Products"); and
WHEREAS, FAS desires to provide the Services;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE I: APPOINTMENT
1.01 Retainer. Subject to the terms and conditions set forth in this
Agreement, Client Company hereby retains FAS to perform the Services.
1.02 Acceptance. FAS hereby agrees that on and after the Effective Date,
upon the terms and conditions set forth hereinafter, it will perform the
Services.
ARTICLE II: TERM
2.01 Initial Term; Renewal Term. Unless earlier terminated as provided in
Article XIII, this Agreement, as amended from time to time, shall remain in
full force and effect for a period of three (3) years from the date hereof (the
"Initial Term") and thereafter shall automatically continue in full force and
effect for succeeding 1-year renewal periods, until terminated as herein
provided (each such additional 1-year period being a "Renewal Term'').
ARTICLE III: COMPENSATION
3.01 Fees and Charges. During the Initial Term and each Renewal Term,
Client Company shall pay to FAS, within thirty (30) days after receipt of an
FAS invoice, such fees and charges as determined in accordance with the
provisions set forth in Exhibit C hereto. In the event the nature or quantity
of the Services changes as a result of any request by Client Company, the
related fees and charges shall change to the extent agreed to by Client Company
and FAS and reflected on the Service Orders containing the requested changes or
additions in Services and related adjustment to fees and services, each of
which Service Orders reflecting a change, once signed by both parties, shall be
deemed an amendment to Exhibit C. In the event the quantity or nature of the
Services provided by FAS changes as the result of federal or state requirements
enacted or promulgated after the date hereof, FAS shall have the right to
modify such fees and charges, upon sixty (60) days' prior written notice to
Client Company, to reflect the reasonable
<PAGE> 2
cost to FAS of complying with such changes. In the event the Services
encompass the adjustment or settlement of claims, FAS' compensation shall in no
way be contingent on claims experience.
3.02 Expenses. Client Company shall reimburse FAS on a pass-through basis
without the addition of any administrative or similar charges by FAS, for all
out-of-pocket expenses reasonably and necessarily incurred by FAS in the
performance of this Agreement or expressly authorized in advance by Client
Company. Client Company shall make such reimbursements within thirty (30) days
of receipt of an FAS invoice indicating such expenses and any supporting
documentation that Client Company may reasonably request. Such expenses may
include, without limitation, expenses incurred for:
(a) data communications and related equipment usage charges
authorized by Client Company and incurred on Client Company's behalf;
(b) telephone charges incurred in communicating with Client
Company, its insureds and its agents and representatives;
(c) freight and postage charges incurred as a direct result of the
Services performed hereunder for and on behalf of Client Company;
(d) travel expenses (including transportation, parking, lodging
and meals) incurred by FAS, its employees and/or its duly authorized agents and
representatives in providing the Services;
(e) charges for stationery and other supplies unique to Client
Company or to the provision of the Services hereunder for Client Company; and
(f) reasonable expenses incurred by FAS for extraordinary
activities either requested by Client Company or authorized by Client Company
to be performed during the implementation or administration of the Products or
otherwise in performance of the Services.
3.03 Renewal Terms. For each Renewal Term, FAS shall be entitled to
receive the same fees and charges as for the prior term, unless new fees and
charges have been agreed upon in writing by the parties by amendment to Exhibit
C prior to commencement of such term. Not fewer than onetwo hundred and twenty
(120) days prior to the end of any term hereof, FAS shall give Client Company
written notice via certified or registered mail if FAS intends, effective at
the start of the next Renewal Term, to increase its fees or charges to Client
Company. Any increase in the fees shall occur no more than one(1) time per year
at the commencement of each Renewal Term and shall be limited to a maximum of
ten percent (10%). Unless Client Company elects not to renew this Agreement,
or the parties otherwise agree in writing, such written notice shall be deemed
an amendment to Exhibit C
3.04 Late Payment. Payment terms hereunder are net thirty (30) days from
receipt of an invoice with interest at one and one half (1-1/2%) percent per
month (but in no event more than the highest interest rate allowable by law)
assessed on all amounts due and owing more than thirty (30) days; provided,
however, that Client Company shall not be obligated to pay interest to FAS on
an overdue amount unless FAS provides notice to Client Company of such overdue
amount, and Client Company has not made payment to FAS within ten (10) business
days after Client Company's receipt of such notice. In addition, Client
Company shall pay FAS' costs of collection, including, without limitation,
reasonable attorneys' fees and court costs.
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF FAS
FAS represents and warrants to Client Company as follows:
2
<PAGE> 3
4.01 Organization; Standing. FAS is a corporation duly organized, validly
existing and in good standing under the laws of the State of Connecticut.
4.02 Authority. FAS has the requisite corporate power and authority to
execute and deliver this Agreement and to provide the Services contemplated
hereunder. The execution and delivery of this Agreement and the performance of
the Services have been duly approved and authorized by FAS' Board of Directors.
No additional corporate action is required to authorize FAS to execute and
deliver this Agreement or to perform the Services.
4.03 No Violation. Neither the execution and delivery of this Agreement
nor the provision of the Services will conflict with or violate: (a) any
provision of FAS' certificate of incorporation or bylaws; (b) any applicable
law, rule or regulation; or (c) the terms of any contract to which FAS is a
party.
4.04 No Viruses. FAS will take reasonable precautions to guard against,
detect and alert Client Company to, and remedy, any known "virus" or "worm" (as
such terms are understood in the computer industry) which may invade the FAS
System and any enhancements or updates thereto
4.05 Year 2000 Systems Compliance. FAS represents and warrants that
time-appropriate date codes, internal programs and all other aspects of systems
support software will continue to operate beyond December 31, 1999 (the
"Millenium Date Change") with at least the same level of functionality and
accuracy provided prior to the Millenium Date Change. In the event of any
decrease in functionality or accuracy such that the systems support software
fails to operate beyond the Millenium Date Change with at least its
pre-existing functionality and accuracy, FAS shall promptly restore such
functionality and/or accuracy without charge to Client Company.
4.06 No Claims. There are no actions, suits, proceedings or investigations
commenced or threatened against FAS that would materially adversely affect its
provision of Services.
4.07 TPA. FAS is duly licensed as a TPA, adjuster and insurance consultant
in all applicable jurisdictions.
4.08 Rights to Software. FAS owns or holds the right to develop, use and
license all software used in connection with the Services free of any liens,
claims or encumbrances of third parties.
4.09 Licenses. FAS covenants to maintain the necessary licenses from
regulators and licenses from software and systems providers throughout the term
of this Agreement.
4.10 Services. FAS will provide all services hereunder in a good and
workmanlike manner, and shall perform according to the standards outlined in
Exhibit D.
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF CLIENT COMPANY
Client Company represents and warrants to FAS as follows:
5.01 Organization; Standing. Client Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
5.02 Authority; Compliance. Client Company has the requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
approved and authorized by Client Company's Board of Directors. No additional
corporate action is required to authorize Client Company to execute and deliver
this Agreement or to consummate the transactions contemplated hereby. All of
the prospectuses, policies, literature, advertising and other materials and
forms heretofore or hereafter provided to FAS by Client Company
3
<PAGE> 4
have been, or at the time of delivery, shall have been, approved by all
regulatory authorities whose approval is needed and filed with all regulatory
authorities with whom such filings are required and are, or at the time of
delivery shall be, and shall remain in material compliance with all applicable
federal, state and local laws and regulations. All data and other information
supplied to FAS by Client Company was and will be materially true and correct
when supplied and Client Company will promptly update such data and information
in writing to FAS when it becomes materially erroneous or misleading.
5.03 No Violation. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated herein, conflict with or
violate: (a) any provision of Client Company's certificate of incorporation or
bylaws; (b) any applicable law or regulation; or (c) the terms of any material
contract to which Client Company is a party.
5.04 Authorized Representatives. Those persons identified in Schedule 5.04
hereto, as amended from time to time, as well as any Vice President or the
President of Client Company (all of the foregoing collectively, "Client
Company's Authorized Representatives"), are authorized to act for Client
Company with respect to matters involving this Agreement and FAS shall be
entitled to rely on their written instructions without further inquiry.
ARTICLE VI: RESPONSIBILITIES OF FAS
6.01 General. FAS shall perform the Services upon the terms and conditions
set forth herein. To facilitate its performance of the Services, FAS shall
maintain its facilities, equipment and systems (such facilities, equipment and
systems collectively, the "FAS System") in good operating condition. FAS
shall, nevertheless, have the right, at any time, and from time to time, to
alter or modify any system, programs, procedures or facilities used or employed
in performing its duties and obligations hereunder, provided that no such
alteration or modification shall, without the consent of Client Company, which
consent shall not be unreasonably withheld, materially change or affect the
operations and procedures or materially increase costs or result in any
degradation of the performance level of the Services of Client Company in using
or employing the FAS System hereunder.
6.02 Security. In the performance of the Services, FAS shall establish and
maintain facilities and procedures, including disaster recovery procedures, for
the safekeeping of policy forms, check forms and facsimile signature imprinting
devices, if any, and all documents, reports, records, books, files and other
materials relative to this Agreement. A description of such facilities and
procedures is available to Client Company upon request. FAS may amend, modify,
replace or eliminate any of such facilities or procedures from time to time
provided no such action would jeopardize the quality and security of its
administration of the Products or its performance of the Services. FAS
represents and warrants to Client Company that such facilities and procedures
are adequate to protect the confidentiality of Client Company materials.
6.03 Compliance. Provided Client Company timely informs FAS of changes in
laws or regulations that impact the administration of the Products, FAS shall,
within a commercially reasonable period, modify the FAS System to the extent
required in order to assure that its administration of the Products, including
the reports, data and output produced in the course of such administration,
remains in compliance with such amended laws and regulations.
6.04 Account Information Transfers. FAS shall be responsible for ensuring
the integrity and accuracy of the account information and accounting reports
transferred by FAS to Client Company except to the extent any inaccuracies are
directly attributable to Client Company.
4
<PAGE> 5
ARTICLE VII: RESPONSIBILITIES OF CLIENT COMPANY
7.01 General. Client Company shall, in a timely fashion, provide FAS with
all materials and information necessary for the timely and proper
administration of the Products, including, but not limited to: policy forms;
lists of all agents and representatives authorized to sell the Products,
including their respective states of license; rate books; cash value and
reserve factors; data records; actuarial support; mortality rates; and verified
client files or facsimile thereof, such as microfilm or microfiche. Client
Company shall also be responsible for providing FAS with any Product-specific
actuarial and legal support needed in order for FAS to fulfill its policy and
agent administration and financial reporting responsibilities under this
Agreement, including, without limitation, those items identified in Section
7.04.
7.02 Lockboxes. Client Company, after consultation with FAS, shall
establish such lockbox or lockboxes (at Client Company's expense) as may be
reasonably required by FAS in order to administer the Products and provide the
Services.
7.03 Representatives. Client Company shall immediately provide FAS with
written notice of any change in the nature or extent of the authority of and
the identity of Client Company's Authorized Representatives and of additions or
deletions to the list in Schedule 5.04 of such representatives.
7.04 Data Input.
(a) To enable Client Company to prepare its valuation reports, FAS
shall provide Client Company with such information extracted from Client
Company's data base as Client Company reasonably requests. Client Company
shall be responsible for the actual calculation of required reserves.
(b) To enable FAS to provide accounting reports to Client Company
through FAS' General Ledger System, Client Company shall be responsible for:
(i) defining the accounts to be used by the General
Ledger System that produces the accounting reports;
(ii) assigning Client Company's account numbers to the
accounts in the General Ledger System; and
(iii) verifying the accuracy of the Chart of Accounts,
accounting reports and accounting procedures prior to FAS' running thereof in
live production.
7.05 Compliance. To enable FAS to amend the FAS System so that its output
complies with all applicable laws and regulations, Client Company shall
promptly inform FAS in writing of all changes in such laws or regulations that
affect any of the Products.
ARTICLE VIII: INDEMNITY
In addition to any rights and remedies available under other provisions of this
Agreement, and subject to the limitations contained in Sections 8.03 and 11.06,
the parties shall have the following rights and obligations.
8.01 By Client Company. Except as otherwise expressly provided in this
Agreement, Client Company shall indemnify and hold FAS and its affiliates
harmless from and against any and all actual liabilities, losses and damages
incurred, expenses reasonably incurred (including reasonable fees of attorneys
and
5
<PAGE> 6
other professional advisors and of expert witnesses) and judgments, settlements
and court costs (all of the foregoing being referred to collectively
hereinafter as "Damages and Claims") which Damages and Claims arise out of or
are attributable to:
(a) the performance by FAS of any of its obligations pursuant to this
Agreement, including provision of the Services, provided such
performance does not constitute gross negligence, willful or
criminal misconduct or intentional non-performance;
(b) Client Company's material breach of any representation or warranty
under Article V or of any covenant under Article VII, X or XI;
(c) Client Company's failure to properly safeguard the codes and/or
passwords, if any, provided to implement Article XI, its failure
to properly safeguard the information obtained pursuant to such
article, and any acts or omissions of Client Company in its use of
the information so obtained, including, without limitation,
erroneous eligibility or claim coverage determination;
(d) FAS' reliance to the material detriment of FAS on or use of
information, rate books, cash value and reserve factors, data,
records, documents or other information or materials received by
FAS from Client Company, including, without limitation,
Product-specific actuarial and legal advice; and
(e) FAS' reliance on or implementation of any written instructions
provided by any of Client Company's Authorized Representatives.
8.02 By FAS. Except as otherwise expressly provided in this Agreement, FAS
shall indemnify and hold Client Company and its affiliates harmless from and
against any and all Damages and Claims which arise out of or are attributable
to FAS':
(a) gross negligence, willful or criminal misconduct or
intentional non-performance in providing the Services and performing its other
obligations under this Agreement;
(b) material breach of any representation or warranty under
Article IV or of any covenant under Article VI or X; and
(c) failure to implement timely and fully any reasonable written
instructions by Client Company's Authorized Representatives pursuant to Section
5.04, unless such instructions were inconsistent with the terms of this
Agreement or amounted to a unilateral amendment of such terms or such failure
was otherwise reasonable under the circumstances.
(d) System or Software Components for infringement of any patent
of a third party or any trademark, servicemark, copyright, proprietary rights
or other intellectual property rights of any kind of any third party,
including, without limitation, the misappropriation of a trade secret. In the
event of a intellectual property infringement claim against the FAS System or
Software Components, FAS shall, at its option and own expense, either procure
for Client Company the right to continue using the FAS System or Software
Components or modify them so that they become non-infringing to the extent it
is commercially reasonable to do so. In the event FAS is unable to perform
either of these options within a commercially reasonable time period, then
Client Company shall have the right to terminate this Agreement immediately
upon notice to FAS.
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8.03 Limitations on Liability.
(a) In the event FAS is unable at any time to perform its
obligations under this Agreement because of strikes, equipment or transmission
failure or damages, or other causes beyond its reasonable control, FAS shall
not be liable for any resulting Damages and Claims, even if advised of the
probability of their occurrence.
(b) In the event of an error, omission or delay in any record,
report, data, information or output prepared by or on behalf of FAS in
performing its obligations under this Agreement, unless such problem resulted
from actions or inactions of Client Company, FAS shall use its reasonable best
efforts, at its expense, to promptly correct and reprocess such record, report,
data, information or other output, provided Client Company promptly notifies
FAS in writing of each such error or mistake. Provided it takes such
corrective action, then, unless such error, omission or delay was primarily the
result of FAS'gross negligence or willful or criminal misconduct, neither FAS
nor its affiliates shall have additional liability to Client Company or any
other person as a result of such error, omission or delay. Where any such
error, omission or delay results in an improper payment to any person, FAS,
upon notice thereof, shall promptly attempt to correct the improper payment,
but neither FAS nor any of its affiliates shall be liable to Client Company for
the amount thereof unless and except to the extent such error, omission or
delay constitutes or is primarily the result of FAS'gross negligence or willful
or criminal misconduct.
(c) FAS shall not have any responsibility for reserve reporting or
regulatory reporting other than to the extent expressly provided in this
Agreement. Under no circumstances shall FAS or its affiliates be liable for any
actuarial, personnel, processing or other expenses incurred by Client Company
related to reserve or regulatory reporting should Client Company decide to use
other than those systems and reports provided by FAS for this purpose.(d)
WHETHER OR NOT SUCH DAMAGES AND CLAIMS ARE FORESEEABLE AND WHETHER OR NOT THE
PERSON FROM WHOM INDEMNIFICATION WILL BE SOUGHT HAS BEEN ADVISED OF THE
POSSIBILITY THEREOF, IN NO EVENT SHALL EITHER PARTY OR ITS AFFILIATES BE LIABLE
TO THE OTHER PARTY OR ITS AFFILIATES FOR PUNITIVE DAMAGES OR FOR ANY DAMAGES AND
CLAIMS THAT ARE INDIRECT, SPECIAL OR CONSEQUENTIAL (INCLUDING, BUT NOT LIMITED
TO, LOST PROFITS OR LOST BUSINESS REVENUE, LOST BUSINESS, FAILURE TO REALIZE
EXPECTED SAVINGS OR OTHER SIMILAR COMMERCIAL OR ECONOMIC LOSS OF ANY KIND
WHATSOEVER).
(e) Anything in this Agreement to the contrary notwithstanding,
the aggregate liability of FAS and its affiliates for all Damages and Claims
pursuant to all proceedings brought or claims made during the term of this
Agreement and thereafter based on, arising out of or otherwise relating to this
Agreement or the Services, shall be limited to one-half of the aggregate fees
(exclusive of reimbursement for expenses) earned by FAS hereunder (irrespective
of when received) during the twelve (12) calendar month period preceding the
date such proceeding is first instituted or claim is first made, but if
instituted or made after termination of this Agreement, then during the twelve
(12) months immediately preceding such termination. The amount payable to
Client Company by FAS or its affiliates for any such Damages and Claims shall
be reduced by: (i) any sums owed to FAS by Client Company for Services already
performed; (ii) any sums paid on behalf of FAS by its insurance carrier to
Client Company or to the order of Client Company or that reduce Client
Company's liabilities to third parties in respect of such Claims and Damages.
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ARTICLE IX: STANDARD OF CARE
9.01 General. FAS agrees that in providing Services under this Agreement it
shall (i) comply with the Standards for FAS Team processing Environment set
forth in Exhibit D, (ii) conduct itself in accordance with all reasonable
commercial and professional standards of care, diligence, and good faith,
provide that such standards must be consistant with prudent management
practices in the variable life insurance industry generally, and shall
generally act in such a way as to preserve the goodwill toward Client Company
on the part of the general public, customers and all those having business
relations with Client Company and (iii) comply with all laws, regulations and
contracts in its administration of the Products and its provision of the
Services, except that insofar as such laws, regulations and contracts are
product-related, FAS shall only be obliged to comply therewith in a timely
fashion, and only if and to the extent Client Company has notified FAS thereof
in writing sufficiently in advance of their effective date to reasonably enable
FAS to amend the FAS System. FAS agrees at all times to maintain sufficient
facilities and trained personnel of the kind necessary to perform its
obligations under this Agreement. In addition, to the extent consistent with
such laws, regulations and contracts, including this Agreement, FAS shall
follow any written instructions of Client Company's Authorized Representatives,
provided such instructions are reasonable under the relevant facts and
circumstances.
9.02 Status of Personnel and Facilities. Whenever FAS utilizes its
employees to perform Services for Client Company pursuant to this Agreement,
such personnel shall at all times remain employees of FAS subject solely to its
direction and control, and FAS shall alone retain full liability to such
employees for their welfare, salaries, fringe benefits, legally required
employer contributions and tax obligations. No facility of FAS used in
performing Services for or subject to use by Client Company shall be deemed to
be transferred, assigned, conveyed or leased by such performance or use
pursuant to this Agreement.
9.03 Exercise of Judgment in Rendering Services. In providing any Services
hereunder that require the exercise of judgment by FAS, FAS shall perform any
such Service in accordance with the standards set forth herein and any
additional guidelines Client Company develops and communicates to FAS.
9.04 Fiduciary Account.
(a) All insurance charges or premiums collected by FAS on behalf
of Client Company pursuant to this Agreement and/or returned premiums received
from Client Company shall be held by FAS hereunder in a fiduciary capacity.
FAS shall promptly remit all such funds to the person entitled to them or
promptly deposit them in a segregated fiduciary bank account established and
maintained for the benefit of Client Company for such purpose. FAS shall make
withdrawals from any such fiduciary account only for the following purposes:
(a) remittance to Client Company; (b) deposit into an account owned by Client
Company; (c) transfer or deposit to a claims paying account established by FAS
for the benefit of Client Company; (d) payment to an insured; or (e) remittance
of returned premiums to the person or entity entitled to them. FAS shall
require the bank in which the fiduciary account is maintained to keep records
clearly recording the deposits and withdrawals from such account in a fashion
that clearly distinguishes such deposits and withdrawals from those of any
other person. FAS shall not pay any claims from this account.
(b) All claims paid by FAS from funds collected on behalf of
Client Company shall be paid only on drafts of, and as authorized by, Client
Company.
(c) Payment to FAS of any premiums or charges for insurance by or
on behalf of any insured shall be deemed to have been received by Client
Company, and returned premiums or claim payments forwarded by Client Company to
FAS shall not be deemed to have been paid until such payments are received by
the insured or claimant. Nothing contained in this Section 9.04(c) limits any
right of Client
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Company against FAS resulting from the failure of FAS to make payments to
Client Company or Client Company's insureds or claimants.
9.05 Reports. In the preparation of any reports pursuant to this
Agreement, FAS shall have no responsibility for making actuarial or legal
determinations concerning the Products or other materials supplied by Client
Company and shall be entitled to assume that all such items are legally and
actually sufficient. FAS shall, however, prepare such reports in accordance
with section 9.01.
ARTICLE X: CONFIDENTIALITY
10.01 By FAS. FAS acknowledges that all correspondence, documents, reports,
records, books, files and other materials relative to Client Company, it
business, its policyholders or the Products, whether supplied by or for Client
Company or prepared by FAS, shall be the sole property of Client Company and
that such property shall be held by FAS as agent during the term of this
Agreement. Except as provided below, all information furnished by Client
Company to FAS hereunder is confidential and neither FAS nor any of its
affiliates, agents or representatives shall disclose any such information,
directly or indirectly, to any third party except to the extent required by law
to make such disclosure; and, in the case of FAS, to the extent necessarily
resulting from provision by any of FAS' affiliates of services required by FAS
in order to perform its obligations under this Agreement. Upon termination of
this Agreement, FAS shall promptly transfer to Client Company all such
correspondence, documents, reports, records, books, files and other materials
at the expense of Client Company.
10.02 By Client Company. Client Company acknowledges that: (a) FAS and
certain other persons have proprietary rights in and to the FAS System; and (b)
that the FAS System constitutes and/or contains confidential material and trade
secrets of FAS, its affiliates or unrelated persons. Accordingly, Client
Company agrees to maintain the confidentiality of the FAS System. Further,
Client Company acknowledges that this Agreement in no way gives Client Company
any rights in or to the FAS System.
10.03 By Both Parties. Both parties acknowledge that this Agreement and the
attached Exhibits and Schedules are confidential and proprietary and that the
terms thereof shall not be shared with any person other than those persons who
have a need to know in order to enable Client Company or FAS to perform their
obligations under this Agreement and which persons are employees, advisors,
representatives or agents of Client Company, FAS or the affiliates of either;
provided that any such advisors, representatives or agents have signed
confidentiality acknowledgements consistent with the provisions of this Article
X before they have access to any such confidential information.
10.04 Exceptions. Anything herein to the contrary notwithstanding, the
following information shall not be deemed confidential for purposes of this
Article:
(a) information which is already public knowledge or becomes
generally available to the public other than as a result of a disclosure by the
party alleged to have violated this Article;
(b) information which is lawfully acquired by a party on a
non-confidential basis from a source (other than the other party to this
Agreement); or
(c) information that the disclosing party authorizes the receiving
party to disclose to third parties by prior written authorization; or
(d) information that is ordered to be disclosed by a court,
administrative agency, or other governmental body with jurisdiction over the
parties, provided that the ordered party will first have provided the
disclosing party with prompt written notice of such required disclosure and
will take
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reasonable steps to allow the disclosing party to seek a protective order with
respect to the confidentiality of the information required to be disclosed.
The ordered party will promptly cooperate with and assist the disclosing party
in connection with obtaining such protective order, at the disclosing party's
expense.
10.05 Injunctive Relief. Both parties acknowledge that the breach of this
Article X by either of them could cause the non-breaching party irreparable
harm not compensable by monetary damages. Accordingly, the parties agree that
the breach or threatened breach of this Article X by either of them shall
entitle the non-breaching party to injunctive relief, in addition to any other
available remedies.
10.06 Publicity. Notwithstanding the provisions of Section 14.12, neither
FAS nor Client Customer shall directly or indirectly, by inference or
otherwise, use any name, mark, logo or other identifier of the other party in
any manner, or permit any third party to do so, without such other party's
prior written consent. Without limiting the generality of the foregoing,
neither FAS nor Client Company will, without the prior written consent of the
other party, use in any advertising, publicity or other promotional endeavor,
any name, mark or logo of such other party, or represent, directly or
indirectly, by inference or otherwise, that Client Company has retained FAS, or
that FAS has been retained by Client Company, to perform the Services.
ARTICLE XI: COMPUTER ACCESS
11.01 Authorization. Provided both parties hereto have authorized such
access by signing in the space therefor on the signature page hereof, and
subject to the terms and conditions set forth below, Client Company shall be
entitled to obtain access on a "view only" basis (i.e., Client Company may not
alter any data) to all data relating to the Products (the "Information") which
is maintained on the computer(s) utilized by and on behalf of FAS in providing
the Services to Client Company pursuant to this Agreement ("System Access").
11.02 Availability. Client Company's access to such data shall be limited
to Mondays through Fridays, exclusive of holidays, between the hours of 8 a.m.
and 5 p.m., Hartford, Connecticut time. FAS retains the right, however, to
limit or otherwise change those hours at any time and for any reason with prior
consent of Client Company, which consent shall not be unreasonably withheld.
Furthermore, FAS makes no representations or warranties as to the ability of
Client Company to successfully utilize System Access at any given time, in
light of the fact that computer facilities suffer occasional "down time" but
FAS shall provide reasonable advance notice of any scheduled "down time." For
all of the foregoing reasons, FAS SHALL HAVE NO LIABILITY TO CLIENT COMPANY OR
ANY OTHER PERSON AS A RESULT OF ANY SUCH PERSON'S INABILITY TO UTILIZE SYSTEM
ACCESS AT ANY TIME OR FOR ANY REASON, EXCEPT FOR THE INTENTIONAL AND WRONGFUL
NON-PERFORMANCE OR WILLFUL MISCONDUCT OF FAS.
11.03 Restrictions on Use. Client Company shall take no actions to affect
or modify System Access, the Information or any of the hardware or software
utilized by or on behalf of FAS in conjunction with System Access. Use of
System Access to view data shall be made only through means and codes
authorized by FAS hereunder or pursuant hereto, which means and codes Client
Company agrees not to divulge to any person other than those of its employees,
consultants or clients it wishes to have use System Access. Neither FAS nor
any of its affiliates shall have responsibility for determining whether a
person with the proper procedures and codes to utilize System Access was
properly authorized to do so by Client Company.
11.04 Modification. FAS shall have the right to modify or cause the
modification of the System Access program from time to time at its sole
discretion without prior notice to Client Company, so long as there is no
adverse impact on the business of Client Company or any degradation in the
performance level of the Services. FAS shall expeditiously inform Client
Company of any such modifications.
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11.05 Security. In the event that Client Company suspects a possible breach
of security with respect to System Access including, without limitation, any
unintended disclosure of codes, or Client Company obtains Information through
System Access on any person other than its own policyholders, then Client
Company shall immediately notify FAS of such circumstances by telephone,
followed by a confirmation in writing, specifying the nature of the problem.
11.06 Limitation of Liability. NEITHER FAS ANY OF ITS AFFILIATES OR CLIENT
COMPANY SHALL BE LIABLE TO THE OTHER FOR ANY DAMAGES (EXCEPT DIRECT DAMAGES) OR
CLAIMS ARISING OUT OF OR IN CONJUNCTION WITH THE PARTICIPATION BY CLIENT
COMPANY OR ANY OF ITS CLIENTS OR CLIENT COMPANY POLICY HOLDERS IN SYSTEM
ACCESS, INCLUDING, WITHOUT LIMITATION, ANY INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY THEREOF.
11.07 Internet Access. FAS acknowledges that Client Company is developing
an internet web site ("Site"), the purpose of which will be to, among other
things, (a) provide general information about Client Company and its products,
(b) allow registered representatives, policy holders, and the general public to
access information regarding variable account unit values and fixed account
interest rate offerings, and (c) allow policy holders to access values and
other information regarding their own contracts and make investment allocation
and other changes. FAS agrees to cooperate with Client Company, and any third
party the Client Company has engaged to develop an electronic interface to
provide information they may need to develop the Site including, but not
limited to, variable and fixed account values, contract values, and registered
representative database information. Furthermore, FAS agrees that it will
accept service requests via the Site and the internet to the extent Client
Company has built the capability into the Site and to the extent policy
holders, registered representatives, and the public actually use it for its
intended purposes.
ARTICLE XII: ACCESS
12.01 By Client Company. Upon reasonable notice to FAS, Client
Company shall have access, during normal business hours, to all documents,
records, books, files and other materials relative to this Agreement and
maintained by FAS, subject to Client Company's adherence to FAS' security
practices and procedures.
12.02 Auditors and Regulators. Client Company and its duly authorized
independent auditors shall have the right upon reasonable notice to FAS and at
reasonable frequencies (it being agreed by FAS that semi-annually is
reasonable) during FAS' normal business hours to perform on-site examinations,
inspections and audits of records and accounts directly pertaining to the
Products. At the request of Client Company, FAS shall make available to Client
Company's auditors and to representatives of regulatory agencies, all
reasonably requested records in its custody relating to Client Company, as well
as access to FAS' operating procedures and premises.
12.03 Records Retention. FAS agrees to maintain in its principal
administrative office and make available to Client Company complete books and
records of all transactions by and among FAS, Client Company and Client
Company's insureds. The books and records of all such transactions shall be
maintained in accordance with prudent standards of insurance record keeping and
shall be maintained for
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the duration of this Agreement and for a period of not less than seven (7)
years thereafter. At the end of such period, FAS shall notify Client Company
that it intends to destroy all such records unless, within thirty (30) days of
receipt of such notice, Client Company makes arrangements, at its expense, for
the packaging, pick-up and delivery of such records to a destination of its
choosing, which arrangements are reasonably satisfactory to FAS. Any trade
secrets contained in such books and records, including, but not limited to, the
identity and addresses of policyholders and certificate holders, are
confidential. The foregoing notwithstanding, the Commissioner of Insurance or
similar regulator in any jurisdiction may have access to such books and records
for the purpose of examination, audit, inspection and use in any investigation
or other proceeding instituted against either party, provided such access is
limited to the specific materials requested by such regulator.
ARTICLE XIII: TERMINATION
13.01 At End of Term. If Client Company wishes not to renew this Agreement,
it may do so effective as of the end of the then current term, but only if it
gives FAS 90 days' written notice of such non-renewal, accompanied by a fee
equal to the total fees payable by the Client Company to FAS during the two (2)
preceding calendar months, such additional two months' fee to be applied
against any sums which would otherwise be payable to FAS under this Agreement
for the last two (2) months of the then current term. Failure to make this
payment shall be grounds for FAS to terminate this Agreement immediately.
13.02 Late Payment. If Client Company has not made a payment of fees and
charges pursuant to Section 3.01 within [ten (10)] days of the date on which
such charges were due, FAS may give notice to Client Company of such
non-payment. At any time after the expiration of thirty (30) days following
the giving of such notice by FAS to Client Company, FAS may terminate this
Agreement if, at such time, such fees and charges referred to in such notice
remain due and unpaid by Client Company.
13.03 Other Defaults; Bankruptcy. If either of the parties (the "Defaulting
Party") hereto materially breaches this Agreement or is materially in default
in the performance of any of its duties and obligations hereunder (other than
Client Company's obligations of payment under Section 3.01), the other party
hereto may give written notice thereof to the Defaulting Party and if such
default or breach shall not have been remedied to the non-defaulting party's
reasonable satisfaction within thirty (30) days after such written notice is
given, the non-defaulting may terminate the Agreement effective upon the giving
of notice of such termination to the Defaulting Party. At its option, either
party hereto may also terminate this Agreement without prior notice and be
relieved of its obligations under this Agreement in the event the other party
experiences an Event of Bankruptcy, as defined in Article 14.
13.04 Termination by Mutual Consent. This Agreement may be terminated at any
time during its term upon the mutual written consent of both parties hereto.
13.05 Continued Services. Section 13.03 notwithstanding, if FAS elects to
terminate this Agreement for other than non-payment of fees and charges and if
Client Company shall so request in writing and shall pre-pay the anticipated
fees for continuation of the Services, FAS shall continue to provide the
Services for such period of time as Client Company may request, not to exceed
three (3) months following that date on which this Agreement would otherwise
have terminated, such service to be provided in accordance with the terms of
this Agreement, but at one hundred twenty-five (125) percent of the fees in
effect with respect thereto for the term immediately preceding such three-month
period. In the
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event that the Agreement is terminated for any reason, FAS shall offer
reasonable assistance to Client Company in converting the records of Client
Company from the FAS System to whatever service or system selected by Client
Company to replace the FAS System (subject to reimbursement to FAS for such
assistance at its standard, published rates and fees at that time).13.06
Non-Waiver. Termination of this Agreement due to default or breach by Client
Company shall not constitute a waiver of any rights of FAS in reference to
Services performed prior to such termination or of any rights of FAS to be
reimbursed for expenditures. Termination of this Agreement due to default or
breach by FAS shall not constitute a waiver by Client Company of any rights it
might have under this Agreement.
ARTICLE XIV: MISCELLANEOUS
14.01 Assignment. Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party hereto without the prior written
consent of the other, which consent shall not be unreasonably withheld. The
foregoing notwithstanding, in the event of its merger FAS' rights and
obligations hereunder may be assigned to the succeeding entity by operation of
law without Client Company's prior written approval. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns.
14.02 Dispute Resolution.
(a) The parties to this Agreement understand and agree that the
implementation of this Agreement will be enhanced by the timely and open
resolution of any disputes or disagreements between such parties. Each party
hereto agrees to use its best efforts to cause any disputes or disagreements
between such parties to be considered, negotiated in good faith and resolved as
soon as possible.
(b) It is the intention of the parties hereto that customs and
usages of the business of life insurance shall be given full effect in the
interpretation of this Agreement other than to the extent the unique aspects of
the transaction render such customs and usages inapplicable. The parties
hereto shall act in all things with the highest good faith. Any dispute or
difference with respect to the operation or interpretation of this Agreement on
which an amicable understanding cannot be reached shall be submitted to
arbitration in accordance with the then current Rules of the American
Arbitration Association, and such arbitration shall be mandatory and binding.
The arbitrators shall be free to considerations relating to equity and
customary practices of the life insurance industry in their consideration of
the legal issues involved.
(c) The arbitration shall be held in Stamford, Connecticut and
shall consist of three arbitrators. Client Company shall appoint one arbitrator
and FAS the second. Such Arbitrators shall then select the third arbitrator
before arbitration commences. The arbitrators appointed by the parties shall in
good faith endeavor to select for the third arbitrator a person who is either
an active or retired executive officer od a life insurance company, data
processing comapany or third-party providor.
(d) Decisions of of the arbitrators shall be by majority vote.
The cost of arbitration, including the fees of the arbitrators, shall be borne
as the arbitrators shall decide. Judgment on any award granted by the
arbitrators may be entered in a Federal court of competent jurisdiction located
in Stamford, Connecticut.
14.03 Remedies. The remedies provided for in this Agreement are the sole and
exclusive remedies available to the parties hereto for: (a) any Damages and
Claims based upon, arising out of or otherwise relating to this Agreement and
the transactions contemplated hereunder; and (b) for any breach or threatened
breach of this Agreement.
14.04 Independent Contractor. It is understood and agreed that the Services
are performed hereunder by FAS as an independent contractor and not as an
employee or partner of Client Company, and nothing
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contained in this agreement shall be construed to create the relationship of
joint venture or partnership between FAS and Client Company.
14.05 Definitions. For purposes of this Agreement:
(a) "affiliate" shall mean a person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with another Person or beneficially owns or has the power to
vote or direct the vote of twenty-five percent (25%) or more of any class of
voting stock (or of any form of voting equity interest in the case of a person
that is not a corporation) of such other person. For purposes of this
definition, "control", including the terms "controlling" or "controlled", means
the power to direct or cause the direction of the management and policies of a
person, directly or indirectly, whether through the ownership of securities or
partnership or other ownership interests, by contract or otherwise.
(b) "insured" means a person who has a contract with Client
Company for any of the Products;
(c) the terms "Products", "certificate", "certificates",
"contract" and "contracts" are interchangeable where appropriate and refer to
the primary coverage documents for each insured and not to Master Policy(ies)
or other agreements that govern the insurance coverage of each group;
(d) "person" means a natural person, corporation, limited
liability company, partnership, association, joint stock company, governmental
entity, business trust, unincorporated organization or other legal entity; and
(e) "Event of Bankruptcy" has the meaning set forth in Schedule
14.05(d).
14.06 Entire Agreement; Amendment. This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior agreements with
respect to the subject matter hereof, whether oral or written. Except as
otherwise expressly provided in this Agreement, this Agreement, including the
Exhibits and Schedules hereto, may not be modified and no provision hereof may
be waived except in a written instrument executed by both of the parties
hereto. The waiver by either party hereto of any provisions of this Agreement
on any one or more occasions shall not be construed to constitute a waiver of
that or any other provision on any other occasion.
14.07 Survival. The representations, warranties, covenants and obligations
contained herein shall survive the execution of the Agreement and the
performance of the Services hereunder.
14.08 Governing Law. This Agreement shall be governed by the laws of the
State of Connecticut without giving effect to conflicts of law principles.
14.09 Exhibits and Schedules. The Exhibits and Schedules hereto, including
any agreed upon amendments thereto, shall be deemed a part of this Agreement as
fully and effectively as set forth in full in the body of this Agreement. The
terms used in the Exhibits and Schedules shall have the same meaning as such
terms have in this Agreement, unless the contrary intention is clearly
manifested in such exhibits or schedules.
14.10 Severability. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
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14.11 Approval of Advertising and Marketing Materials. In performance of
the Services, FAS may use only such advertising and marketing materials
pertaining to the Client Company, the products or otherbusiness underwritten by
Client Company that are approved by Client Company in advance of its use.
14.12 Additional Requirements in Certain States.
(a) Client Company acknowledges its responsibility to cooperate in
registering FAS as an administrator in certain states in which Client Company
conducts business, including, in some cases, completing and authorizing a
Certificate of Registration and a surety bond (if required, attached as Exhibit
E).
(b) In those states for which such is required, FAS will provide a
written notice, approved by Client Company, to insureds advising them of the
identity of and relationship among FAS, the policyholder and Client Company,
and/or of whatever other matters, applicable laws and regulations may from time
to time require.
(c) With respect to insureds resident in states requiring such,
FAS, in connection with the collection of funds for Client Company, shall
identify and separately state in writing to the persons paying any charge or
premium for coverage, the amount of any such charge or premium specified by
Client Company for such coverage.
14.13 Notice. All notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed duly given upon delivery if
personally delivered, upon confirmation of transmission by sending machine if
sent by facsimile, upon the third business day after mailing if sent by
registered or certified mail, postage prepaid, and upon receipt if sent by
reputable courier, as follows, or to such other address or persons either party
may designate to the other party hereunder:
If to Client Company, to:
Sage Life Assurance Company of America, Inc.
300 Atlantic Street, Suite 302
Stamford, CT 06901
Attention: Mr. Robin I. Marsden
Telephone: (203) 324-6338
Facsimile: (203) 324-6173
with a copy to:
Sage Group Limited
Sage Centre
10 Fraser Street
Johannesburg, South Africa
Attention: Mr. H. Louis Shill
Telephone: 011-27-11-337-5550
Facsimile: 011-27-11-834-1910
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If to FAS to:
Financial Administrative Services, Inc.
1290 Silas Deane Highway
Wethersfield, Connecticut 06109-4303
Attention: Ms Belinda Monat
Telephone: (860) 513-6075________
Facsimile: (860) 513-6079 ________.
14.14 No Third Party Beneficiaries. Except as otherwise specifically
provided for herein, nothing in this Agreement is intended or shall be
construed to give any person, other than the parties hereto, their successors
and permitted assigns, any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision contained herein.
14.15 Right to Contract with Third Parties. Nothing herein shall be deemed
to grant FAS an exclusive right to provide services to Client Company, and
Client Company retains the right to contract with any third party, affiliated
or unaffiliated, for the performance of services other than the Services as are
available to or have been requested by Client Company pursuant to this
Agreement, whether for the Products or other products of the Client Company.
Likewise, nothing herein shall be deemed to grant Client Company an exclusive
right to utilize FAS' services, and FAS retains the right to contract with any
third party, affiliated or unaffiliated, for the performance of services.
14.16 Cooperation. The parties agree to cooperate with each other in a
commercially reasonable manner in order that the duties assumed by the parties
under this Agreement may be effectively, efficiently and promptly discharged.
Each party shall at all reasonable times during normal business hours under the
circumstances make available to the other party properly authorized personnel
for the purpose of consultation and decision.
14.17 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties.
14.18 Force Majeure. Neither FAS nor Client Company shall be deemed to be
in default of this Agreement to the extent that the performance of its
respective obligations or attempts to cure any breach of this Agreement are
delayed or prevented by reason of an act of God, fire, electrical outage,
natural disaster, act of government, or any other cause beyond the control of
such party (each, an "Event"); provided, however, that the provisions of this
Section 14.18 shall be inapplicable with respect to FAS to the extent to which
the disaster recovery systems of FAS are or, under ordinary standards of due
care within the industry, should have been adequate and sufficient to avoid
such period of delayed or prevented performance.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers as of the date and year first above written.
SAGE LIFE ASSURANCE COMPANY OF AMERICA, INC.
Attest: By: ______________________________________
Its: ___________________________________________
FINANCIAL ADMINISTRATIVE SERVICES,
Attest: By: ______________________________________
Its: ___________________________________________
System Access authorized(1) effective as of ___________, _______ [to be
completed by FAS only]
FAS: By: ____________________________________________
Client Company: By: __________________________________
Date: ________________________________________________
__________________________________
(1) Not effective unless and until signed by both parties.
17
<PAGE> 18
EXHIBIT A
SERVICES
I. SET UP PHASE
A. STANDARD
1. Loading all appropriate plan parameters to establish
the Products in the FAS environment.
2. Implementation of the billing and premium collection
process,
3. Formatting and implementation of the Policyholders'
Annual Statement and any other client-specific forms.
4. Implementation of accounting.
5. Implementation of appropriate management reporting.
6. Development of Client Company-specific administrative
procedures and service levels.
B. OPTIONAL
1. Conversion of Policy records from current
administrative system(s).
II. ADMINISTRATIVE PHASE
A. Standard
1. COLLECTION OF PREMIUMS. FAS shall deposit all
premiums into a Client Company owned and controlled
lockbox. The deposits and accompanying data
respecting such lockbox shall be transmitted by the
bank to FAS. Upon receipt of this data, FAS shall
balance the collections to the bank deposit record
and enter such data into the administrative system,
credited to the insured's/annuitant's policy. FAS
shall also be responsible for:
- processing EFT premium payments;
- processing returned, unhonored checks and EFT
payments;
- processing change in EFT bank accounts;
- sending confirmation statements for the
Products;
- generating and mailing scheduled premium
payments;
1
<PAGE> 19
- generating and mailing guideline/MEC letters
for the Products violating the maximum
premium payment allowed; and
- generating and mailing lapse warnings/letters
for applicable life insurance.
2. PAYMENT OF COMMISSIONS. FAS is responsible for
entering the commission rates and agent information
provided by Client Company into the administrative
system. FAS is also responsible for generating
proper commission payments and commission statements
for all premium payments/deposits received and
applied to the Products. FAS shall promptly send
commission payments in accordance with the schedule
authorized by Client Company, by mail or EFT.
FAS shall also answer routine commission inquiries
from Client Company's Home Office and commission
payees (i.e., amount of commission, rate of
commission, status of commission).
FAS shall generate the 1099 MISC Tax Forms at year
end and file with the IRS for Client Company, or
transmit information to Client Company if the latter
prefers to handle this tax reporting.
3. WRITTEN COMMUNICATIONS. Policies, certificates,
booklets, termination notices or other written
communications delivered by Client Company to FAS for
delivery to Client Company's policyholders shall be
delivered by FAS promptly after receipt of
instructions from Client Company to do so.
4. POLICYHOLDER SERVICES. FAS shall answer routine
policyholder and agent calls to Client Company's
"800" number. Additionally, FAS shall respond to
written inquiries regarding particular policies.
Requests for address changes, beneficiary changes,
title changes, assignments and policy changes shall
be proceeded at FAS, using Client Company forms and
letters to confirm completion of requests.
Requests for policy disbursements shall be handled at
FAS. These include loans, partial withdrawals,
surrenders and exchanges. Client Company shall
assist in writing acceptable disbursement procedures
and providing company forms and form letters. FAS
shall verify the owner's signature for every
disbursement. Conservation efforts shall occur at
Client Company's Home Office. FAS shall generate and
mail the necessary 1099R tax forms for these
disbursements and file with the IRS on behalf of
Client Company, or provide Client Company with the
information needed to do this reporting if they
prefer to control the tax reporting.
2
<PAGE> 20
5. CLAIMS PAYMENT. FAS shall accept notification of a
pending claim, and:
- send a Client Company approved condolence
letter advising of requirements to consider
approval of the claim;
- notify Client Company's Claim Department of a
potential claim;
- process the claim, after Client Company
adjudicates the claim; and
- prepare the needed 1099 tax reports and file
with the IRS on behalf of Client Company, or
transmit the necessary information to Client
Company to do the reporting if the latter
prefers.
6. NEW BUSINESS ISSUES. FAS is responsible for entering
the applicable information from the applications into
the administration system, generating the policies
and "Welcome Kits", assembling and forwarding the
policies to the party designated by Client Company.
Any underwriting or suitability checks shall occur at
Client Company prior to FAS issuing any policies.
Follow up for outstanding life insurance requirements
is the responsibility of Client Company.
7. RECORD KEEPING. FAS shall maintain a complete policy
file on record, either in the form of a paper file or
microfiche. FAS shall provide Client Company with
copies of each policy file on either paper or
microfiche.
All production cycles, which include accounting
reports, quarterly/annual statements, and
confirmation statements shall be maintained at FAS on
a daily, chronological microfiche. Records shall be
maintained for a period of not less than seven (7)
years.
8. ACCOUNTING. FAS basic accounting support for Client
Company includes:
- setting up one (1) Chart of Accounts, as
submitted by Client Company;
- balancing the daily cycles for completeness
and accuracy;
- research and resolution of reconciling items
and
- for variable business:
- supporting investment options
relating to the Products;
- receiving unit values from Client
Company or NAVs from fund company
and calculating unit values;
- preparing and transmitting trade
sheets to Client Company;
- running the trade system; and
- preparing/posting M&E from the trade
system.
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<PAGE> 21
9. REPORT PRODUCTION. FAS shall provide the following
reports daily with respect to the prior day's
activities:
- ERROR REPORT. This report displays all
errors and warnings that occur on
transactions in the batch cycle.
- CONTROLS REPORT. This report is used to
balance the daily cycle activity. This
report shows the beginning value of each
fund, the effect of financial activity during
cycle on each fund and the balance of each
fund once the cycle is completed.
- FINANCIAL ACTIVITY. This report displays
detailed information on every transaction
processed or reversed in the last batch
cycle. This is based on policy number order.
- REMITTANCE REPORT. Similar to the Financial
Activity Report in format, this report
displays all payment transactions.
- WITHDRAWAL REPORT. Similar to the Financial
Activity Report in format, this report
displays all withdrawal transactions.
- SUSPENSE REPORT. This report produces:
- a detailed description of each item
on the Suspense file; and
- a summary of items by age
outstanding in the Suspense file.
- ISSUE REPORT. This report displays the age
in days from the application date of each
pending issue policy.
B. Optional (only provided if requested by Client Company; there
may be an additional charge)
1. ADDITIONAL 1035 FOLLOW UP. 1035 letters/follow up
can be done at FAS for an additional issue fee. For
1035 Exchanges lacking cost basis information, FAS
shall send a request to the original company and one
(1) follow up letter. For delivery receipts, FAS
shall send one (1) follow up letter and then send to
Client Company's Home Office for disposition if the
receipt is not obtained.
2. OTHER ACCOUNTING SERVICES. Other accounting services
that would be available for additional fees include:
4
<PAGE> 22
- preparing Client Company trades;
- preparing and completing wires;
- reconciling cash accounts/bank statements;
- balancing shares/units;
- setting up additional charts of account
submitted by Client Company; and
- providing support for additional investment
options.
3. ADDITIONAL REPORTS. Additional reports that can be
generated monthly upon request:
- NEW BUSINESS. This report lists policies
awaiting initial premium. In addition to the
company, policy number and policy effective
date, the expected premium is also reported.
Expected premium is the schedule billed
premium, not necessarily the balance of the
initial premium not yet received.
- PAID NEW BUSINESS. This report lists
policies that changed from pending initial
premium to active status during the reporting
period.
- AGENT NEW BUSINESS. This report list by
Agency/Agent policies awaiting initial
premium. Policy status, agency, agent,
company, policy number, application date and
last name are reported.
- ACTIVITY BY PRODUCT/PLAN/LOB. This report
details the financial activity by product
plan and line of business.
- ACTIVITY BY STATE. This report details the
financial activity by state, country, city
and plan.
- PREMIUM VS. ACCUMULATED VALUE. This report
provides a comparison of the accumulated
policy value to the accumulated policy value
to the accumulated premiums less withdrawals
for each policy.
- RESERVES. This report generates a reserve
extract file containing detailed reserve
information on all products.
- DISBURSEMENT SUSPENSE. This report prints
disbursement checks from the suspense file.
Disbursement checks are on the suspense file
with a source of "SYST". The suspense check
indicator shall be "N".
- SURRENDER REPORT. Similar to the financial
activity report in format this report
displays detail information on all
surrenders.
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<PAGE> 23
- DEATH REPORT. Similar to the financial
activity report in format this report
displays information on all death claims.
- ACCOUNTING JOURNAL REPORT. This report shall
indicate if the system encountered any
problems when writing the accounting extract
file.
- INVALID JOURNAL REPORT. In the course of
generating accounting information in batch
cycle processing, some transactions processed
may not be matched with the chart of
accounts. This reports the transaction
components (item IDs) which could not be
located.
- ACCOUNTING REPORT. This report produces the
accounting for that cycle.
- OUT OF BALANCE REPORT. This report prints
the detailed accounting entries for Products
for which the accounting does not balance.
III. MODIFICATIONS
Any modifications requested by Client Company shall be submitted in
writing on a Service Order in the form of the one attached to this
Exhibit.
6
<PAGE> 24
SERVICE REQUEST FORM
DATE: ________________ TME:__________________ REQUESTOR:___________________
REQUEST FOR ESTIMATE ONLY:_____________ SERVICE REQUEST:______________________
ACCT. MAN. APPROVAL:_______________ COMPANY EFFECTED:______________________
APPROVED BY:_______________________________________ (Approval by Acct. Manger)
PROBLEM AFFECTS:_______________________________ (i.e. Accounting, Valuation...)
===============================================================================
Description of Request: Be specific and attach any applicable documentation
including screen prints and calculations.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
===============================================================================
Date Received:__________ Date Assigned:_____________ Assigned To:__________
Describe Resolution of The Problem:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Resolved By:________________________________ Date Resolved:___________________
Requestor's Signature of Approval:____________________________________________
7
<PAGE> 25
EXHIBIT B
PRODUCTS
Attached hereto is a copy of each of the policy forms filed or to be filed with
any regulatory agency and which is associated with the Products subject to this
Agreement.
8
<PAGE> 26
EXHIBIT C
COMPENSATION
<PAGE> 27
EXHIBIT D
STANDARDS FOR FINANCIAL ADMINISTRATIVE SERVICES, INC.
Team Processing Environment
The following standards assume a team processing environment where a small
group of highly trained individuals are committed to processing any policy
level transaction on a "good order - same day" basis, completing any
policyowner request by phone or by mail, and assuring that the service provided
to policyowners, registered representatives, agents, and home office personnel
is of the highest quality.
These standards contain information of Financial Administrative Services, Inc.
(FAS), which is provided for the sole purpose of permitting the recipient to
evaluate the standards submitted herewith. In consideration of receipt of this
document, the recipient agrees to maintain such information in confidence and
to not reproduce or otherwise disclose this information to any person outside
the group directly responsible for evaluation of its contents, except that
there is no obligation to maintain the confidentiality of any information which
was known to the recipient prior to receipt of such information from FAS or
becomes publicly known through no fault of recipient, or is received without
obligation of confidentiality from a third party owing no obligation of
confidentiality to FAS.
NEW BUSINESS
APPLICATION PROCESSING:
Timeliness
100% of applications received by 3:00 p.m. will be pended on
PolicyLink and all premiums will be applied to suspense. (this may be
extended to 4:00 p.m. if arrangement with local lockbox can be
negotiated)
Quality
98% to 100% are processed error free.
ISSUE PROCESSING:
Timeliness
100% of approvals/declines received by 3:00 p.m. from Client Company
underwriting dept. for policies in good order, with premium in
suspense, will be issued or declined with cash being applied or
refunded that day.
Quality
98% to 100% are processed error free.
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<PAGE> 28
REPLACEMENT/1035 EXCHANGE/ROLLOVERS/DIRECT ROLLOVERS/TRANSFERS:
Timeliness
100% of requests for exchange are mailed to the exchanging company
within one (1) business day of receipt in good order by 3:00 p.m.
Written follow-up on exchanges will be done at 30, 60 and 90 days.
Telephone follow-up on exchanges will be done at 14 and 45 days in
addition to letter.
Quality
98% to 100% of all replacements are processed error free.
POLICY ASSEMBLY AND MAILING:
Timeliness
100% of all issues will be assembled and mailed within two (2)
business days of receipt of all requirements in good order by 3:00
p.m.
Quality
98% to 100% of all issues are assembled and mailed error free.
CANCEL/NOT TAKEN/FREE LOOK:
Timeliness
100% of all free looks are processed the day of receipt in good order
by 3:00 p.m.
Quality
98% to 100% of all free looks are processed error free.
POLICY OWNER SERVICE
TELEPHONE:
Timeliness
Average speed of answer is less than 30 seconds. Abandon rate is less
than 3%.
18
<PAGE> 29
Standard
Caller is greeted with courtesy, patience, clarity, moderate volume
and proper speed. During the telephone conversation, the Policyowner
Service Rep. uses caller's name, sounds alert and shows interest
regarding the call. At the end of the call Policyowner Service Rep.
summarizes the call and provides a confirmation number for financial
transactions. Asks if they can help with anything else.
ASSIGNMENT, ADDRESS/TITLE CHANGE:
Timeliness
100% of all changes will be processed within one (1) business day of
receipt in good order by 2:00 p.m.
Quality
98% to 100% of all changes and associated correspondence are processed
error free.
FUND TRANSFERS:
Timeliness
100% of all fund transfers (both written and telephone) received prior
to 4:00 p.m. will be processed that day. Those received after 4:00
p.m. will be processed the next day.
Quality
98% to 100% of the transactions are processed error free.
ALLOCATION CHANGES:
Timeliness
100% of all allocation changes (both written and telephone) received
prior to 4:00 p.m. will be processed that day. Those received after
4:00 p.m. will be processed the next day.
Quality
98% to 100% of the transactions are processed error free.
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<PAGE> 30
REQUESTS FOR WRITTEN RESPONSE:
Timeliness
Written or phone requests that require written response are completed
within one (1) business day or when promised to the customer.
Quality
98% to 100% of all responses to the inquirer are error free.
ADDITIONAL REQUIREMENTS:
Timeliness
100 % of requests for additional requirements are completed within one
(1) business day. Follow-ups on requests for additional requirements
are made within 15 business days.
Quality
98% to 100% of all follow-ups are processed error free.
CALL BACK:
Timeliness
90% of call backs will be done the same day. 100% of call backs will
be done in 24 hours.
PROBLEM RESOLUTION:
Timeliness
90% of call backs will be in 24 hours. 100% of call backs will be
done in 48 hours. If problem resolution exceeds 48 hours, the
supervisor will be notified and involved.
Complaints:
Timeliness
Verbal notification to Client Company within 24 hours of receipt.
Written notification with any needed supporting documentation within
48 hours.
20
<PAGE> 31
Quality
100% of all applicable documentation will be forwarded to Client
Company on all complaints.
BILLING AND COLLECTION
SUBSEQUENT LOCKBOX PREMIUMS:
Timeliness
100% of all collections will be reconciled and applied to the policy
on the day of receipt of the money if received by 4:00 p.m.
Quality
98% to 100% of the transactions are processed same day, error free.
PAC/EFT PROCESSING:
Timeliness
100% of PAC/EFT items received are processed prior to the day that
the policy is scheduled to be billed.
Quality
98% to 100% of the transactions are processed error free
PAC/EFT RETURNED ITEM PROCESSING:
Timeliness
95% of all returned PAC/EFT will be processed within one (1) business
day following receipt if received by 2:00 p.m. 100% will be processed
within two (2) business days.
Quality
98% to 100% of the transactions are processed error free.
21
<PAGE> 32
NSF CHECKS:
Timeliness
100% of processing will be completed within one (1) business day
following notification of bad check.
Quality
98% to 100% of the transactions are processed error free.
PROCESSING GROUP BILLS:
Timeliness
100 % of group bills are mailed within one (1) business day of
printing.
Quality
98% to 100% of the bills are printed error free.
PROCESSING AUTOMATIC REMINDER NOTICES:
Timeliness
100% of notices are mailed within one (1) business day of printing.
Quality
98% to 100% of the notices are printed error free.
PROCESSING NON-FINANCIAL CHANGES:
(MODE CHANGES, BANK CHANGES, ADDITIONS OR DELETIONS FROM GROUP)
Timeliness
100% of changes are completed on the day of receipt in good order by
2:00 p.m.
Quality
98% to 100% of the transactions are processed error free.
22
<PAGE> 33
DISBURSEMENTS
CASH LOAN/PARTIAL WITHDRAWALS:
Timeliness
100% of all cash loans/partial withdrawals will be processed the day
of receipt in good order by 2:00 p.m.
Quality
98% to 100% of transactions are processed error free.
CASH SURRENDERS/1035'S:
Timeliness
100% of all surrenders/1035's will be processed the day of receipt in
good order by 2:00 p.m.
Quality
98% to 100% of transactions are processed error free.
DEATH CLAIMS:
Timeliness
100% of death claims will be processed on the day of payment
notification by the Client Company claims department by 2:00 p.m.
Quality
98% to 100% of transactions are processed error free.
23
<PAGE> 34
EXHIBIT E
CERTIFICATE OF REGISTRATION AND SURETY BOND
24
<PAGE> 35
STATE OF WYOMING
INSURANCE DEPARTMENT
CHEYENNE, WY 82002-0440
CERTIFICATE OF REGISTRATION
This application, made pursuant to Wyoming Insurance Department Regulations,
is submitted for the purpose of registering an administrator
for__________________________________________________________________________
Insurer
of___________________________________________________________________________,
Street Address
_____________________________________________________________________________.
City, State and Zip Code
1. Name of Administrator_______________________________________________
2. Principal administrative office address_____________________________
____________________________________________________________________
3. Administrator's telephone number____________________________________
4. List names, addresses and titles of all officers if a corporation,
partners if a partnership and proprietor if a sole proprietorship.
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
5. Is it understood that, by filing this registration with the insurance
commissioner, the insurer agrees that any violation of the Wyoming
Insurance Code, any lawful rule or final order of the commissioner or
any final judgment or decree made by any court committed by the
administrator while acting within its apparent scope of authority for
the insurer shall be deemed to be a violation of said code by the
insurer?
. . . . . . . . . . . . . . . . . . . . . . . ( ) Yes ( ) No
25
<PAGE> 36
I,________________________________________________________ , on behalf of
Name
_______________________________________________________________________,
Insurer
certify that the Administrator designated herein is competent, trustworthy,
financially responsible and of good reputation. Attached hereto is a written
description of the functions to be performed by said Administrator and copy of
bond.
---------------------------------------------------
Signature
---------------------------------------------------
Title
ACKNOWLEDGEMENT:
State of___________________________________
County of__________________________________
The foregoing instrument was acknowledged before me this _____ day of
___________________, 19___. Witness my hand and official seal.
------------------------------------------
Notary Public
My commission expires: ____________________________
26
<PAGE> 37
THIRD PARTY ADMINISTRATORS BOND
STATE OF WYOMING
Bond No. _________________________________
KNOW ALL MEN BY THESE PRESENTS that_________________________, as Principal, and
_______________________________________________________________________________
_____________, a Surety, a corporation of the State of
______________________________________________________________ are held and
firmly bound unto the State of Wyoming as obligee in the sum of
__________________________________(Dollars) ($__________) for which sum well and
truly to be paid, said Principal hereby binds himself, his heirs, executors,
administrators, successors and assigns and the said surety binds itself and its
successors and assigns jointly and severally, firmly by these presents.
THE CONDITION OF THIS OBLIGATION IS SUCH that WHEREAS the above bounden has
obtained or is about to obtain a Certificate of Registration to do business as
a Third Party Administrator in the State of Wyoming.
NOW THEREFORE, if the said____________________________________________________
shall observe and honestly comply with all requirements as set forth by Statute
of the State of Wyoming and any regulations issued by the Insurance
Commissioner of the State of Wyoming as they presently exist or to be effective
at a later date and shall honestly and faithfully fulfill all obligations and
properly account for all funds under their control as a Third Party
Administrator then this obligation to be void otherwise to remain in full force
and effect.
27
<PAGE> 38
SCHEDULE 5.04
CLIENT COMPANY'S AUTHORIZED REPRESENTATIVES
Robin I. Marsden, President & Chief Executive Officer
Ronald S. Scowby, Chairman
Mitchell R. Katcher, Senior Executive Vice President
Thomas Fileccia, VP - Operations
James F. Bronsdon, VP - Legal
28
<PAGE> 39
SCHEDULE 14.05(c)
EVENT OF BANKRUPTCY
An Event of Bankruptcy occurs when a party or any person controlling a party:
suspends payment of its debts; is generally, not paying, is unable to pay, or
admits in writing its inability to pay its debts as they become due; files, or
consents by answer or otherwise to the filing against it of a petition or
application for relief or reorganization, arrangement or winding-up or any
other petition in bankruptcy, insolvency, administration or full liquidation or
takes advantage of any bankruptcy, insolvency, reorganization, administration,
arrangements, examination, readjustment of debt, dissolution, liquidation,
moratorium or other similar law of any jurisdiction; makes an assignment for
the benefit of its creditors, or proposes or enters into any compromise or
composition or arrangement for the benefit of its creditors generally or any
class of its creditors, consents to the appointment of a custodian, judicial
manager, receiver, administrative receiver, manager, administrator, examiner,
liquidator, trustee or other officer with similar powers with respect to or
with respect to any substantial part of its properties; is adjudicated as
insolvent or to be liquidated; takes corporate action for the purpose of any of
the foregoing; an attachment, execution, restraint or any similar proceeding is
levied or enforced upon or sued out against, or an encumbrance attaches or
takes possession of, all or a substantial part of the property or the revenues
therefrom of the party or any subsidiary and the same remains in effect for
more than or is not satisfied, removed or discharged within a period of sixty
(60) days; or all or any substantial part of the property or the revenues
therefrom of the party or any subsidiary shall be sequestered by court order
and such order remains in effect for more than sixty (60) days; a court or
governmental authority of competent jurisdiction enters an order appointing,
without consent by the party or any of its subsidiaries, a custodian, judicial
manager, receiver, administrative receiver, manager, liquidator, trustee or
other officer with similar powers with respect to any substantial part of its
property; a court or governmental authority of competent jurisdiction issues an
order for relief or approving a petition for relief or reorganization or any
other petition or application for bankruptcy, insolvency, reorganization,
administration, arrangement, liquidation or winding-up or under similar law or
procedure, or for liquidation or takes advantage of bankruptcy, insolvency or
other similar law of any jurisdiction, ordering the dissolution, winding-up or
the creditation of the party or any subsidiary, or any such petition shall be
filed against the party or person controlling the party or any subsidiary
thereof and such petition shall not be dismissed within sixty (60) days; or, in
the case of an insurance company or insurance holding company, any action taken
or order issued under applicable laws which is similar to any of the foregoing.
29
<PAGE> 1
EXHIBIT 9(i)
[SAGE LIFE ASSURANCE OF AMERICA, INC.]
January 27, 1999
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"), I have supervised the preparation of
Pre-Effective Amendment No. 2 to the registration statements on Form N-4 of the
Sage Variable Annuity Account A (File No. 333-43329) (the "Account"), 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. Such
registration statement describes certain flexible payment deferred combination
fixed and variable annuity contracts which will participate in the Account.
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 annuity 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> 2
[SAGE LIFE ASSURANCE OF AMERICA, INC.]
January 27, 1999
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
Vice President, Legal and Compliance
<PAGE> 1
EXHIBIT 9(ii)
[SUTHERLAND ASBILL & BRENNAN LLP]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Legal Matters" in
the Statement of Additional Information included in Pre-Effective Amendment No.
2 to the Registration Statement on Form N-4 for certain flexible payment
deferred combination fixed and variable annuity insurance contracts issued
through The Sage Variable Annuity Account A of Sage Life Assurance of America,
Inc. (File No. 333-43329). 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, Esq.
--------------------------------------
Stephen E. Roth, Esq.
Washington, D.C.
January 27, 1999
<PAGE> 1
Exhibit 10
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 April 22, 1998, with respect to
the financial statements of Sage Life Assurance of America, Inc. included in the
Pre-Effective Amendment No. 2 to the Registration Statement (Form N-4, Nos. 333-
43329 and 811-08581) and related Prospectus for the registration of its variable
annuity contracts.
/s/ Ernst & Young LLP
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Ernst & Young LLP
Stamford, Connecticut
January 28, 1999
<PAGE> 1
EXHIBIT (14)(b)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that RONALD S. SCOWBY, whose signature appears
below, hereby constitutes and appoints MITCHELL R. KATCHER and JAMES F.
BRONSDON, each of them with full power of substitution and resubstitution, for
him and in his name, place, and stead, in any and all capacities, to sign any
registration statement and amendments thereto, under the Securites Act of 1933
and the Investment Company Act of 1940, where applicable, executed on behalf of
Sage Life Assurance of America, Inc. (the "Company") in connection with (a)
variable annuity contracts issued by the Company through The Sage Variable
Annuity Account A, and (b) variable life insurance contracts issued by the
Company through The Sage Variable Life Account A, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. RONALD S. SCOWBY hereby ratifies and
confirms all that said attorney-in-fact, or his substitute, may do or cause to
be done by virtue thereof.
/s/ RONALD S. SCOWBY
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RONALD S. SCOWBY
Director
Sage Life Assurance Company of
America, Inc.
January 26, 1999
State of Connecticut )
County of Fairfield )
On this 26 day of January, 1999, before me came RONALD S.
SCOWBY, Director of Sage Life Assurance of America, Inc., to me known, and
signed the above Power of Attorney on behalf of Sage Life Assurance of America,
Inc.
/s/ CYNTHIA WENDT
--------------------------------
Notary Public
["Official Seal"]
[ Cynthia Wendt ]
[Notary Public, State of Connecticut]
[My Commissions Expires 4/30/99]
<PAGE> 1
EXHIBIT (14)(c)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that RICHARD D. STARR, whose signature appears
below, hereby constitutes and appoints MITCHELL R. KATCHER and JAMES F.
BRONSDON, each of them with full power of substitution and resubstitution, for
him and in his name, place, and stead, in any and all capacities, to sign any
registration statement and amendments thereto, under the Securites Act of 1933
and the Investment Company Act of 1940, where applicable, executed on behalf of
Sage Life Assurance of America, Inc. (the "Company") in connection with
flexible payment deferred combination fixed and variable annuity contracts
issued by the Company through The Sage Variable Annuity Account A, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission. RICHARD D. STARR hereby ratifies
and confirms all that said attorney-in-fact, or his substitute, may do or cause
to be done by virtue thereof.
/s/ RICHARD D. STARR
----------------------------------------
Richard D. Starr
Director
Sage Life Assurance Company of
America, Inc.
January 7, 1999
State of Illinois )
County of Cook )
On this 7 day of January, 1999, before me came RICHARD D. STARR,
Director of Sage Life Assurance of America, Inc., to me known, and signed the
above Power of Attorney on behalf of Sage Life Assurance of America, Inc.
/s/ NADA J. THOMPSON
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Notary Public
["Official Seal"]
[Nada J. Thompson]
[Notary Public, State of Illinois]
[My Commissions Expires 5/19/99]
