<PAGE>
As filed with the Securities and Exchange Commission on September 21, 1999
File No. 333-78583
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 1
FORM S-1
Registration Statement Under
the Securities Act of 1933
SAGE LIFE ASSURANCE OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0258372
--------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
63
- --------------------------------------------------------------------------------
(Primary Standard Industrial Classification Code Number)
300 Atlantic Street
Suite 302
Stamford, CT 06901
(203) 602-6500
(Address, including zip code, and telephone
number, including area code, of registrant's principal
executive offices)
James F. Bronsdon
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
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the registration statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [ X ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Proposed Proposed
Each Class Maximum Maximum
Of Securities Amount Offering Aggregate Amount Of
To Be To Be Price Per Offering Registration
Registered Registered Unit Price Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Modified Single
Payment
Combination Fixed * * $36,331,000 $10,100**
and Variable Life
Insurance
Contracts
==================================================================================================
</TABLE>
* The proposed maximum aggregate offering price is estimated solely for
determining the registration fee. The amount to be registered and the proposed
maximum offering price per unit are not applicable since the securities are not
issued in predetermined amounts or units.
** $100 paid with the initial registration statement filing. $10,000 paid
herewith.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file 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 this registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), shall
determine.
<PAGE>
PROSPECTUS DATED ___________, 1999
LIFEASSET I, MODIFIED SINGLE PAYMENT COMBINATION FIXED AND VARIABLE LIFE
INSURANCE CONTRACTS
Issued By
The Sage Variable Life Account A and
Sage Life Assurance of America, Inc.
Executive Office: Customer Service Center:
300 Atlantic Street 1290 Silas Deane Highway
Stamford, CT 06901 Wethersfield, CT 06109
Telephone: (877) 835-7243
(Toll Free)
This Prospectus describes individual and group modified single payment
combination fixed and variable life insurance contracts offered by Sage Life
Assurance of America, Inc. ("we", "us", "our", or the "Company"). We designed
the Contracts for your estate planning or other insurance needs, or to
supplement your long-term retirement savings. The Contracts provide a means for
investing your Account Value on a tax-deferred basis in our Variable Account and
our Fixed Account. You can purchase a Contract by making a minimum initial
purchase payment. After purchase, you determine the amount and timing of
additional purchase payments, subject to certain restrictions.
You may allocate purchase payments and transfer Account Value to our
Variable Account and/or our Fixed Account within certain limits. The Variable
Account has 33 Sub-Accounts. Through our Fixed Account, you can choose to invest
your money in one or more of 5 different guarantee periods.
Each Variable Sub-Account invests in a corresponding Fund of AIM Variable
Insurance Funds, Inc., The Alger American Fund, Liberty Variable Investment
Trust, SteinRoe Variable Investment Trust, MFS(R) Variable Insurance Trust,
Morgan Stanley Dean Witter Universal Funds, Inc., Oppenheimer Variable Account
Funds, Sage Life Investment Trust, or T. Rowe Price Equity Series, Inc.
(collectively, the "Trusts").
Your Account Value will vary daily with the investment performance of the
Variable Sub-Accounts and any interest we credit under our Fixed Account. We do
not guarantee any minimum Account Value for amounts you allocate to the Variable
Account. We do guarantee principal and a minimum fixed rate of interest for
specified periods of time on amounts you allocate to the Fixed Account. However,
amounts you withdraw, surrender, transfer, or borrow from the Fixed Account
before the end of an applicable Guarantee Period ordinarily will be subject to a
Market Value Adjustment, which may increase or decrease these amounts.
<PAGE>
The Contracts provide a death benefit, as well as additional benefits,
including five alternative Settlement Options for receiving death or surrender
proceeds as income payments under the Contract, and optional programs including
dollar-cost averaging, asset allocation, automatic portfolio rebalancing, and
systematic partial withdrawals.
If you currently own a life insurance policy on the life of the Insured,
you should consider carefully whether the Contract should be used to replace or
supplement your existing policy.
In almost all cases, the Contracts will be modified endowment contracts for
Federal income tax purposes. This means that a loan or other distribution from
the Contract during the life of the Insured will in almost all cases be taxed as
ordinary income to the extent of any earnings in the Contract, and may be
subject to an additional 10% Federal penalty tax, if taken before the Owner
attains age 59 1/2. Special tax and legal considerations apply if this Contract
is used in connection with a qualified plan or certain other employment
plans.
This Prospectus includes basic information about the Contracts that you
should know before investing. Please read this Prospectus carefully and keep it
for future reference. This Prospectus must be accompanied by the current
prospectus for each of the Trusts.
The Securities and Exchange Commission has not approved these Contracts or
determined that this Prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
Variable life contracts are not deposits or obligations of, or endorsed or
guaranteed by, any bank, nor are they federally insured or otherwise protected
by the FDIC, the Federal Reserve Board, or any other agency; they are subject to
investment risks, including possible loss of principal.
<PAGE>
TABLE OF CONTENTS
Index of Terms.........................................................
Summary Of The Contracts...............................................
PART I - Description Of The Contracts
1. What Are The Contracts?...........................................
2. How Do I Purchase A Contract?.....................................
. Initial Purchase Payment
. Issuance of a Contract
. Free Look Right to Cancel Contract
. Making Additional Purchase Payments
. Grace Period
. Reinstatement
. Specialized Uses of the Contract
. Illustrations
3. What Are My Investment Options?...................................
. Purchase Payment Allocations
. Variable Sub-Account Investment Options
. Fixed Account Investment Options
. Market Value Adjustment
. Transfers
. Telephone Transactions
. Power of Attorney
. Dollar Cost Averaging Program
. Asset Allocation Program
. Automatic Portfolio Rebalancing Program
. Account Value
. Variable Account Value
. Accumulation Unit Value
. Net Investment Factor
. Fixed Account Value
. Loan Account Value
. Surrender Value
4. What Are The Expenses Under A Contract?...........................
. Monthly Deduction Amount
. Asset-Based Charges
. Cost of Insurance Charge
. Annual Administration Charge
. Surrender Charge
i
<PAGE>
. Transfer Charge
. Fund Annual Expenses
5. How Will My Contract Be Taxed?....................................
. Introduction
. Tax Status of the Contract
. Tax Treatment of Contract Benefits
. Possible Legislative Changes
. Possible Charge for Sage Life's Taxes
6. How Do I Access My Money?.........................................
. Withdrawals
. Systematic Partial Withdrawal Program
. Surrenders
. Loans
. Requesting Payments
7. How Is Contract Performance Presented?............................
8. What Is The Death Benefit Under My Contract?......................
. Death Benefit
. Insurance Amount
. Minimum Death Benefit
. Proof of Death
. Insurance Amount Increases
9. What Supplemental Benefits Are Available Under My Contract?.......
. Accelerated Death Benefit Rider
. Accidental Death Benefit Rider
. Waiver of Surrender Charge Rider
10. What Are My Settlement Options?...................................
. Variable Income Payments
. Income Unit Value
. Exchange of Income Units
11. What Other Information Should I Know?.............................
. Sage Life Assurance of America, Inc.
. Separate Account
. Modification
. Distribution of the Contract
. Experts
. Legal Proceedings
. Reports to Contract Owners
. Assignment
. The Owner
ii
<PAGE>
. The Beneficiary
. Change of Owner or Beneficiary
. Misstatement and Proof of Age, Sex or Survival
. Incontestability
. Suicide
. Authority to Make Agreements
. Participation
. Safekeeping of Account Assets
. Legal Matters
. Preparing for the Year 2000
. Financial Statements
12. How Can I Make Inquiries?..................................................
Hypothetical Illustrations Of Contract Values
PART II - Additional Information
Additional Information About Sage Life Assurance of America, Inc.
History and Business.......................................................
Selected Financial Data....................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Directors and Executive Officers...........................................
Independent Auditors Report................................................
Appendix A - Market Value Adjustment............................................
Appendix B - Dollar-Cost Averaging Program......................................
This Prospectus does not constitute an offering in any jurisdiction in which
such offering may not lawfully be made.
iii
<PAGE>
INDEX OF TERMS
We have tried to make this Prospectus as readable and understandable as
possible. To help you to understand how the Contract works, we have used certain
terms that have special meanings. We define these terms below.
Account Value - The Account Value is the entire amount we hold under your
Contract. It equals the sum of the values in the Variable Account, the Fixed
Account, and the Loan Account.
Accumulation Unit - An Accumulation Unit is the unit of measure we use to keep
track of the Account Value in each Variable Sub-Account.
Attained Age - The Attained Age is the Issue Age plus the number of full years
since the Contract Date.
Asset-Based Charges - The Asset-Based Charges are assessed monthly against your
Account Value and are charges for mortality and expense risks, certain
administrative expenses, certain distribution costs, and certain state and
federal tax expenses. After the proceeds from the Contract are applied to a
Settlement Option, we call these charges Variable Sub-Account Charges and deduct
them daily from the assets of the Variable Account only.
Beneficiary - The Beneficiary is the person or persons to whom we pay the Death
Proceeds when the Insured dies.
Business Day - A Business Day is any day the New York Stock Exchange ("NYSE") is
open for trading 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.
Contracts - The Contracts are modified single payment combination fixed and
variable life insurance contracts. In some jurisdictions, we issue the
Contracts directly to individuals. In most jurisdictions, however, the
Contracts are only available as a group contract. We issue a group Contract to
or on behalf of a group. Individuals who are part of a group to which we issue
a Contract receive a certificate that recites substantially all of the
provisions of the group Contract. Throughout this Prospectus and unless
otherwise stated, the term "Contract" refers to individual Contracts, group
Contracts, and certificates for group Contracts.
Contract Anniversary - A Contract Anniversary is each anniversary of the
Contract Date.
Contract Date - The Contract Date is the day we invest your initial purchase
payment in the Sub-Accounts. It is the date from which we measure Contract
Anniversaries and Contract Years. The Contract Date may or may not be the same
as the Issue Date.
1
<PAGE>
Contract Year - A Contract Year is each and every consecutive twelve-month
period beginning on the Contract Date and the anniversaries thereof.
Death Proceeds - The Death Proceeds is the amount of money that we will pay your
Beneficiary if the Insured dies while your Contract is in force.
Debt - Debt is the sum of all outstanding loans plus accrued interest under a
Contract.
Excess Withdrawal - An Excess Withdrawal is a withdrawal of Account Value that
exceeds the Free Withdrawal Amount.
Expiration Date - The Expiration Date is the last day in a Guarantee Period. In
the Contract, we refer to this as the "Expiry Date."
Fixed Account - The Fixed Account is The Sage Fixed Interest Account A. The
Fixed Account is a separate investment account of ours into which you may invest
purchase payments or transfer Account Value. In certain states, we refer to the
Fixed Account as the Interest Account or the Interest Separate Account. We
divide the Fixed Account into Fixed Sub-Accounts, and establish a Fixed Sub-
Account each time you allocate an amount to the Fixed Account.
Free Withdrawal Amount - A Free Withdrawal Amount is the maximum amount that you
can withdraw within a Contract Year without being subject to a surrender charge.
Fund - A Fund is an investment portfolio in which a Variable Sub-Account
invests.
General Account - The General Account consists of all our assets other than
those held in any separate investment accounts.
Insured - The Insured is the person you named in your application for the
Contract whose life your Contract covers.
Issue Age - The Issue Age is the Insured's age on the last birthday on or before
the Contract Date.
Issue Date - The Issue Date is the date we issue an individual Contract or a
certificate for a group Contract at our Customer Service Center.
Loan Account - The Loan Account is an account in our General Account,
established for any amounts transferred from the Sub-Accounts as a result of a
loan. The Loan Account credits a fixed rate of interest, the loan credited rate,
that is not based on the investment experience of the Variable Account or the
Guaranteed Interest Rates applicable to the Fixed Sub-Accounts of the Fixed
Account.
2
<PAGE>
Market Value Adjustment - A Market Value Adjustment is a positive or negative
adjustment that may apply to a surrender, withdrawal, transfer, or loan from a
Fixed Sub-Account before the end of its Guarantee Period.
Monthly Processing Date - The Monthly Processing Date is the day of each month
that we deduct the Monthly Deduction Amount from the Account Value of your
Contract. See "What Are the Expenses Under A Contract?" Monthly Processing
Dates are the Contract Date and the same day of each month thereafter. If there
is no such date in a particular month, the Monthly Processing Date will be the
last day of that month. If a Monthly Processing Date is not a Valuation Date,
the Monthly Processing Date will be the next Valuation Date. This means that if
your Monthly Processing Date is the 31st, and the current month is April, your
Monthly Processing Date for April will be April 30th. If April 30th is a Sunday
(which is not a Valuation Date), your Monthly Processing Date for that April
will be May 1 (assuming May 1 is a Valuation Date).
Net Asset Value - Net Asset Value is the price of one share of a Fund.
Owner - The person or persons who owns (or own) a Contract. Provisions relating
to action by the Owner mean, in the case of joint Owners, both Owners acting
jointly. In the context of a Contract issued on a group basis, Owners refer to
holders of certificates under the group Contract.
Satisfactory Notice - Satisfactory Notice is a notice or request you make or
authorize, in a form satisfactory to us, received at our Customer Service
Center.
Surrender Value - The Surrender Value is the amount we pay you upon surrender of
your Contract. It reflects the deduction of any applicable surrender charge,
any Market Value Adjustment, and any Debt.
Valuation Date - Valuation Date is the date at the end of a Valuation Period
when we value each Variable Sub-Account.
Valuation Period - A Valuation Period is the period between one calculation of
an Accumulation Unit value and the next calculation.
Variable Account - The Variable Account is The Sage Variable Life Account A. It
is a separate investment account of ours into which you may invest purchase
payments or transfer Account Value. We divide the Variable Account into
Variable Sub-Accounts, each of which invests in shares of a particular Fund.
"We", "us", "our", "Sage Life" or the "Company" is Sage Life Assurance of
America, Inc.
"You" or "Your" is the owner of a Contract.
3
<PAGE>
This Prospectus has three sections:
. Summary of the Contracts;
. Part I - which gives more detailed information on the Summary topics; and
. Part II - which provides additional information.
Please read the entire Prospectus carefully.
SUMMARY OF THE CONTRACTS
1. What Are The Contracts?
The Contracts are modified single payment combination fixed and variable
life insurance contracts offered by Sage Life Assurance of America, Inc. Your
Contract is a contract between you, the Owner, and us, Sage Life. Your Contract
may differ from the description below because of the requirements of the state
where we issued your Contract.
We designed the Contract to meet your estate planning or other insurance
needs, or to supplement your long-term retirement needs. Because life insurance
is not a short-term investment, you should evaluate your need for life insurance
coverage and the suitability of the Contract to meet your long-term financial
objectives before you purchase a Contract.
Under the Contract, you can accumulate Account Value on a tax-deferred
basis in our Variable Account and in our Fixed Account.
Investment Flexibility. You can invest among 33 subdivisions of our
Variable Account, known as "Variable Sub-Accounts," each corresponding to a
different Fund. These Funds, listed in Section 3, are professionally managed
and use a broad range of investment strategies (growth and income, aggressive
growth, etc.), styles (growth, value, etc.) and asset classes (stocks, bonds,
international, etc.). You can select a mix of Funds to meet your financial and
retirement needs and objectives, tolerance for risk, and view of the market.
Amounts you invest in these Funds will fluctuate daily based on underlying
investment performance. So, the value of your investment may increase or
decrease.
Through our Fixed Account, you can invest to receive guaranteed rates of
interest for periods of 1, 2, 3, 4, and 5 years ("Guarantee Periods"). We also
guarantee your principal while it remains in our Fixed Account. However, if you
decide to surrender your Contract, or transfer or access amounts in the Fixed
Account before the end of a Guarantee Period you have chosen, we ordinarily will
apply a Market Value Adjustment. This adjustment reflects changes in prevailing
interest rates since your allocation to the Fixed Account. The Market Value
Adjustment may result in an increase or decrease in the amounts surrendered,
transferred, or accessed.
1
<PAGE>
As your needs or financial goals change, your investment mix can change
with them. You may transfer funds among any of the investment choices in our
Fixed or Variable Accounts while continuing to defer current income taxes.
Safety of Separate Accounts. Significantly, both our Fixed and Variable
Accounts are separate investment accounts of Sage Life. This provides you with
an important feature: we cannot charge the assets supporting your allocations to
these Accounts with liabilities arising out of any other business we may
conduct.
Income Tax-Free Life Insurance Protection For Your Beneficiaries. The
Contract provides a life insurance benefit that can pass free of federal and
state income taxes to your beneficiaries. You can create and preserve a legacy
for loved ones, a favorite charity, or even your Alma Mater.
Access to Amounts Invested. The Contract provides access to your
investment should you need it. ("Access" means a surrender of the Contract, a
withdrawal of Account Value, and a borrowing of Account Value.) During the
Insured's lifetime your investment grows tax-free until withdrawn or borrowed.
You decide how much to take and when to take it.
Ordinarily, once you access earnings, they are taxed as income. If you
access earnings before you are 59 1/2 years old, you may have to pay an
additional 10% federal tax penalty. However, if you acquire a Contract by making
a tax-free exchange from an existing contract that provides tax-free access
through loans, the Contract also may provide tax-free access through loans.
Amounts you access may be subject to a surrender charge, and a Market Value
Adjustment (positive or negative) may apply if you access the amount from the
Fixed Account before the end of the applicable Guarantee Period.
2. How Do I Purchase A Contract?
In most cases, you may purchase a Contract with $10,000 or more through an
authorized registered representative. You must complete an application, and the
proposed Insured must meet our underwriting requirements. We have designed a
simplified underwriting program that could make qualifying easier and let us
issue a Contract faster than would otherwise be possible. Your eligibility for
this program will depend on the amount you want to invest and the proposed
Insured's age, sex, and health.
After the first Contract Anniversary, you may make additional payments of
at least $250, subject to certain conditions. We reserve the right to require
satisfactory evidence of insurability before we accept any additional payment
that increases the life insurance benefit by more than it increases your Account
Value.
2
<PAGE>
Also, if the Surrender Value of your Contract is not sufficient to pay the
charges as they come due, you will have a grace period of 61 days to make a
sufficient additional payment to keep your Contract in force. We will send you
a notice at the start of the Grace Period.
We have included hypothetical illustrations in this Prospectus to show you
how the Contract works. We have based these illustrations on hypothetical rates
of return and we do not guarantee these rates. The rates are illustrative only,
and do not represent past or future investment performance. Your actual
Contract values and benefits will be different from those in the illustrations.
3. What Are My Investment Options?
There are 38 investment options under the Contracts available through our
Variable and Fixed Accounts. These choices are professionally managed and allow
for a broad range of investment strategies, styles, and asset classes.
Additional options may be available in the future.
Through our Variable Account you can choose to have your money invested in
one or more of the Variable Sub-Accounts investing in the following 33 Funds:
AIM Variable Insurance Funds, Inc.
. AIM V.I. Government Securities Fund
. AIM V.I. Growth and Income Fund
. AIM V.I. International Equity Fund
. AIM V.I. Value Fund
The Alger American Fund
. Alger American MidCap Growth Portfolio
. Alger American Income and Growth Portfolio
. Alger American Small Capitalization Portfolio
Liberty Variable Investment Trust
. Colonial High Yield Securities Fund, Variable Series
. Colonial Small Cap Value Fund, Variable Series
. Colonial Strategic Income Fund, Variable Series
. Colonial U.S. Growth & Income Fund, Variable Series
(formerly known as 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
3
<PAGE>
MFS(R) Variable Insurance Trust/SM/
. MFS Growth With Income Series
. MFS High Income Series
. MFS Research Series
. MFS Total Return Series
. MFS Capital Opportunities Series (formerly known as MFS
Value Series)
Morgan Stanley Dean Witter Universal Funds, Inc.
. Global Equity Portfolio
. Mid Cap Value Portfolio
. Value Portfolio
Oppenheimer Variable Account Funds
. Oppenheimer Bond Fund/VA
. Oppenheimer Capital Appreciation Fund/VA (formerly known as
Oppenheimer Growth Fund)
. Oppenheimer Small Cap Growth Fund/VA
Sage Life Investment Trust
. EAFE(R) Equity Index Fund
. S&P 500 Equity Index Fund
. Money Market Fund
T. Rowe Price Equity Series, Inc.
. T. Rowe Price Equity Income Portfolio
. T. Rowe Price Mid-Cap Growth Portfolio
. T. Rowe Price Personal Strategy Balanced Portfolio
The prospectuses for the Trusts describe the Funds in detail. These Funds
do not provide any performance guarantees, and their values will increase or
decrease depending upon investment performance.
Through our Fixed Account, you can choose to invest your money in one or
more of 5 different Guarantee Periods. We guarantee your principal and interest
rate when your investment is left in the Guarantee Period until it ends. You
currently can choose periods of 1, 2, 3, 4, and 5 years. However, if you
transfer or access amounts before the end of a period you have chosen, we
ordinarily will apply a Market Value Adjustment. This Adjustment may be
positive or negative depending upon current interest rates.
4. What Are The Expenses Under A Contract?
The Contract has insurance and investment features. Each has related
costs. Below is a brief summary of the Contract's charges:
4
<PAGE>
Annual Administration Charge - During the first seven Contract Years only,
we will deduct an annual $40 administration charge. However, there is no charge
if, at the time of deduction, your Account Value is at least $50,000.
Asset-Based Charges - Each month, we deduct Asset-Based Charges for
mortality and expense risks, certain administrative and distribution costs, and
certain state and Federal tax expenses from your Account Value. The maximum
charges equal, on an annual basis, 1.80% of your Account Value, decreasing to
1.30% after the tenth Contract Year.
Cost of Insurance Charges - Each month, we deduct from the amounts you
allocate to the Variable and Fixed Accounts a charge for providing the life
insurance protection. This charge will never reflect rates greater than those
shown in your Contract.
Surrender Charge - During the first seven Contract Years only, we
ordinarily will deduct a surrender charge when you surrender your Contract or
withdraw amounts in excess of the Free Withdrawal Amount (see Part I). The
maximum applicable percentage is 9% in the first Contract Year. It declines to
0% after the seventh Contract Year. We calculate the surrender charge as a
percentage(s) of the purchase payment(s) you surrender or withdraw.
Fund Fees and Expenses - There are also Fund fees and expenses that are
based on the average daily value of the Funds. Currently, Fund fees and
expenses together range on an annual basis from 0.55% to 1.30%, depending upon
the Fund. A table of the Fund fees and expenses appears below.
Sage Life's business philosophy is to reward our long-term customers. So,
. After the seventh Contract Year we eliminate Surrender Charges.
. After the seventh Contract Year we eliminate the Annual
Administration Charge.
. And after the tenth Contract Year, we reduce the Asset-Based
Charges.
This means more of your investment is working for you over the long-term.
5
<PAGE>
Fund Annual Expenses (as a percentage of average daily net assets of a Fund)
<TABLE>
<CAPTION>
Total Expenses
(after fee
Management Fees Other Expenses waivers and
(after fee waiver, (after reimbursement, reimbursements,
Fund as applicable) as applicable) as applicable)
---- ------------------ --------------------- ---------------
<S> <C> <C> <C>
AIM VARIABLE INSURANCE
FUNDS, INC.:
AIM V.I. Government Se-
curities Fund......... 0.50% 0.26% 0.76%
AIM V.I. Growth and In-
come Fund............. 0.61 0.04 0.65
AIM V.I. International
Equity Fund........... 0.75 0.16 0.91
AIM V.I. Value Fund.... 0.61 0.05 0.66
THE ALGER AMERICAN FUND:
Alger American MidCap
Growth Portfolio...... 0.80 0.04 0.84
Alger American Income
and Growth Portfolio.. 0.625 0.075 0.70
Alger American Small
Capitalization Portfo-
lio................... 0.85 0.04 0.89
LIBERTY VARIABLE INVEST-
MENT TRUST:
Colonial High Yield Se-
curities Fund, Vari-
able Series........... 0.60 0.20 0.80(/1/)
Colonial Small Cap
Value Fund, Variable
Series................ 0.80 0.20 1.00(/1/)
Colonial Strategic In-
come Fund, Variable
Series................ 0.65 0.13 0.78
Colonial U.S. Stock
Fund, Variable Se-
ries.................. 0.80 0.10 0.90
Liberty All-Star Equity
Fund, Variable Se-
ries.................. 0.76 0.24 1.00(/1/)
Newport Tiger Fund,
Variable Series....... 0.90 0.40 1.30
Stein Roe Global Utili-
ties Fund, Variable
Series................ 0.65 0.17 0.82
STEINROE VARIABLE IN-
VESTMENT TRUST:
Stein Roe Growth Stock
Fund, Variable Se-
ries.................. 0.65 0.05 0.70
Stein Roe Balanced
Fund, Variable Se-
ries.................. 0.60 0.05 0.65
</TABLE>
Fund)
<TABLE>
<CAPTION>
Total Expenses
(after fee
Management Fees Other Expenses waivers and
(after fee waiver, (after reimbursement, reimbursements,
Fund as applicable) as applicable) as applicable)
---- ------------------ --------------------- ---------------
<S> <C> <C> <C>
MFS(R) VARIABLE INSUR-
ANCE TRUSTSM:
MFS Growth with Income
Series................ 0.75 0.13 0.88
MFS High Income
Series................ 0.75 0.28 1.03
MFS Research Series.... 0.75 0.11 0.86
MFS Total Return
Series................ 0.75 0.16 0.91
MFS Capital
Opportunities Series
(formerly MFS Value
Series)............... 0.75 0.27(/2/) 1.02(/2/)
MORGAN STANLEY DEAN
WITTER UNIVERSAL FUNDS,
INC.:
Global Equity Portfo-
lio................... 0.32(/3/) 0.83 1.15(/3/)
Mid Cap Value Portfo-
lio................... 0.23(/3/) 0.82 1.05(/3/)
Value Portfolio........ 0.08(/3/) 0.77 0.85(/3/)
OPPENHEIMER VARIABLE
FUNDS:
Oppenheimer Bond
Fund/VA............... 0.72 0.02 0.74
Oppenheimer Capital
Appreciation Fund/VA
(formerly Oppenheimer
Growth Fund).......... 0.72 0.03 0.75
Oppenheimer Small Cap
Growth Fund/VA........ 0.75 0.12 0.87
SAGE LIFE INVESTMENT
TRUST:
EAFE(R) Equity Index
Fund*................. 0.73(/4/) 0.17 0.90(/4/)
S&P 500 Equity Index
Fund**................ 0.38(/4/) 0.17 0.55(/4/)
Money Market Fund...... 0.48(/4/) 0.17 0.65(/4/)
T. ROWE PRICE EQUITY SE-
RIES, INC.:
T. Rowe Price Equity
Income Portfolio...... 0.85% 0.00% 0.85%
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>
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1. Without fee waivers and expense reimbursements, the management fees, the
other expenses and total expenses for each of the following Liberty
Variable Investment Trust Funds' during 1998 would have been: Colonial High
Yield Securities Fund, Variable Series 60%, 1.24%, and 1.84%; Colonial
Small Cap Value Fund, Variable Series .80%, 3.54%, and 4.34%; and Liberty
All-Star Equity Fund, Variable Series .80%, .24%, and 1.04%.
2. Without reimbursements, the management fees, the other expenses, and total
expenses for MFS' Capital Opportunities Series would have been 0.75%,
0.45%, and 1.20%.
3. Without fee waivers, the management fees, the other expenses, and total
expenses for each of the following Morgan Stanley Dean Witter Universal
Funds, Inc. portfolios would have been: Global Equity Portfolio, 0.80%,
0.83%, and 1.63%; Mid Cap Value Portfolio, 0.75%, 0.82%, and 1.57%; Value
Portfolio, 0.55%, 0.77%, and 1.32%.
4. These Funds commenced operations in February 1999. The figures shown are
based on estimates. Without fee waivers, the management fees, the other
expenses, and total expenses for each of the Funds would have been: EAFE(R)
Equity Index Fund, 0.90%, 0.17%, and 1.07%; S&P 500 Equity Index Fund,
0.55%, 0.17%, and 0.72%; and Money Market Fund, 0.65%, 0.17%, and
0.82%.
* The EAFE(R) Index is the exclusive property of Morgan Stanley Capital
International ("MSCI"). This fund is not sponsored, endorsed, sold or
promoted by MSCI or any affiliate of MSCI.
** S&P 500(R) is a trademark of the McGraw-Hill Companies, Inc. and has been
licensed for use by Sage Advisors, Inc. The S&P 500 Equity Index Fund is
not sponsored, endorsed, sold or promoted by Standard & Poor's, and
Standard and Poor's makes no representation regarding the advisability of
investing in the Fund.
5. How Will My Contract Be Taxed?
Under current federal tax law, life insurance contracts receive tax-favored
treatment. The death benefit is fully excludable from the Beneficiary's gross
income for federal income tax purposes. You are not taxed on any increase in
the Account Value while a life insurance contract remains in force. In most
cases, your Contract will be a Modified Endowment Contract ("MEC"). If your
Contract is a MEC, certain distributions made during the Insured's lifetime,
such as loans and withdrawals from, and collateral assignments of, the Contract
are includable in gross income on an income-first basis. A 10% Federal tax
penalty ordinarily will be imposed on income distributed before you attain age
59 1/2. Contracts that are not Modified Endowment Contracts ("non-MECs")
receive preferential tax treatment with respect to certain distributions. See
Part I "How Will My Contract Be Taxed?"
We do not give tax advice, nor is any registered representative authorized
to give tax advice on our behalf. We recommend that you consult your tax
adviser about your particular tax situation.
6. How Do I Access My Money?
If you need to take money out of your Contract, you can choose among
several different options. You can tailor your withdrawals to meet your
liquidity needs.
. You can withdraw some of your money.
. You can surrender the Contract and take the entire proceeds as a
single lump sum payment or apply the proceeds to one of the Settlement
Options we offer.
. You can withdraw money using our systematic partial withdrawal
program.
. If your Contract is a non-MEC, you have tax-free access through loans.
. If your Contract is a MEC, you may take taxable loans that may be
subject to a 10% Federal tax penalty.
Keep in mind that amounts you surrender or withdraw may be subject to a
surrender charge if taken during the first seven Contract Years. However,
during that period the Contract does provide a Free Withdrawal Amount (not
subject to a surrender charge) each year equal to your cumulative earnings, or
if greater, 10% of total purchase payments you have invested.
In addition, if you access amounts from the Fixed Account, we ordinarily
will apply a Market Value Adjustment.
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If you are younger than 59 1/2 when you take money out, you may owe a 10%
federal tax penalty, as well as the income tax that ordinarily would apply.
Please remember that withdrawals will reduce your death benefit.
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7. How Is Contract Performance Presented?
Articles about the Variable Account's investment performance, rankings, or
other characteristics may appear in publications. Publications may use articles
and releases developed by us, the Funds and other parties about the Variable
Account or the Funds.
Please remember that performance data represents past performance. Amounts
----
you invest in the Variable Sub-Accounts will fluctuate daily based on underlying
Fund investment performance, so the value of your investment may increase or
decrease.
8. What Is The Death Benefit Under My Contract?
The Contract provides for a payment to your designated Beneficiary if the
Insured dies while the Contract is in force. This payment is called the "Death
Proceeds" and is equal to the following:
. the death benefit described below; plus
. any additional insurance on the Insured's life that may be provided by
riders to the Contract; minus
. any Debt from Contract loans; minus
. any due and unpaid charges; and minus
. any amounts previously paid under the Accelerated Death Benefit Rider
plus accrued interest.
Your death benefit at issue equals your initial Insurance Amount. On any
Business Day after that it equals the greater of:
. the Insurance Amount; and
. the Minimum Death Benefit.
The initial Insurance Amount depends on the amount of your initial purchase
payment, and the age and sex of the proposed Insured. We show your initial
Insurance Amount in your Contract. Your Insurance Amount remains level unless
you make additional purchase payments or withdrawals.
The Minimum Death Benefit equals the Account Value plus any positive Market
Value Adjustment as of that Business Day, multiplied by a percentage that varies
with the attained age of the Insured. We show these percentages in your
Contract.
Your Beneficiaries decide how they wish to receive the Death Proceeds.
They can elect payment in a single sum, or apply proceeds under one of the
Settlement Options we offer.
9. What Supplemental Benefits Are Available Under My Contract?
Accelerated Death Benefit Rider: If permitted in your state, this rider is
automatically included in your Contract at no additional cost. It allows you to
take an advance payment against the Death
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Proceeds under your Contract if the Insured is diagnosed as having a terminal
illness. You can request up to 50% of the Insurance Amount, to a maximum of
$500,000.
Accidental Death Benefit Rider: If permitted in your state, the Contract
also provides an accidental death benefit at no additional cost. If the Insured
dies 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 equals 100% of the sum of all purchase payments you have invested in
your Contract, less any withdrawals you have made (including any associated
surrender charge and Market Value Adjustment incurred), up to a maximum of
$250,000.
Waiver of Surrender Charge Rider: If permitted in your state, we will
include this rider automatically in your Contract at no additional cost. It
permits you to withdraw money from your Contract without a surrender charge if
you need it while you are confined to a nursing care facility or hospital.
Certain restrictions apply.
10. What Are My Settlement Options?
You can apply proceeds under your Contract to purchase a stream of regular
income payments under one of the Settlement Options shown below (or under any
other option acceptable to us). Our descriptions assume that you apply the
Surrender Value and receive the income payments from one of the options below.
Of course, you always can designate someone other than yourself to receive the
income payments, and we pay income payments from any Death Proceeds to your
Beneficiary.
Option 1 - Payments for Life: You will receive payments for your life.
Option 2 - Life Annuity with 10 or 20 Years Certain: You will receive
payments for your life. However, if you die before the end of the
guaranteed certain period you select (10 or 20 years), your Beneficiary
will receive the payments for the remainder of that period.
Option 3 - Joint and Last Survivor Life Annuity: We will make payments as
long as either you or a second person you select (such as your spouse) is
alive.
Option 4 - Payments for a Specified Period Certain: You will receive
payments for the number of years you select, which may be from 5-30 years.
However, if you die before the end of that period, your Beneficiary will
receive the payments for the remainder of the guaranteed certain period.
You or your Beneficiary, as the case may be, tell us how much to apply to
fixed income payments and to variable income payments. With variable income
payments, you currently have all of the investment choices you had before income
payments began. However, we currently limit transfers among your investment
choices. Once income payments begin, you may surrender your Contract only if
you choose variable income payments under Option 4.
We will allocate the amount you apply to provide fixed income payments to
the Fixed Account and invest it in the Guarantee Periods you select. We
guarantee the amount of each fixed income payment. The amount of each fixed
income payment will remain level throughout the period you select.
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We will allocate the amount you apply to provide variable income payments
to the Variable Account and invest it in the Funds you select. The amount of
each income payment will vary according to the investment performance of those
Funds.
11. What Other Information Should I Know?
The Contract has several additional features available to you at no
additional charge:
Free Look Right: You have the right to return your Contract to us at our
Customer Service Center or to the registered representative who sold it to you,
and have us cancel the Contract within a certain number of days (usually 10 days
from the date you receive the Contract, but some states require different
periods).
If you exercise this right, we will cancel your Contract as of the Business
Day we receive it. We will send you a refund equal to your Account Value plus
any Asset-Based Charges and cost of insurance charges we have deducted on or
before the date we received the returned Contract. If required by the law of
your state, we will refund your initial purchase payment (less any withdrawals
previously taken). In the states where we are required to return purchase
payment less withdrawals, if you allocated amounts to the Variable Account, we
will temporarily allocate those amounts to the Money Market Sub-Account until we
deem the Free Look Period to end.
Dollar-Cost Averaging Program: Under our optional Dollar-Cost Averaging
Program, you may transfer a set dollar amount systematically from the Money
Market Sub-Account and/or from specially designated Fixed Sub-Accounts to any
other Variable Sub-Account, subject to certain limitations. By investing the
same amount on a regular basis, you don't have to worry about timing the market.
Since you invest the same amount each period, you automatically acquire more
units when market values fall and fewer units when they rise. The potential
benefit is to lower your average cost per unit. This strategy does not
guarantee that any Fund will gain in value. It also will not protect against a
decline in value if market prices fall. However, if you can continue to invest
regularly throughout changing market conditions, this program can be an
effective way to help meet your long-term goals. Due to the effect of interest
that continues to be paid on the amount remaining in the Money Market Sub-
Account or the specially designated Fixed Sub-Account, the amounts that we
transfer will vary slightly from month to month.
Asset Allocation Program: An optional Asset Allocation Program is available
if you do not wish to make your own particular investment decisions. This
investment planning tool is designed to find an asset mix that attempts to
achieve the highest expected return based upon your tolerance for risk, and
consistent with your needs and objectives. Bear in mind that the use of an
asset-allocation model does not guarantee investment results.
Automatic Portfolio Rebalancing Program: Our optional Automatic Portfolio
Rebalancing Program can help prevent a well-conceived investment strategy from
becoming diluted over time. Investment performance will likely cause the
allocation percentages you originally selected to shift. With this program, you
can instruct us to automatically rebalance your Contract to your original
percentages on a quarterly basis. Money invested in the Fixed Account is not
part of this program.
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No Probate: If the Insured dies, we will pay the Death Proceeds to your
heirs or designated beneficiary. Generally, the Death Proceeds will be received
without going through probate.
12. How Can I Make Inquiries?
If you need further information about the Contracts, please write or call
us at our Customer Service Center (877) TEL-SAGE (835-7243), or contact an
authorized registered representative. The address of our Customer Service
Center office is 1290 Silas Deane Highway, Wethersfield, CT 06109.
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Part I
Description of the Contracts
1. What Are The Contracts?
The Contracts are modified single payment combination fixed and variable
life insurance Contracts offered by us, Sage Life Assurance of America, Inc. We
designed the Contracts for your estate planning or other insurance needs, or to
supplement your long-term retirement savings. They provide many benefits
including:
. investing amounts on a tax-deferred basis in our Variable Account and
our Fixed Account;
. access to your investment should you need it (however, a surrender
charge and Market Value Adjustment may apply); and
. life insurance that can pass free of federal and state income taxes
to your heirs.
However, life insurance is not a short-term investment. You should
evaluate your need for life insurance coverage and the Contract's long-term
investment potential and risks before you purchase a Contract.
Under the terms of the Contract, we promise to pay the Death Proceeds to
your designated Beneficiary upon receipt of proof that the Insured died while
your Contract is in force. You purchase the Contract with an initial purchase
payment. While your Contract is in force and the Insured is alive, you may make
additional payments under the Contract (subject to certain conditions) and will
ordinarily not be taxed on increases in the value of your Contract as long as
you do not take distributions. See "How Will My Contract Be Taxed?" The
Contracts may not be available in all states or in all markets. Your Contract
may differ from the description here because of the requirements of the State
where we issued your Contract.
When you make purchase payments, you can allocate those purchase payments
to one or more of the 33 subdivisions of the Variable Account, known as
"Variable Sub-Accounts." We will invest purchase payments you allocate to a
Variable Sub-Account solely in its corresponding Fund. Your Account Value in a
Variable Sub-Account will vary according to the investment performance of that
Fund. Depending on market conditions, your value in each Variable Sub-Account
could increase or decrease. We do not guarantee a minimum value. You bear the
risk of investing in the Variable Account. We call the total of the values in
the Variable Sub-Accounts the "Variable Account Value."
You can also allocate purchase payments to our Fixed Account. See "Fixed
Account Investment Option." The Fixed Account includes "Fixed Sub-Accounts" to
which we credit fixed rates of interest for the Guarantee Periods you select.
We call the total of the values in the Fixed Sub-Accounts, the "Fixed Account
Value." We currently offer Guarantee Periods with durations of 1, 2, 3, 4, and
5 years. If any amount allocated or transferred remains in a Guarantee Period
until the Expiration Date, its value will equal the amount originally allocated
or transferred, multiplied on an annually compounded basis, by its
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guaranteed interest rate. We will ordinarily apply a Market Value Adjustment to
any surrender, withdrawal, transfer, or amount borrowed from a Fixed Sub-Account
before its Expiration Date. The Market Value Adjustment may increase or decrease
the value of the Fixed Sub-Account (or portion thereof) being surrendered,
withdrawn, transferred, or borrowed. See "What Are My Investment Options?"
You can transfer Account Value from one Variable Sub-Account to another,
and from a Fixed Sub-Account to a Variable Sub-Account and from a Variable Sub-
Account to a Fixed Sub-Account, subject to certain conditions. See "What Are My
Investment Options?"
We may offer other variable life insurance contracts that also invest in
the same Funds offered under the Contracts. These contracts may have different
charges and they may offer different benefits.
2. How Do I Purchase A Contract?
Initial Purchase Payment. You must make the initial purchase payment to
put a Contract in force. The minimum initial purchase payment is $10,000. We
will not issue a Contract if the proposed Insured is over age 90.
Issuance of a Contract. Once we receive your initial purchase payment and
your application at our Customer Service Center, we will process your
application to see if the proposed Insured meets our underwriting and other
criteria. Under our current underwriting rules, which are subject to change, a
proposed Insured age 80 and under may be eligible for our simplified
underwriting program. This program does not involve a medical examination, and
may enable us to issue a Contract much faster than we otherwise could. To
qualify, an Insured's application responses must meet our simplified
underwriting standards. The maximum initial purchase payment we currently
accept on a simplified underwriting basis varies with the issue age and gender
of the Insured, but, the difference between the initial Insurance Amount and the
initial purchase payment may never exceed $100,000.
We will apply customary underwriting standards to all other Insureds. Our
current underwriting rules are subject to change.
We reserve the right to reject an application for any lawful reason. If we
do not issue a Contract, we will return to you any purchase payment you
submitted with the application. If we issue a Contract, your Issue Date will be
the date we issue your Contract at our Customer Service Center.
Free Look Right to Cancel Contract. During your "Free Look" Period, you
may cancel your Contract. The Free Look Period usually ends 10 days after you
receive your Contract. Some states may require a longer period. If you decide
to cancel your Contract, you must return it to our Customer Service Center or to
one of our authorized registered representatives. We will send you a refund of
your Account Value plus any Asset-Based Charges and cost of insurance charges we
have deducted on or before the date we receive your returned Contract at our
Customer Service Center. If required by the law of your state, we will refund
your initial purchase payment (less any withdrawals previously taken). In those
latter states where this requirement exists, we will temporarily invest amounts
you allocate to the Variable
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Account to the Money Market Sub-Account until the time we deem the Free Look
Period to end. See "What Are My Investment Options?"
Making Additional Purchase Payments. You may make additional payments at
any time after the first Contract Anniversary, while your Contract is in force
and the Insured is alive, subject to the following conditions:
. Each additional purchase payment must be at least $250.
. You may make only one purchase payment in any Contract Year.
. The Attained Age of the Insured must be less than 81.
. We must approve in advance any payment that would cause the Account
Value of all single payment or modified single payment contracts that
you maintain with us to exceed $1,000,000.
While the Insured is alive, you also may make any additional payment
necessary to keep your Contract in force.
When we accept an additional payment, that payment increases your Account
Value and may increase your death benefit. We reserve the right to require
satisfactory evidence of insurability before accepting any additional payment
that increases your Death Benefit by more than it increases your Account Value.
This is because our risk increases under these circumstances.
All additional payments are payable at our Customer Service Center. We
will credit any payment we receive after the Contract Date to the Contract as of
the Business Day on which our Customer Service Center receives it unless the
payment represents an increase in the Insurance Amount. See "What Is the Death
Benefit Under My Contract?" We will deem purchase payments we receive on other
than a Business Day as received on the next following Business Day.
Unless you tell us otherwise, we will first consider all payments we
receive while a loan is outstanding as a payment of any loan interest, next as a
loan repayment, and last as an additional purchase payment.
Grace Period. If your Surrender Value on a Monthly Processing Date is not
sufficient to cover the Monthly Deduction Amount, we will allow you a Grace
Period of 61 days for you to pay an amount sufficient to cover the Monthly
Deduction Amount due. See "What Are The Expenses Under A Contract?" We will
send you a notice at the start of the Grace Period at your last known address.
The Grace Period will end 61 days after we mail you the notice.
If you do not make the necessary payment by the end of the Grace Period,
your Contract will terminate without value. Subject to the terms and conditions
of your Contract, if the Insured dies during the Grace Period, we will pay the
Death Proceeds.
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Reinstatement. If the Grace Period has ended and you have not paid the
necessary payment and have not surrendered your Contract for its Surrender
Value, you may be able to reinstate your Contract. To do so:
. submit a written request to us for reinstatement within 3 years after
the end of the Grace Period;
. provide us with satisfactory evidence of insurability;
. pay an additional purchase payment equal to the minimum initial
purchase payment for which we would then issue a Contract based upon
the Insured's Attained Age, sex, and health; and
. repay or reinstate any Debt against the Contract that existed at the
end of the Grace Period.
The effective date of a reinstated Contract will be the Monthly Processing
Date on or next following the date we approve your application for reinstatement
and receive the necessary purchase payment.
If we reinstate your Contract, the Account Value on the date of
reinstatement will be the amount provided by the purchase payment that you paid
to reinstate the Contract. Certain charges under the Contract vary depending on
how long the Contract has been in force. We will calculate these charges based
on the length of time from the Contract Date until the date of reinstatement.
Unless you have told us otherwise, we will calculate your Account Value based on
your allocation instructions in effect at the start of the Grace Period.
Specialized Uses of the Contract. The Contract offers potential benefits
such as providing:
. a means for investing on a tax-deferred basis;
. access to your investment if you need it; and
. life insurance that can pass free of federal and state income taxes to
your Beneficiaries under the Contract.
However, purchasing the Contract partly or wholly for such purposes entails
certain risks. For example, poor investment performance in Variable Sub-
Accounts in which you may invest may cause the need for an additional payment in
order to keep the Contract in force (this may be particularly true if there is
outstanding Debt). Such poor investment performance may cause the Account Value
or Surrender Value to be insufficient to fund the purpose for which you
purchased the Contract. Withdrawals and loans may significantly affect current
and future Account Value, Surrender Value, or Death Proceeds. Before purchasing
a Contract, you should consider whether the long-term nature of the Contract is
consistent with the purpose for which it is being considered. Using a Contract
for a specialized purpose may also have tax consequences. See "How Will My
Contract Be Taxed?"
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Illustrations. We have included hypothetical illustrations in this
Prospectus to show you how the Contract works. We have based these
illustrations on hypothetical rates of return and we do not guarantee these
rates. The rates are an illustration only, and do not represent past or future
investment performance. Your actual Contract values will be different from
those in the illustrations.
3. 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 currently require that each purchase payment allocation be at least
$250.
We may, however, require that an initial purchase payment allocated to a
Variable Sub-Account be temporarily invested in the Money Market Sub-Account
during the Free Look Period. We will require this if the law of your state
requires us to refund your full initial purchase payment less any withdrawals
previously taken, should you cancel your Contract during the Free Look Period.
At the end of the Free Look Period, if we temporarily allocated your initial
purchase payment to the Money Market Sub-Account, we will transfer the value of
what is in the Money Market Sub-Account to the Variable Sub-Account(s) you
specified in your application. Solely for the purpose of processing this
transfer from the Money Market Sub-Account, we will deem the Free Look Period to
end 15 days after the Contract Date. This transfer from the Money Market Sub-
Account to the Variable Sub-Accounts upon the expiration of the Free Look Period
does not count as a transfer for any other purposes under your Contract.
Variable Sub-Account Investment Options. The Variable Account has 33 Sub-
Accounts, each investing in a specific Fund. Each of the Funds is either an
open-end diversified management investment company or a separate investment
portfolio of such a company, and is managed by a registered investment adviser.
The Funds, as well as brief descriptions of their investment objectives, are
provided below. There is no assurance that these objectives will be met. Not
every Fund may be available in every state or in every market.
AIM Variable Insurance Funds, Inc.
AIM V.I. Government Securities Fund. This Fund seeks to achieve high
current income consistent with reasonable concern for safety of principal by
investing in debt securities issued, guaranteed or otherwise backed by the
United States Government.
AIM V.I. Growth and Income Fund. This Fund's primary objective is growth
of capital with a secondary objective of current income.
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AIM V.I. International Equity Fund. This Fund seeks to provide long-term
growth of capital by investing in a diversified portfolio of international
equity securities, whose issuers are considered to have strong earnings
momentum.
AIM V.I. Value Fund. This Fund seeks to achieve long-term growth of
capital by investing primarily in equity securities judged by the Fund's
investment adviser to be undervalued relative to the investment adviser's
appraisal of the current or projected earnings of the companies issuing the
securities, or relative to current market values of assets owned by the
companies issuing the securities or relative to the equity market generally.
Income is a secondary objective.
A I M 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.(R)
Alger American Income and Growth Portfolio. This Fund seeks primarily to
provide a high level of dividend income through investments in dividend-paying
equity securities. Capital appreciation is a secondary goal 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 (R) or the S&P SmallCap 600
Index.(R)
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. Growth and Income Fund, Variable Series ("U.S. Growth and
Income Fund") (formerly, Colonial U.S. Stock Fund, Variable Series). This Fund
seeks long-term growth by investing primarily in large capitalization equity
securities.
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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. Growth and Income 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.
SteinRoe Variable Investment Trust
Stein Roe Growth Stock Fund. This Fund seeks long-term growth of capital
through investment primarily in common stocks.
Stein Roe Balanced Fund. This Fund seeks high total investment return
through a changing mix of equities, debt securities, and cash.
Stein Roe & Farnham Incorporated advises the SteinRoe Variable Investment
Trust.
MFS(R) Variable Insurance Trust/SM/
MFS Growth With Income Series. This Fund seeks to provide reasonable
current income and long-term growth of capital 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.
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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 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 Capital Opportunities Series (formerly, MFS Value Series). This Fund
seeks capital appreciation. Dividend income, if any, is a consideration
incidental to the Fund's objective of capital appreciation.
MFS Investment Management(R) advises the MFS(R) Variable Insurance
Trust./SM/
Morgan Stanley Dean Witter 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 stock 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 the market as a whole
as measured by the S&P 500 Index.(R)
Morgan Stanley Dean Witter Investment Management Inc. advises the Global
Equity Portfolio. Miller Anderson & Sherrerd, LLP advises the Value Portfolio
and the Mid Cap Value Portfolio.
Oppenheimer Variable Account Funds
Oppenheimer Bond Fund/VA. This Fund seeks a high level of current income.
Secondarily, this Fund seeks capital growth when consistent with its primary
objective. The Fund will, under normal market conditions, invest at least 65%
of its total assets in investment grade debt securities.
Oppenheimer Capital Appreciation Fund/VA (formerly, Oppenheimer Growth
Fund). This Fund seeks to achieve capital appreciation by investing in
securities of well-known, established companies.
Oppenheimer Small Cap Growth Fund/VA. This Fund seeks capital
appreciation. Current income is not an objective. In seeking its investment
objective, the Fund emphasizes investments in securities of "growth type"
companies with market capitalizations of less than $1 billion, including
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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(R) Equity Index Fund. This Fund seeks to replicate as closely as
possible the performance of the Morgan Stanley Capital International Europe,
Australia, Far East Index before the deduction of Fund expenses.
S&P 500 Equity Index Fund. This Fund seeks to replicate as closely as
possible the performance of the S&P 500 Composite Stock Price Index before the
deduction of Fund expenses.
Money Market Fund. This Fund seeks to provide high current income
consistent with the preservation of capital and liquidity. Although the Fund
seeks to maintain a constant net asset value of $1.00 per share, there can be no
assurance that the Fund can do so on a continuous basis. An investment in the
Money Market Fund is not guaranteed.
Sage Advisors, Inc. is the investment manager to the Sage Life Investment
Trust. State Street Global Advisors subadvises the EAFE(R) Equity Index Fund
and S&P 500 Equity Index Fund. Conning Asset Management Company subadvises the
Money Market Fund.
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Income Portfolio. This Fund seeks to provide
substantial dividend income as well as long-term growth of capital through
investments in the common stocks of established companies.
T. Rowe Price Mid-Cap Growth Portfolio. This Fund seeks to provide long-
term capital appreciation by investing in mid-cap stocks with potential for
above-average earnings.
T. Rowe Price Personal Strategy Balanced Portfolio. The Fund seeks to
provide the highest total return over time, with an emphasis on both capital
growth and income. The Personal Strategy Balanced Portfolio invests in a
diversified portfolio of stocks, bonds, and money market securities.
T. Rowe Price Associates, Inc. provides investment management to the T.
Rowe Price Equity Series, Inc.
The investment objectives and policies of certain Funds may be similar to
those of other retail mutual funds which can be purchased outside of a variable
insurance product, and that are managed by the same investment adviser or
manager. The investment results of the Funds, however, may be higher or lower
than the results of such other retail mutual funds. There can be no assurance,
and no representation is made, that the investment results of any of the Funds
will be comparable to the investment results of
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any other retail mutual fund, even if the other retail mutual fund has the same
investment adviser or manager.
Shares of the Funds may be sold to separate accounts of insurance companies
that are not affiliated with us or each other, a practice known as "shared
funding." They also may be sold to separate accounts to serve as the underlying
investment for both variable annuity contracts and variable life insurance
contracts, a practice known as "mixed funding." As a result, there is a
possibility that a material conflict may arise between the interests of Owners
who allocate Account Values to the Variable Account, and owners of other
contracts who allocate contract values to one or more other separate accounts
investing in any of the Funds. Shares of some of the Funds may also be sold
directly to certain qualified pension and retirement plans qualifying under
Section 401 of the Code. As a result, there is a possibility that a material
conflict may arise between the interest of Owners or owners of other contracts
(including contracts issued by other companies), and such retirement plans or
participants in such retirement plans. In the event of any such material
conflicts, we will consider what action may be appropriate, including removing a
Fund from the Variable Account or replacing the Fund with another Fund. There
are certain risks associated with mixed and shared funding and with the sale of
shares to qualified pension and retirement plans, as disclosed in each Trust's
prospectus.
We have entered into agreements with either the investment adviser or
distributor for each of the Funds in which the adviser or distributor pays us a
fee ordinarily based upon an annual percentage of the average aggregate net
amount we have invested on behalf of the Variable Account and other separate
accounts. These percentages differ, and some investment advisers or
distributors pay us a greater percentage than other advisers or distributors.
These agreements reflect administrative services we provide.
More detailed information concerning the investment objectives, policies,
and restrictions of the Funds, the expenses of the Funds, the risks attendant to
investing in the Funds and other aspects of their operations can be found in the
current prospectus for each Trust which accompanies this Prospectus. You should
read the Trusts' prospectuses carefully before you decide to allocate amounts to
the Variable Sub-Accounts.
Fixed Account Investment Options. Each time you allocate purchase payments
or transfer funds to the Fixed Account, we establish a Fixed Sub-Account. We
guarantee an interest rate (the "Guaranteed Interest Rate") for each Fixed Sub-
Account for a period of time (a "Guarantee Period"). When you make an
allocation to the Fixed Sub-Account, we apply the Guaranteed Interest Rate then
in effect. (Keep in mind that we deduct charges from a Fixed Sub-Account, and
these deductions will reduce your actual return. See "What are the Expenses
Under a Contract?") We may establish specially designated Fixed Sub-Accounts
("DCA Fixed Sub-Accounts"), for our Dollar-Cost Averaging Program.
We have no specific formula for establishing the Guaranteed Interest Rates
for the different Guarantee Periods. The determination we make will be
influenced by, but not necessarily correspond to, interest rates available on
fixed income investments that we may acquire with the amounts we receive as
purchase payments or transfers of Account Value under the Contracts. We will
invest these amounts primarily in investment-grade fixed income securities
including: securities issued by the U.S. Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the U.S.
Government; debt securities that have an investment grade, at the time of
purchase, within the four highest
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grades assigned by Moody's Investor Services, Inc., Standard & Poor's
Corporation, or any other nationally recognized rating service; mortgage-backed
securities collateralized by real estate mortgage loans, or securities
collateralized by other assets, that are insured or guaranteed by the Federal
Home Loan Mortgage Corporation , the Federal National Mortgage Association, or
the Government National Mortgage Association, or that have an investment grade
at the time of purchase within the four highest grades described above; other
debt instruments; commercial paper; cash or cash equivalents. You will have no
direct or indirect interest in these investments, and you do not share in the
investment performance of the assets of the Fixed Account. We will also consider
other factors in determining the Guaranteed Interest Rates, including regulatory
and tax requirements, sales commissions, administrative expenses borne by us,
general economic trends, and competitive factors. The Company's management will
make the final determination of the Guaranteed Interest Rates it declares. We
cannot predict or guarantee the level of future interest rates. However, our
Guaranteed Interest Rates will be at least 3% per year. Guaranteed Interest
Rates do not depend upon and do not reflect the performance of the Fixed
Account.
We measure the length of a Guarantee Period from the end of the calendar
month in which you allocated or transferred the amount to the Fixed Sub-Account.
This means that the Expiration Date of any Guarantee Period will always be the
last day of a calendar month. The currently available Guarantee Periods are 1,
2, 3, 4, and 5 years. We may offer different Guarantee Periods in the future.
Not all Guarantee Periods may be available in all states.
We will notify you of your options for renewal at least thirty days before
an Expiration Date of a Fixed Sub-Account in which you are invested. Your
options are:
. Take no action and we will transfer the value of the expiring Fixed Sub-
Account to the Fixed Sub-Account with the same Guarantee Period, but not
longer than five years, as of the day the previous Fixed Sub-Account
expires. If such Guarantee Period is not currently available, we will
transfer your value to the next shortest Guarantee Period. If there is
no shorter Guarantee Period, we will transfer your value to the Money
Market Sub-Account.
. Elect a new Guarantee Period(s) from among those we offer as of the day
the previous Fixed Sub-Account expires.
. Elect to transfer the value of the Fixed Sub-Account to one or more
Variable Sub-Accounts.
Any amounts surrendered, withdrawn, transferred or borrowed other than
during the thirty days before the Expiration Date of the Guarantee Period are
subject to a Market Value Adjustment with the exception of the following
transactions:
. Transfers from DCA Fixed Sub-Accounts made automatically under our
Dollar-Cost Averaging Program; and
. Withdrawals of earned interest made automatically under our Systematic
Partial Withdrawal Program.
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Market Value Adjustment. A Market Value Adjustment reflects the change in
interest rates since we established a Fixed Sub-Account. It compares: (1) the
current Index Rate for a period equal to the time remaining in the Guarantee
Period, and (2) the Index Rate at the time we established the Fixed Sub-Account
for a period equal to the Guarantee Period.
Ordinarily, if the current Index Rate for a period equal to the time
remaining in the Guarantee Period is higher than the applicable Index Rate at
the time we established the Fixed Sub-Account, the Market Value Adjustment will
be negative. Similarly, if the current Index Rate for a period equal to the
time remaining in the Guarantee Period is lower than the applicable Index Rate
at the time we established the Fixed Sub-Account, the Market Value Adjustment
will be positive.
We will apply a Market Value Adjustment as follows:
. For a surrender, withdrawal, transfer, or amount borrowed, we will
calculate the Market Value Adjustment on the total amount (including any
applicable surrender charge) that must be surrendered, withdrawn,
transferred or borrowed to provide the amount requested.
. If the Market Value Adjustment is negative, it reduces any remaining
value in the Fixed Sub-Account, or amount of Surrender Value. Any
remaining Market Value Adjustment then reduces the amount withdrawn,
transferred, or borrowed.
. If the Market Value Adjustment is positive, it increases any remaining
value in the Fixed Sub-Account. In the case of surrender, or if you
withdraw, transfer or borrow the full amount of the Fixed Sub-Account,
the Market Value Adjustment increases the amount surrendered, withdrawn,
transferred, or borrowed.
We will compute the Market Value Adjustment by multiplying the factor below
by the total amount (including any applicable surrender charge) that must be
surrendered, withdrawn, transferred, or borrowed from the Fixed Sub-Account to
provide the amount you requested.
[(1+I)/(1+J+.0025)]to the Nth power divided by 365 - 1
Where
I is the Index Rate for a maturity equal to the Fixed Sub-Account's
Guarantee Period at the time we established the Sub-Account;
J is the Index Rate for a maturity equal to the time remaining
(rounded up to the next full year) in the Fixed Sub-Account's
Guarantee Period at the time of calculation; and
N is the remaining number of days in the Guarantee Period at the time
of calculation.
We currently base the Index Rate for a calendar week on the reported rate
for the preceding calendar week. We reserve the right to set it less frequently
than weekly but in no event less often than monthly. If there is no Index Rate
for the maturity needed to calculate I or J, we will use straight-line
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interpolation between the Index Rate for the next highest and next lowest
maturities to determine that Index Rate. If the maturity is one year or less,
we will use the Index Rate for a one-year maturity.
In the states of Maryland and Oregon, state insurance law requires that the
Market Value Adjustment be computed by multiplying the amount being surrendered,
withdrawn, transferred, or borrowed, by the greater of the factor above and the
following factor: [(1.03)/(1+K)](to the G power - the Nth power)/365) - 1, where
N is as defined above, K equals the Guaranteed Interest Rate for the Guarantee
Period, and G equals the initial number of days in the Guarantee Period. In the
state of Washington, we will not assess the Market Value Adjustment because of
state insurance law requirements. Because of these requirements, not all
Guarantee Periods are available in Washington state; please contact our Customer
Service Center for available Guarantee Periods.
Examples of how the Market Value Adjustment works are shown in Appendix A.
Transfers. You may transfer Account Value from and among the Variable and
Fixed Sub-Accounts at any time, subject to certain conditions. In certain
states, your right to transfer Account Value is restricted until after the end
of the Free Look Period. See "How Do I Purchase a Contract?" The minimum amount
of Account Value that you may transfer from a Sub-Account is $250, or, if less,
the entire remaining Account Value held in that Sub-Account. You must give us
Satisfactory Notice of the Sub-Accounts from which and to which we are to make
the transfers. Otherwise, we will not transfer your Account Value. A transfer
from a Fixed Sub-Account ordinarily will be subject to a Market Value
Adjustment. There is currently no limit on the number of transfers from and
among the Sub-Accounts.
A transfer ordinarily takes effect on the Business Day we receive
Satisfactory Notice at our Customer Service Center. We will deem requests
received on other than a Business Day as received on the next following Business
Day. We may, however, defer transfers to, from, and among the Variable Sub-
Accounts under the same conditions that we may delay paying proceeds.
We reserve the right to impose a transfer charge of up to $25 on each
transfer in a Contract Year in excess of twelve, and to limit, upon notice, the
maximum number of transfers you may make per calendar month or per Contract
Year. For purposes of assessing any transfer charge, we will consider each
transfer request one transfer, regardless of the number of Sub-Accounts affected
by the transfer.
In addition, we may not honor your transfer request if:
. Any Variable Sub-Account that would be affected by the transfer is
unable to purchase or redeem shares of the Fund in which the Variable
Sub-Account invests;
. We determine the transfer would adversely affect Accumulation Unit
values;
. Any affected Fund determines it would be adversely affected by the
transfer.
We also may not honor certain transfers made by individuals holding muliple
powers of attorney. See "What Are My Investment Options? - Power of Attorney,"
below.
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If you have applied proceeds under your Contract to a Settlement Option,
you must have our prior consent to transfer value from the Fixed Account to the
Variable Account or from the Variable Account to the Fixed Account. A Market
Value Adjustment ordinarily will apply to transfers from the Fixed Account. We
reserve the right to limit the number of transfers among the Variable Sub-
Accounts to one transfer per Contract Year.
Telephone Transactions. You may request transfers, withdrawals or loans by
telephone. We will not be liable for following instructions communicated by
telephone that we reasonably believe to be genuine. To request transfers,
withdrawals or loans by telephone, you must elect the option on our
authorization form. We will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. We may only be liable for
any losses due to unauthorized or fraudulent instructions where we fail to
follow our procedures properly. These procedures include: (a) asking you or
your authorized representative to provide certain identifying information; (b)
tape recording all such conversations; and (c) sending you a confirmation
statement after all such telephone transactions.
Our telephone transaction authorization form also allows you to create a
power of attorney by authorizing another person to give telephone instructions.
Unless prohibited by state law, we will treat such power as a durable power of
attorney. The Owner's subsequent incapacity, disability, or incompetency will
not affect the power of attorney. We may cease to honor the power by sending
written notice to you at your last known address. Neither we nor any person
acting on our behalf shall be subject to liability for any act done in good
faith reliance upon your power of attorney.
In addition to telephone transactions, we expect to be able to offer all of
these transactions via the Internet in the 4th quarter of 1999. We will send
Owners information about our web site and transactions that may be made through
it.
Power of Attorney. As a general rule and as a convenience to you, we allow
the use of powers of attorney whereby you can give a third party the right to
make transfers on your behalf. However, when the same third party possesses
powers of attorney executed by many Owners, the result can be simultaneous
transfers involving large amounts of Account Value. Such transfers can disrupt
the orderly management of the Funds, can result in higher costs to Owners, and
are ordinarily not compatible with the long-range goals of purchasers of the
Contracts. We believe that such simultaneous transfers made by such third
parties are not in the best interest of all shareholders of the Funds. The
managements of the Funds share this position.
Therefore, to the extent necessary to reduce the adverse effects of
simultaneous transfers made by third parties holding multiple powers of
attorney, we may not honor such powers of attorney and have instituted or will
institute procedures to assure that the transfer requests that we receive have,
in fact, been made by the Owners in whose names they are submitted. However,
you will not be prevented by these procedures from making your own transfer
requests.
Dollar-Cost Averaging Program. Our optional dollar-cost averaging program
permits you to systematically transfer (monthly or as frequently as we allow) a
set dollar amount from the Money Market Sub-Account to any combination of
Variable Sub-Accounts. We also allow dollar-cost averaging from the DCA Fixed
Sub-Accounts. These DCA Fixed Sub-Accounts may have different Guarantee Periods
and different Guaranteed Interest Rates than the Fixed Sub-Accounts.
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The dollar-cost averaging method of investment is designed to reduce the
risk of making purchases only when the price of Accumulation Units is high.
However, you should carefully consider your financial ability to continue the
program over a long enough period of time to purchase units when their value is
low as well as when high. Dollar-cost averaging does not assure a profit or
protect against a loss. Due to the effect of interest that continues to be
earned on the balance in the Money Market Sub-Account or a DCA Fixed Sub-
Account, the amounts we transfer will vary slightly from month to month. An
example of how our dollar-cost averaging program works is shown in Appendix B.
You may elect to participate in the dollar-cost averaging program at any
time before the proceeds are applied to a Settlement Option by sending us
Satisfactory Notice. The minimum transfer amount is $250 from the Money Market
Sub-Account or from a DCA Fixed Sub-Account. We will make all dollar-cost
averaging transfers on the day of each month that corresponds to your Contract
Date unless that date is not a Business Day. Otherwise, we will make the
transfer on the next following Business Day. If you want to dollar-cost average
from more than one DCA Fixed Sub-Account at the same time, certain restrictions
may apply.
Once elected, dollar-cost averaging remains in effect from the date we
receive your request until you surrender the Contract, until the value of the
Sub-Account from which transfers are being made is depleted, or until you cancel
the program by written request. If you request to cancel dollar-cost averaging
from a DCA Fixed Sub-Account before the end of the selected period, we reserve
the right to treat this request as a transfer request and transfer any proceeds
that remain to a Fixed Sub-Account that has the duration you request, and we
ordinarily will assess a Market Value Adjustment on the amount canceled. You
can request changes by writing us at our Customer Service Center. There is no
additional charge for dollar-cost averaging. We do not consider a transfer
under this program a transfer for purposes of assessing a transfer charge. We
reserve the right to discontinue offering this program at any time and for any
reason. Dollar-cost averaging is not available while you are participating in
the systematic partial withdrawal program.
Asset Allocation Program. You may select from asset allocation model
portfolios we make available, or you may use these models as a guide to help you
develop your own asset allocation model.
If you participate in the asset allocation program, we will automatically
allocate all initial and additional purchase payments among the Variable Sub-
Accounts indicated by the model you select. The models do not include
allocations to the Fixed Account. Although you may only use one model at a
time, you may elect to change your selection as your tolerance for risk, and/or
your needs and objectives change. Bear in mind, the use of an asset allocation
model does not guarantee investment results. You may use a questionnaire that
is offered to determine the model that best meets your risk tolerance and time
horizons.
Because each Variable Sub-Account performs differently over time, your
portfolio mix may vary from its initial allocations. We will automatically
rebalance your Fund mix quarterly to bring your portfolio back to its original
allocation percentages.
From time to time the models are reviewed and the allocation percentages
among the Variable Sub-Accounts or even some of the Variable Sub-Accounts within
a particular model may need to be
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changed. We will send you a notice at least 30 days before any such change is
made, and give you an opportunity not to make the change.
If you participate in the asset allocation program, the transfers made
under the program are not taken into account in determining any transfer charge.
There is no additional charge for this program. We reserve the right to
discontinue offering this program at any time and for any reason. Please contact
our Customer Service Center for more information about our asset allocation
program.
Automatic Portfolio Rebalancing Program. Once you allocate your money
among the Variable Sub-Accounts, the investment performance of each Variable
Sub-Account may cause your allocation to shift. Before proceeds are applied to
a Settlement Option, you may instruct us to automatically rebalance (on a
calendar quarter, semi-annual, or annual basis) your Variable Account Value to
return it to your original allocation percentages. Your request will be
effective on the Business Day on which we receive your request at our Customer
Service Center. We will deem requests received on other than a Business Day as
received on the next following Business Day. Your allocation percentages must
be in whole percentages. You may start and stop automatic portfolio rebalancing
at any time and make changes to your allocation percentages by written request.
There is no additional charge for using this program. We do not consider a
transfer under this program a transfer for purposes of assessing any transfer
charge. We reserve the right to discontinue offering this program at any time
and for any reason. We do not include any money allocated to the Fixed Account
in the rebalancing.
Account Value. The Account Value is the entire amount we hold under your
Contract for you. The Account Value serves as a starting point for calculating
certain values under your Contract. It equals the sum of the Variable Account
Value, the Fixed Account Value, and the Loan Account Value (each term as defined
below) credited to your Contract. We first determine your Account Value on the
Contract Date and after that on each Business Day. The Account Value will vary
to reflect:
. the performance of the Variable Sub-Accounts you have selected;
. interest credited on amounts you allocated to the Fixed Account;
. interest credited on amounts allocated to the Loan Account;
. any additional purchase payments; and
. charges, transfers, withdrawals, loans, and surrenders.
Your Account Value may be more or less than purchase payments you made.
Variable Account Value. Variable Account Value equals the sum of the
values in each Variable Sub-Account on any particular day. On the Contract
Date, the Variable Account Value for a Variable Sub-Account equals the portion
of the initial purchase payment allocated to the Sub-Account. On each
subsequent Business Day it equals:
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. the Variable Account Value in the Sub-Account on the preceding
Business Day multiplied by its net investment factor for the current
Valuation Period; plus
. the amount of any allocation or transfer to the Sub-Account during the
current Valuation Period; minus
. the amount of any transfer from the Sub-Account during the current
Valuation Period; minus
. the amount of any charges allocated to the Sub-Account during the
current Valuation Period; and minus
. the amount of any withdrawal or loan allocated to the Sub-Account
during the current Valuation Period.
We keep track of the Variable Account Value in each of your Variable Sub-
Accounts by the number of Accumulation Units in that Sub-Account. The value in
each Variable Sub-Account equals the number of Accumulation Units attributable
to that Variable Sub-Account multiplied by the Accumulation Unit value for that
Variable Sub-Account on that Business Day. When you allocate a purchase payment
or transfer Account Value to a Variable Sub-Account, we credit your Contract
with Accumulation Units in that Variable Sub-Account. We determine the number
of Accumulation Units by dividing the dollar amount allocated or transferred to
the Variable Sub-Account by the Sub-Account's Accumulation Unit value for that
Business Day. Similarly, when you transfer, withdraw, borrow, or surrender an
amount from a Variable Sub-Account, we cancel Accumulation Units in that
Variable Sub-Account. We determine the number of Accumulation Units canceled by
dividing the dollar amount you transferred, withdrew, borrowed, or surrendered
by the Variable Sub-Account's Accumulation Unit value for that Business Day.
Accumulation Unit Value. An Accumulation Unit value varies to reflect the
investment experience of the underlying Fund, and may increase or decrease from
one Business Day to the next. We arbitrarily set the Accumulation Unit value
for each Variable Sub-Account at $10 when we established the Sub-Account. For
each Valuation Period after the date of establishment, we determine the
Accumulation Unit value by multiplying the Accumulation Unit value for a Sub-
Account for the prior Valuation Period by the net investment factor for the
Variable Sub-Account for the Valuation Period.
Net Investment Factor. The net investment factor is an index we use to
measure the investment performance of a Variable Sub-Account from one Valuation
Period to the next. We determine the net investment factor for any Valuation
Period by dividing (a) by (b) where:
(a) is the net result of:
(i) the Net Asset Value of the Fund in which the Variable Sub-Account
invests determined at the end of the current Valuation Period; plus
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(ii) the per share amount of any dividend or capital gain
distributions made by the Fund on shares held in the Variable Sub-
Account if the "ex-dividend" date occurs during the current Valuation
Period; and plus or minus
(iii) a per share charge or credit for any taxes reserved for, which
we determine to have resulted from the operations of the Variable Sub-
Account; and
(b) is the Net Asset Value of the Fund in which the Variable Sub-Account
invests determined at the end of the immediately preceding Valuation
Period.
The net investment factor may be more or less than, or equal to, one.
Fixed Account Value. Fixed Account Value is the sum of the values in each
Fixed Sub-Account (including a DCA Fixed Sub-Account) on any particular date.
On the Contract Date the Fixed Account Value for a Sub-Account equals the
portion of the initial purchase payment allocated to the Sub-Account. On each
subsequent Business Day it equals:
. the Fixed Account Value in the Sub-Account on the preceding Business
Day multiplied by the daily equivalent of its Guaranteed Interest Rate
earned for the number of days in the current Valuation Period; plus
. the amount of any allocation or transfer to the Sub-Account during the
current Valuation Period; minus
. the amount of any transfer from the Sub-Account during the current
Valuation Period; minus
. the amount of any charges allocated to the Sub-Account during the
current Valuation Period; and minus
. the amount of any withdrawal or loan allocated to the Sub-Account
during the current Valuation Period.
We also adjust the Fixed Account Value for any Market Value Adjustment, the
value of which could be positive or negative.
Loan Account Value. Unless you take a loan, the Loan Account Value is
zero. If you take a loan, then on the effective date of the loan the Loan
Account Value equals the amount of the loan. On each subsequent Business Day it
equals:
. the Loan Account Value on the preceding Business Day; plus
. the amount of interest earned (at the loan credited rate) on Loan
Account Value during the current Valuation Period; plus
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. any amounts transferred to the Loan Account because of any additional
loans and any due and unpaid loan interest during the current
Valuation Period; minus
. the amount of any loan repayment you make during the current Valuation
Period; and minus
. any amount of interest earned on Loan Account Value and transferred to
the Sub-Accounts during the current Valuation Period.
Surrender Value. The Surrender Value on a Business Day is the Account
Value, plus or minus any applicable Market Value Adjustment, reduced by any
applicable surrender charge or other charges that are due us but not yet
deducted, less any Debt.
4. What Are The Expenses Under A Contract?
We deduct the charges described below. The charges are for the services
and benefits we provide, costs and expenses we incur, and risks we assume under
the Contracts. Services and benefits we provide include:
. the ability of Owners to make withdrawals, surrenders, and take loans
under the Contracts;
. the death benefit paid on the death of the Insured;
. the available investment options, including dollar-cost averaging,
asset allocation, automatic portfolio rebalancing, and systematic
partial withdrawal programs;
. administration of the Settlement Options available under the
Contracts; and
. the distribution of various reports to Owners.
Costs and expenses we incur include:
. those related to various overhead and other expenses associated with
providing the services and benefits provided by the Contracts;
. sales and marketing expenses; and
. other costs of doing business.
Risks we assume include:
. the risks that Insureds may live for a shorter period than we
estimated when we established the mortality factors under the
Contracts; and
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. that the costs of providing the services and benefits under the
Contracts will exceed the charges deducted.
We may realize a profit or loss on one or more of the charges. We may use
any such profits for any corporate purpose, including, among other things,
payment of sales expenses.
To assist you in understanding how the expenses under a Contract will
affect values, we have included hypothetical illustrations beginning on page __.
You can also request a personalized illustration from your registered
representative.
Unless we otherwise specify, we will deduct charges proportionately from
all Variable Sub-Accounts and Fixed Sub-Accounts in which you are invested.
We may reduce or eliminate charges under the Contracts when sales result in
savings, reduction of expenses and/or risks to the Company. Generally, we will
make such reductions based on the following factors:
. the size of the group;
. the total amount of purchase payments to be received from the group;
. the purposes for which the Contracts are purchased;
. the nature of the group for which the Contracts are purchased; and
. any other circumstances that could reduce Contract costs and expenses.
We may also sell the Contracts with lower or no charges to a person who is
an officer, director or employee of Sage Life or of certain affiliates or
service providers of ours. Reductions in Contract charges will not be unfairly
discriminatory against any person. Please contact our Customer Service Center
for more information about those cost reductions.
Monthly Deduction Amount
We deduct the Monthly Deduction Amount on each Monthly Processing Date. It
equals:
. the Asset-Based Charges, plus
. the cost of insurance charge, plus
. the cost of any riders for which a separate charge is assessed, and
plus
. any other applicable charge that we assess.
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On a Monthly Processing Date that is also a Contract Anniversary, the Monthly
Deduction Amount equals the Monthly Deduction Amount described above, plus the
Annual Administration Charge.
Asset-Based Charges. We assess Asset-Based Charges against your Contract for
assuming mortality and expense risks, certain administrative and distribution
costs, and certain state and Federal tax expenses. We calculate the charges as a
percentage of your Account Value as of the date we deduct them. On the Contract
Date, and monthly thereafter, we deduct the charges proportionately from the
Sub-Accounts in which you are invested.
The maximum asset-based charges are:
Annual Charge Asset-Based Charges Monthly Charge
- --------------- ------------------- ---------------
1.80% Contract Years 1-10 0.150000%
1.30% Contract Years 11+ 0.108333%
Asset-Based Charges will also apply to any Loan Account Value you have. (If
you have not taken a loan, then no charges will be assessed.) The current
charges applicable to the Loan Account Value are, on an annual basis, 0.90%
(0.075000% monthly), decreasing to .40% (0.033333% monthly) after the tenth
Contract Year.
If proceeds are applied to a Settlement Option, we will deduct the Asset-Based
Charges daily from the assets in each Variable Sub-Account supporting variable
income payments. We refer to these charges as Variable Sub-Account Charges when
applied to the proceeds under a Settlement Option.
Cost of Insurance Charge. We deduct the cost of insurance charge from your
Account Value to compensate us for providing life insurance for the Insured.
Current Cost of Insurance Charge. The current cost of insurance charge is the
actual monthly charge that we deduct from your Account Value. We calculate this
charge as a percentage of your Account Value on the date of deduction. On the
Contract Date, and monthly thereafter, we deduct the current cost of insurance
charge in proportion to the Sub-Accounts in which you are invested. The maximum
charge will never be more than the guaranteed maximum monthly cost of insurance
charge described below.
We determine the current cost of insurance charge based on our expectation of
future mortality experience. Your cost of insurance charge will depend on the
Insured's risk class. The two standard risk classes are smoker and nonsmoker.
We generally charge higher rates for smokers.
We also place Insureds in various sub-standard risk classes, if the
underwriting warrants doing so. These sub-standard risk classes involve a
higher mortality risk and, therefore, higher charges.
At present, in most states the current cost of insurance charges as an annual
percentage of Account Value are 0.55% and 0.85% for standard nonsmokers and
smokers, respectively, and 0.75% and 1.40% for sub-standard nonsmokers and
smokers, respectively. We will apply any charge we make on a uniform basis for
Insureds of the same risk class and Attained Age.
Guaranteed Maximum Monthly Cost of Insurance Charge. The maximum monthly cost
of insurance charge equals (a) times (b) and then divided by (c), where:
(a) is the maximum Cost of Insurance Rate per $1,000 shown in your
Contract based on the Insured's Attained Age, gender and risk class;
(b) is an amount equal to the death benefit minus the Account Value; and
(c) is $1,000.
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For standard risks, we base the guaranteed cost of insurance charge on the
1980 Commissioners Standard Ordinary Mortality Table, Male/Female, Age Last
Birthday ("1980 CSO"). Because the mortality table differentiates between men
and women, the Contract may pay different benefits to men and women of the same
age, even if all other factors are the same. Certain states, however, may
require unisex rates. We include a table of guaranteed maximum cost of
insurance rates per $1,000 in your Contract. For substandard risks, we base the
guaranteed cost of insurance charge on a multiple of the 1980 CSO. We will base
the multiple on the Insured's substandard rating.
Annual Administration Charge
We will deduct an annual administration charge of $40 for the first seven
Contract Years (i) on each Contract Anniversary, and (ii) on the day of any
surrender if the surrender is not on the Contract Anniversary. We will waive
this charge on and after the eighth Contract Anniversary, or if the Account
Value is at least $50,000 when we would have otherwise deducted the annual
administration charge.
Surrender Charge
If you make an Excess Withdrawal or surrender your Contract during the first
seven Contract Years, we may deduct a surrender charge calculated as a
percentage of the amount of purchase payment(s) withdrawn or surrendered. We
apply the surrender charge to each purchase payment as a percentage of the
payment as follows:
Complete Years Elapsed Maximum Surrender
Since Contract Date Charge Percentage
--------------------------- ---------------------
0 9%
1 9%
2 8%
3 7%
4 6%
5 5%
6 3%
7+ 0%
If you surrender your Contract, we deduct the surrender charge from your
Account Value in determining the Surrender Value. If you take an Excess
Withdrawal, we deduct the surrender charge from your Account Value remaining
after we pay you the amount requested. We include any surrender charge we
assess in the calculation of any applicable Market Value Adjustment for
withdrawals from the Fixed Account. Each year you may withdraw the "Free
Withdrawal Amount" without incurring a surrender charge. The Free Withdrawal
Amount equals the greater of:
(i) 10% of your total purchase payments; less all prior withdrawals in
that Contract Year (including any associated surrender charge and
Market Value Adjustment incurred); or
(ii) cumulative earnings (i.e., the excess of the Account Value on the date
of withdrawal over unliquidated purchase payments).
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With an Excess Withdrawal, we will liquidate purchase payments in whole or
in part on a "first-in, first-out" basis. This means we liquidate purchase
payments in the order you made them: the oldest unliquidated purchase payment
first, the next oldest unliquidated purchase payment second, until all purchase
payments have been liquidated.
The total surrender charge will be the sum of the surrender charges for
each purchase payment being liquidated. The amount you request from a Sub-
Account may not exceed the value of that Sub-Account less any applicable
surrender charge.
Example of Calculation of Surrender Charge. Assume the applicable
surrender charge is 7%, you have requested a withdrawal of $2,000 and no Market
Value Adjustment is applicable. Your total purchase payments are $10,000, your
current Account Value is $10,500, and you made no prior withdrawals during that
Contract Year. Your Free Withdrawal Amount is the greater of (a) or (b), where:
(a) is the excess of 10% of the total purchase payments, over 100% of all
prior withdrawals in that Contract Year (including any associated surrender
charge and Market Value Adjustment incurred) (10% x $10,000 = $1,000); and
(b) is the excess of the Account Value on the date of withdrawal over the
unliquidated purchase payments ($10,500- $10,000 = $500).
Therefore, the Free Withdrawal Amount is $1,000. A surrender charge will
apply to the excess of $2,000 over $1,000. The surrender charge equals $70 (7%
x $1,000).
Waiver of Surrender Charge. We will not deduct a surrender charge if, at
the time we receive your request for a withdrawal or a surrender, we have also
received due proof that you have been confined continuously to a "Qualifying
Hospital or Nursing Care Facility" for at least 45 days in a 60 day period. We
define "Qualifying Hospital or Nursing Care Facility" in your Contract.
Transfer Charge
We currently do not deduct this charge. However, we reserve the right to
deduct a transfer charge of up to $25 for the 13th and each subsequent transfer
during a Contract Year. For the purpose of assessing the transfer charge, we
consider each written or telephone request to be one transfer, regardless of the
number of Sub-Accounts affected by the transfer. In the event that the transfer
charge becomes applicable, we will deduct it proportionately from the Sub-
Accounts from which you made the transfer. Transfers made in connection with
the dollar-cost averaging, asset allocation, and automatic portfolio rebalancing
programs will not count as transfers for purposes of assessing this charge.
Fund Annual Expenses
Because the Variable Account purchases shares of the various Funds you
choose, the net assets of the Variable Account will reflect the investment
management fees and other operating expenses incurred by those Funds. These
Fund fees and other expenses are shown in the Summary under "What Are the
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Expenses Under A Contract?" For a description of each Fund's expenses,
management fees, and other expenses, see the Trusts' prospectuses.
5. How Will My Contract Be Taxed?
Introduction
The following summary provides a general description of the Federal
income tax considerations associated with the Contract and does not purport to
be complete or to cover all situations. This discussion is not intended as tax
advice. Please consult counsel or other competent tax advisers for more
complete information. This discussion is based upon our understanding of the
present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present Federal income tax laws or of the
current interpretations by the Internal Revenue Service.
If you are considering a Contract in connection with a qualified retirement
plan, you should consult a qualified tax adviser.
Tax Status of the Contract
Definition of Life Insurance. Section 7702 of the Code defines a life
insurance contract for Federal income tax purposes.
The Section 7702 definition can be met if a life insurance contract
satisfies either one of two tests in that section. The manner in which these
tests should be applied to certain features of the Contract is not directly
addressed by Section 7702 or proposed regulations issued under that section.
The presence of these Contract features, the absence of final regulations, and
the lack of other pertinent interpretations of Section 7702, thus create some
uncertainty about the application of Section 7702 to the Contract.
Nevertheless, we believe that it is reasonable to conclude that the Contract
qualifies as a life insurance contract for federal tax purposes, so that:
. the death benefit should be fully excludible from the gross income of
the beneficiary under Section 101(a)(1) of the Code; and
. the Owner should not be considered in constructive receipt of the
Surrender Value, including any increases, unless and until they are
distributed from the Contract.
If a Contract were determined not to be a life insurance contract for
purposes of Section 7702, it would not provide most of the tax advantages
normally provided by a life insurance contract. Therefore, we reserve the right
to make changes in the Contract if we deem them necessary to attempt to assure
its qualification as a life insurance contract for tax purposes.
Diversification and Investor Control. Section 817(h) of the Code requires
that the investments of each of the Sub-Accounts must be "adequately
diversified" in accordance with Treasury regulations in
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order for the Contract to qualify as a life insurance contract under the Code.
The Sub-Accounts, through the Funds, intend to comply with the diversification
requirements prescribed in Treas. Reg. Sec.1.817-5, which affect how a Fund's
---
assets are to be invested. We believe that the Sub-Accounts will, therefore,
meet the diversification requirements, and we will monitor continued compliance
with this requirement.
In certain circumstances, owners of variable life insurance contracts may
be considered the owners, for federal income tax purposes, of the assets of the
sub-accounts used to support their contracts. In those circumstances, income
and gains from the sub-account assets would be included in the variable contract
owner's gross income. The IRS has stated in published rulings that a variable
contract owner will be considered the owner of sub-account assets if the
contract owner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Owner), rather than the insurance
company, to be treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by way of regulations or
rulings on the "extent to which policyholders may direct their investments to
particular sub-accounts without being treated as owners of the underlying
assets."
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of sub-account assets. For
example, an Owner has additional flexibility in allocating purchase payments and
Contract values and the investment objective of certain Funds may be narrower.
These differences could result in an Owner being treated as the owner of a pro
rata portion of the assets of the Sub-Accounts. In addition, we do not know
what standards will be set forth, if any, in the regulations or rulings that the
Treasury Department has stated it expects to issue. Therefore, we reserve the
right to modify the Contract as necessary to attempt to prevent an Owner from
being considered the owner of a pro rata share of the assets of the Sub-
Accounts.
The following discussion assumes that the Contract will qualify as a life
insurance contract for federal income tax purposes.
Tax Treatment of Contract Benefits
In General. We believe that the proceeds and Account Value increases of a
Contract should be treated in a manner consistent with a fixed-benefit life
insurance contract for federal income tax purposes. Thus, the death benefit
under the Contract should be excludible from the gross income of the Beneficiary
under Section 101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Contract, a Contract
loan, a withdrawal, a surrender, a change in ownership, or an assignment of the
Contract may have federal income tax consequences. In addition, federal, state
and local transfer, and other tax consequences of ownership or receipt of
Contract proceeds depend on the circumstances of each Owner or Beneficiary.
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The Contract may continue after the Insured attains age 100. The tax
consequences associated with continuing a Contract beyond age 100 are unclear.
A qualified tax adviser should be consulted on this issue.
The Contract may also be used in various arrangements, including non-
qualified deferred compensation or salary continuation plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of these plans may vary depending on the
particular facts and circumstances of each individual arrangement. Therefore,
if you are considering using a Contract in any arrangement the value of which
depends in part on its tax consequences, you should consult a qualified tax
adviser regarding the tax attributes of the particular arrangement. Moreover,
in recent years, Congress has adopted new rules relating to corporate owned life
insurance. Any business considering the purchase of a new life insurance
contract or a change in an existing contract should consult a qualified tax
adviser.
Generally, the Owner will not be deemed to be in constructive receipt of
the Contract Account Value, including increments thereof, until there is a
distribution. The tax consequences of distributions from, and loans taken from
or secured by, a Contract depend on whether the Contract is classified as a
"Modified Endowment Contract" ("MEC"). You should be aware that in almost all
cases, the Contracts will be MECs. Whether a Contract is or is not a MEC,
upon a surrender or lapse of a Contract, if the amount received plus the amount
of indebtedness exceeds the total investment in the Contract, the excess will
generally be treated as ordinary income subject to tax.
Modified Endowment Contracts. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts." In general, a
Contract will be a MEC if the accumulated premiums paid at any time during the
first seven Contract Years exceed the sum of the net level premiums that would
have been paid on or before such time if the Contract provided for paid-up
future benefits after the payment of seven level annual premiums. The
determination of whether a Contract will be a MEC after a material change
generally depends upon the relationship of the death benefit and Contract
Account Value at the time of the change and the additional premiums paid in the
seven years following the material change. While classification as a MEC
therefore will depend on the individual circumstances of each Contract, in
almost all cases the Contracts are expected to be MECs.
Distributions from Contracts Classified as Modified Endowment Contracts.
Contracts classified as MECs will be subject to the following tax rules: First,
all distributions, including distributions upon surrender and withdrawals, are
treated as ordinary income subject to tax up to the amount equal to the excess
(if any) of the Contract Account Value immediately before the distribution over
the investment in the Contract (described below) at such time. Second, loans
taken from or secured by such a Contract are treated as distributions and taxed
accordingly. Past due loan interest that is added to the loan amount will be
treated as a loan. Third, a 10 percent additional Federal income tax is imposed
on the portion of any distribution from, or loan taken from or secured by, such
a Contract that is included in income except where the distribution or loan is
made on or after the Owner attains age 59 1/2, is attributable to the Owner's
becoming disabled, or is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Owner or the joint lives (or
joint life expectancies) of the Owner and the Owner's beneficiary.
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If a Contract becomes a MEC after we issue it, distributions made during
the Contract Year in which it becomes a Modified Endowment Contract,
distributions in any subsequent Contract Year and distributions within two years
before the Contract becomes a MEC will be subject to the tax treatment
described above. This means that a distribution from a Contract that is not a
MEC could later become taxable as a distribution from a MEC.
Distributions From Contracts Not Classified as Modified Endowment
Contracts. Any Contract we issue in exchange for a MEC will be subject to the
tax treatment accorded to MECs. However, we believe that any Contract we issue
in exchange for a life insurance contract that is not a MEC ("non-MEC")
generally will not be treated as a MEC if the death benefit of the Contract is
greater than or equal to the death benefit of the contract being exchanged. The
payment of any premiums at the time of or after the exchange may, however, cause
the Contract to become a MEC. A Contract Owner may, of course, choose not to
exercise the right to make additional payments in order to prevent a Contract
from being treated as a MEC. Since the rules as to whether that Contract could
become a MEC as the result of a proposed Contract transaction are complex and
cannot be fully described in this summary, Owners should consult with a
qualified tax advisor to determine whether such a Contract transaction would
cause a Contract that is not a MEC to be treated as a MEC.
If your Contract is not a MEC because of an exchange described above,
distributions from the Contract are generally treated as first recovering the
investment in the Contract (described below) and then, only after the return of
all such investment in the Contract, as distributing taxable income. An
exception to this general rule occurs in the case of a decrease in the
Contract's death benefit or any other change that reduces benefits under the
Contract in the first 15 years after the Contract is issued and that results in
a cash distribution to the Owner in order for the Contract to continue complying
with the Section 7702 definitional limits. Such a cash distribution will be
taxed in whole or in part as ordinary income (to the extent of any gain in the
Contract) under rules prescribed in Section 7702.
Loans from, or secured by, a Contract that is not a MEC are not treated as
distributions. Instead, such loans are generally treated as indebtedness of the
Owner. However, the tax consequences associated with a preferred loan from, or
secured by, a contract that is not a MEC are unclear and a tax advisor should
be consulted before effecting such a loan. See "How Do I Access My Money?"
Finally, the 10 percent additional penalty tax does not apply to
distributions (including distributions upon surrender) and loans from, or
secured by, a Contract that is not a MEC.
Withdrawals from Settlement Option 4. When withdrawals (other than
scheduled settlement option income payments) are taken from the cash value of
life insurance after the effective date of a settlement option, such as that
offered by this Prospectus under the term certain option (Settlement Option 4.
See "What Are My Settlement Options?"), then all amounts received by the
taxpayer are likely taxable at ordinary income rates as amounts "not received as
an annuity." In addition, such amounts are taxable to the recipient without
regard to the owner's investment in the contract or any investment gain which
might be present in the current settlement option value. For example, under
this view, an Owner with a cash value of $100,000 seeking to obtain $20,000 of
the Account Value immediately after application of proceeds to a Settlement
Option under a term certain payout, would pay income taxes on the entire $20,000
amount in that tax year. This adverse tax result means that Owners should
consider carefully the
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tax implications of any withdrawal requests and their need for Contract funds
before the exercise of this right. Owners should also contact their tax adviser
before making such withdrawals.
Market Value Adjustments. There is no definitive guidance on the proper
tax treatment of a Market Value Adjustment. An Owner should consult with a
qualified tax adviser with respect to the potential tax consequences of such an
adjustment.
Contract Loan Interest. Interest paid on any loan under a Contract
generally is not deductible. An Owner should consult a tax adviser before
deducting any Contract loan interest.
Investment in the Contract. Investment in the Contract means: (i) the
aggregate amount of any premiums or other consideration paid for a Contract,
minus (ii) the aggregate amount received under the Contract that is excluded
from gross income of the Owner (except that the amount of any loan from, or
secured by, a Contract that is a MEC, to the extent the amount is excluded from
gross income, will be disregarded), plus (iii) the amount of any loan from, or
secured by, a Contract that is a MEC to the extent that the amount is included
in the gross income of the Owner.
Multiple Policies. All MECs that we (or our affiliates) issue to the same
Owner during any calendar year are treated as one MEC for purposes of
determining the amount includable in the gross income under Section 72(e) of the
Code.
Pension or Profit-Sharing Plan or Similar Deferred Compensation
Arrangement. If the Contract is used in connection with a pension or
profit-sharing plan, or similar deferred compensation arrangement, the Federal,
state and estate tax consequences could differ. The amounts of life insurance
that may be purchased on behalf of a participant in a pension or profit-sharing
plan are limited. The current cost of insurance for the net amount at risk is
treated as a "current fringe benefit" and must be included annually in the plan
participant's gross income. We report this cost (generally referred to as the
"P.S. 58" cost) to the participant annually. If the plan participant dies while
covered by the plan and the Contract proceeds are paid to the participant's
beneficiary, then the excess of the death benefit over the cash value is not
taxable. However, the cash value will generally be taxable to the extent it
exceeds the participant's cost basis in the Contract. Contracts owned under
these types of plans may be subject to restrictions under the Employee
Retirement Income Security Act of 1974 ("ERISA"). You should consult a qualified
adviser regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as non-taxable. Plan loan requirements and
provisions may differ from Contract loan provisions. Failure of plan loans to
comply with the requirements and provisions of the DOL regulations and of tax
law may result in adverse tax consequences and/or adverse consequences under
ERISA. Plan fiduciaries and participants should consult a qualified adviser
before requesting a loan under a Contract held in connection with a retirement
plan.
Other Arrangements. If the Contract is used in connection with various
other arrangements, including non-qualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, tax
exempt and non-exempt welfare benefit plans, retiree medical benefit plans and
others, the tax consequences of such plans may vary depending on the particular
facts and
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circumstances. If you are purchasing the Contract for any arrangement the value
of which depends in part on its tax consequences, you should consult a qualified
tax adviser. In recent years, moreover, Congress has adopted new rules relating
to life insurance owned by businesses. Any business contemplating the purchase
of a new Contract or a change in an existing Contract should consult a tax
adviser.
Possible Legislative Changes
Although the likelihood of legislative changes is uncertain, there is
always the possibility that tax treatment of the Contract could change by
legislation or other means. Moreover, it is also possible that any change could
be retroactive (that is, effective prior to the date of the change). You should
consult a qualified tax adviser with respect to legislative developments and
their effect on the Contract.
Possible Charge for Sage Life's Taxes
At the present time, we make no charge for any Federal, state or local
taxes that we incur that may be attributable to the Sub-Accounts or to the
Contracts. However, we reserve the right to make additional charges in the
future for any such tax or other economic burden resulting from the application
of the tax laws that we determine to be properly attributable to the Sub-
Accounts or to the Contracts. If any tax charges are made in the future, they
will be accumulated daily and transferred from the applicable Sub-Account to our
General Account. We will retain any investment earnings on tax charges
accumulated in a Sub-Account.
6. How Do I Access My Money?
You may access the money in your Contract: (1) by making a withdrawal or a
surrender, or (2) by taking a loan from your Contract. If you surrender your
Contract, you can take the proceeds in a single sum, or you can request that we
pay the proceeds over a period of time under one of our Settlement Options. See
"What Are My Settlement Options?"
Withdrawals
You may withdraw all or part of your Surrender Value at any time while your
Contract is in force during the Insured's lifetime. (If you have elected
variable Settlement Option 4, Payments for a Specified Period Certain, you may
request a full or partial withdrawal after the date the Settlement Option
becomes effective; otherwise, no withdrawals are permitted after the effective
date of a Settlement Option.) You may make your withdrawal request in writing
or by telephone. See "Requesting Payments." Any withdrawal must be at least
$250. If a withdrawal request would reduce your Account Value remaining in a
Sub-Account below $250, we will treat the withdrawal request as a request to
withdraw the entire amount. If a requested withdrawal would reduce your Account
Value below $5,000, we reserve the right to treat the request as a withdrawal of
only the excess over $5,000. We will pay you the withdrawal amount in one sum.
Under certain circumstances, we may delay this payment. See "Requesting
Payments."
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When you request a withdrawal, you can direct how we deduct the withdrawal
from your Account Value. If you provide no directions, we will deduct the
withdrawal from your Account Value in the Sub-Accounts on a pro-rata basis.
When you make a withdrawal, we reduce the Account Value by the amount of
the withdrawal (including any associated surrender charges and Market Value
Adjustment incurred). We also reduce the Insurance Amount by the same
percentage that the withdrawal (including any associated surrender charge and
Market Value Adjustment incurred) reduced Account Value.
A withdrawal may have adverse tax consequences. See "How Will My Contract
Be Taxed?"
Systematic Partial Withdrawal Program
The systematic partial withdrawal program provides automatic monthly,
quarterly, semi-annual, or annual payments to you from the amounts you have
accumulated in the Sub-Accounts. You select the day we take the withdrawals,
but this day can be no later than the 28th day of the month. If you do not
select a day, we will use the day of each month that corresponds to your
Contract Date. If that date is not a Business Day, we will use the next
following Business Day. The minimum payment is $100. You can elect to withdraw
either earnings in a prior period (for example, prior month for monthly
withdrawals or prior quarter for quarterly withdrawals) or a specified dollar
amount.
. If you elect earnings, we will deduct the withdrawals from the
Sub-Accounts in which you are invested on a pro-rata basis.
. If you elect a specified dollar amount, we will deduct the withdrawals
from the Sub-Accounts in which you are invested on a pro-rata basis
unless you tell us otherwise. Any amount in excess of the Free
Withdrawal Amount may be subject to a surrender charge. See "What Are
The Expenses Under A Contract?" Also, any amount in excess of interest
earned on a Fixed Sub-Account in the prior Guarantee Period ordinarily
will be subject to a Market Value Adjustment. See "What Are My
Investment Options?"
You may participate in the systematic partial withdrawal program at any
time during the Insured's lifetime by providing Satisfactory Notice. Once we
receive your request, the program will begin and will remain in effect until
your Account Value drops to zero. You may cancel or make changes in the program
at any time by providing us with Satisfactory Notice. We do not deduct any other
charges for this program. We reserve the right to discontinue the systematic
partial withdrawal program at any time and for any reason. Systematic partial
withdrawals are not available while you are participating in the dollar-cost
averaging program.
A systematic withdrawal may have adverse tax consequences. See "How Is My
Contract Taxed?"
Surrenders
You may cancel and surrender your Contract at any time during the Insured's
lifetime. Your Contract will terminate on the Valuation Date we receive your
request or a later date as you might request. We will pay you the Surrender
Value in one sum unless you choose a Settlement Option. (Unless you
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choose Settlement Option 4, you cannot surrender your Contract once payments
have begun under a Settlement Option.) Under certain circumstances, we may delay
payments of proceeds from a surrender. See "Requesting Payments."
A surrender may have adverse tax consequences. See "How Will My Contract
Be Taxed?"
Loans
While your Contract is in force and after the Free Look Period, you may
request a loan by giving us Satisfactory Notice. Unless you tell us otherwise,
we will transfer an amount equal to the loan from the Sub-Accounts to the Loan
Account in proportion to the Account Value in each Sub-Account in which you are
invested as of the date we process the loan. We use the Loan Account Value as
collateral for your loan. Your Contract will be the only security we require
for the loan. Any loan must be at least $250.
A loan may have adverse tax consequences. See "How Is My Contract Taxed?"
Maximum Loanable Value. The maximum amount that you may borrow ("maximum
loanable value") is 90% of the Account Value less any surrender charge and less
any due and unpaid Monthly Deduction Amount. The amount of the loan and all
existing loans may not be more than the maximum loanable value as of the loan
date, which is the date we process the loan.
If on any Business Day where there is Debt outstanding and the Surrender
Value is negative, we will send you an overloan notice at your last known
address. You will then have 61 days from the date we send the notice to avoid
termination of your Contract by paying us at least the minimum repayment amount
listed in the notice.
Loan Repayment. You may repay all or part of your loan at any time while
your Contract is in force during the Insured's lifetime. Any loan repayment
must be at least $250. If the Grace Period has expired and the Contract has
terminated, any Debt that exists at the end of the Grace Period may not be
repaid unless you reinstate your Contract.
Unless you tell us otherwise, we will transfer an amount equal to the loan
repayment from the Loan Account to the Sub-Accounts in the same proportion as
your most recent purchase payment.
Loan Interest. Interest on the loan accrues daily at a loan interest rate
of 6% per annum, and is due on each Contract Anniversary. If you do not pay
loan interest when due, we will transfer the difference between the Loan Account
and Debt from the Sub-Accounts to the Loan Account in proportion to the Account
Value in each Sub-Account in which you are invested.
Interest Credited. The portion of your Account Value represented by the
Loan Account will earn interest daily from the date of transfer at a minimum
loan credited rate of 4% per annum.
However, the Preferred Loan Amount will earn interest daily at a Loan
Credited Rate that is currently 6% per annum. We can change this rate at any
time, however, it will never be less than 4% per annum. The Preferred Loan
Amount equals:
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. The part of a Loan equal to cumulative earnings (i.e., the excess of
the Account Value on the date of the Loan over unliquidated purchase
payments), and
. Any loan carried over from an existing contract to a Contract as part
of a valid 1035 Exchange, as defined by the Internal Revenue Code.
Effects of a Loan. When you take out a loan, we transfer funds
proportionately from the Sub-Accounts in which you are invested to the Loan
Account. We also will transfer any loan interest that becomes due that you do
not pay from your Sub-Accounts to the Loan Account. A Market Value Adjustment
may apply to amounts taken from the Fixed Sub-Accounts.
Since we transfer the amount you borrow from the Sub-Accounts, a loan
whether or not repaid, will have a permanent effect on your Surrender Value and
may have a permanent effect on your death benefit. This is because the Loan
Account does not share in the investment results of the Sub-Accounts. Rather,
the Loan Account earns interest daily at the Loan Credited Rate. Depending upon
how the investment results compare to the Loan Credited Rate, this effect may be
favorable or unfavorable. This is true whether you repay the loan or not. If
not repaid, the loan will reduce the amount of Death Proceeds and could cause
your Contract to terminate if investment results are not as expected. See "How
Do I Purchase A Contract? - Grace Period" and "How Is My Contract Taxed?"
Requesting Payments
You must provide us with Satisfactory Notice of your request for payment.
We will ordinarily pay any Death Proceeds, loan, withdrawal, or surrender
proceeds within seven days after receipt at our Customer Service Center of all
requirements. We will determine the amount as of the Valuation Date our
Customer Service Center receives all requirements.
We may delay making a payment, applying proceeds to a Settlement Option, or
processing a transfer request if:
. the disposal or valuation of the Variable Account's assets is not
reasonably practicable because the New York Stock Exchange is closed
for other than a regular holiday or weekend, trading is restricted by
the SEC, or the SEC declares that an emergency exists; or
. the SEC, by order, permits postponement of payment to protect our
Owners.
We also may defer making payments attributable to a check that has not
cleared (which may take up to 15 days), and we may defer payment of proceeds
from the Fixed Account for a withdrawal, surrender, loan, or transfer request
for up to six months from the date we receive the request, if permitted by state
law.
If we defer payment 30 days or more, the amount deferred will earn interest
at a rate not less than the minimum required in the jurisdiction in which we
delivered the Contract.
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7. How Is Contract Performance Presented?
Articles discussing the Variable Account's investment performance,
rankings, and other characteristics may appear in publications. Some or all of
these publishers or ranking services (including, but not limited to, Lipper
Analytical Services and Morningstar, Inc.) may publish their own rankings or
performance review of variable contract separate accounts, including the
Variable Account. We may use references to or reprints of such articles or
rankings as sales material, and may include rankings that indicate the names of
other variable contract separate accounts and their investment experience.
Publications may use articles and releases, developed by us, the Funds and
other parties, about the Variable Account or the Funds. We may use references
to or reprints of such articles in sales material for the Contracts or the
Variable Account. Such literature may refer to personnel of the advisers, who
have portfolio management responsibility, and their investment style and include
excerpts from media articles.
If we quote performance data, the data will represent past performance and
you should not view it as any indication of future performance. Amounts you
invest in the Variable Sub-Accounts will fluctuate daily based on Fund
investment performance, so the value of your investment may increase or
decrease. The hypothetical illustrations beginning on page ___ of this
Prospectus show how the performance of the Funds may affect Contract values.
8. What Is The Death Benefit Under My Contract?
The Contract provides for a payment to your designated Beneficiary if the
Insured dies while the Contract is in force. This payment is called the "Death
Proceeds," and equals:
. the death benefit described below; plus
. any additional insurance on the Insured's life that may be provided by
riders to the Contract; minus
. any Debt from Contract loans; minus
. any due and unpaid charges; and minus
. any amounts previously paid under the Accelerated Death Benefit Rider
plus accrued interest.
The Death Proceeds will be adjusted in certain circumstances. See
"Incontestability," "Suicide," and "Misstatement of Age or Sex" in "What Other
Information Should I Know?"
You or your Beneficiary decide how to receive the Death Proceeds. You or
your Beneficiary can elect payment in a single sum, in which case your Contract
will terminate; or you or your Beneficiary may apply proceeds under one of the
Settlement Options in your Contract. See "What Are My Settlement Options?"
Unless you or your Beneficiary specify otherwise, we will pay the Death Proceeds
in one sum within 90 days after we receive proof of death. If required by the
law of your state, we also will pay interest from the date of death until we
distribute the Death Proceeds.
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Death Benefit. At issue, your death benefit equals your Insurance Amount
shown in your Contract. On any Business Day after that, it equals the greater
of:
. the Insurance Amount; or
. the Minimum Death Benefit.
However, if the state in which we issue a Contract does not allow us to
deduct a cost of insurance charge on or after the Contract Anniversary when the
Insured reaches age 100, we will limit the death benefit on and after that
anniversary to the Minimum Death Benefit. The tax consequences associated with
continuing a Contract after the Insured reaches age 100 are unclear.
Insurance Amount. The initial Insurance Amount depends on the amount of
your initial purchase payment and the age and sex of the proposed Insured. It
remains level unless you make additional purchase payments or withdrawals.
Additional payments may increase the Insurance Amount. See "Insurance Amount
Increases" below. Withdrawals reduce the Insurance Amount in the same
proportion as the Account Value is reduced.
Minimum Death Benefit. To ensure that the Contract continues to qualify as
life insurance under the Code, each Business Day we will calculate a Minimum
Death Benefit. The Minimum Death Benefit equals (a) times (b), where:
(a) is the Account Value plus any positive Market Value Adjustment on the
date of calculation; and
(b) is the Minimum Death Benefit Percentage from the table below.
Table of Minimum Death Benefit Percentages
------------------------------------------
Attained Attained Attained
Age Percentage Age Percentage Age Percentage
--- ---------- --- ---------- --- ----------
0-40 250% 54 157% 68 117%
41 243% 55 150% 69 116%
42 236% 56 146% 70 115%
43 229% 57 142% 71 113%
44 222% 58 138% 72 111%
45 215% 59 134% 73 109%
46 209% 60 130% 74 107%
47 203% 61 128% 75-90 105%
48 197% 62 126% 91 104%
49 191% 63 124% 92 103%
50 185% 64 122% 93 102%
51 178% 65 120% 94-99 101%
52 171% 66 119% 100+ 100%
53 164% 67 118%
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Since positive investment performance increases your Account Value, it may
increase your death benefit to the extent that the Minimum Death Benefit is
greater than the Insurance Amount. Conversely, since negative investment
performance decreases your Account Value, it may decrease your death benefit,
but never below the Insurance Amount.
Proof of Death. We will pay the Death Proceeds to your Beneficiary after
we receive satisfactory proof of death at our Customer Service Center. We will
accept one of the following items:
1. An original certified copy of an official death certificate, or
2. An original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or
3. Any other proof satisfactory to us.
Insurance Amount Increases. If you make additional purchase payments, we
may have to increase your Insurance Amount so that your Contract continues to
qualify as life insurance under the Code. We reserve the right to require
satisfactory evidence of insurability as to any increase in the Insurance
Amount. In addition, we reserve the right to require that the Insured's risk
class be identical to that on the Contract Date. Other than in connection
with making additional purchase payments, we do not currently permit you to
request an increase in your Insurance Amount.
9. What Supplemental Benefits Are Available Under My Contract?
The following supplemental benefits are available under the Contracts by
rider. We include these riders automatically in your Contract at no additional
cost. The riders have certain conditions and use special terms and may not be
available in all states.
Accelerated Death Benefit Rider. The Accelerated Death Benefit Rider
provides you with access to a portion of the death benefit during the Insured's
lifetime, if the Insured is diagnosed as having a terminal illness. You can
request to receive up to 50% of the Insurance Amount up to a maximum of
$500,000.
You must provide us with proof that the Insured has a terminal illness.
You may receive an accelerated benefit amount only once. The accelerated
benefit amount will first be used to repay any outstanding Debt. We will pay
any amount in excess of the outstanding Debt to you in a lump sum. Other
conditions apply.
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Accidental Death Benefit Rider. The Accidental Death Benefit Rider
provides an additional death benefit called the accidental death benefit. This
additional benefit will equal the purchase payments made minus any withdrawals
(including any associated surrender charge or Market Value Adjustment incurred),
determined as of the date of the Insured's death (or the next Business Day if
the Insured dies on other than a Business Day), up to a maximum of $250,000.
To qualify for this benefit, the Insured's death must: (i) occur before
the first Contract Anniversary after the Insured attains age 80; and (ii) be a
direct result of accidental bodily injury, independent of all other causes.
Further, all the terms and conditions described in the Contract must be
satisfied, including the requirement that we receive satisfactory proof of
accidental death at our Customer Service Center within 30 days after an
accidental death or as soon thereafter as reasonably possible. We will pay the
accidental death benefit to the Beneficiary or the person entitled to receive
the death benefit under the Contract, after receipt of satisfactory proof of
accidental death.
We terminate the accidental death benefit provision:
. when we pay the benefit;
. when you surrender the Contract or apply the entire Surrender Value to
a Settlement Option;
. when we distribute the interest in the Contract due to the death of an
Insured; or
. when you request termination of the benefit.
Waiver of Surrender Charge Rider. The Waiver of Surrender Charge Rider
provides that we will not deduct a surrender charge if, when you submit your
request for a withdrawal or a surrender, you also submit due proof that you have
been confined continuously to a "Qualifying Hospital or Nursing Care Facility"
for at least 45 days in a 60 day period. We define "Qualifying Hospital or
Nursing Care Facility" in your Contract.
10. What Are My Settlement Options?
You may elect to have the Surrender Value or Death Proceeds paid in a
single sum or under one of our Settlement Options if the amount is at least
$5,000. You select a Settlement Option from the list below, and indicate
whether you want your income payments to be fixed or variable or a combination
of fixed and variable. Once payments have begun under a Settlement Option, (i)
our prior approval is necessary for transfers from the Fixed Account to the
Variable Account and from the Variable Account to the Fixed Account, and (ii) we
reserve the right to limit transfers between Variable Sub-Accounts to one per
Contract Year. Any other changes require our prior approval.
On the date the Settlement Option becomes effective, the Surrender Value
under the Contract will be used to provide income payments. Unless you request
otherwise, we will use any Variable Account
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Value to provide variable income payments, and we will use any Fixed Account
Value to provide fixed income payments.
You may elect one of the Settlement Options shown below (or any other
option acceptable to us). For ease of describing these Settlement Options, we
assume that you apply the Surrender Value and receive the income payments from
one of the options below. Of course, you may always designate someone other
than yourself to receive the income payments, and your designated Beneficiary
will receive the income payments from any Death Proceeds.
Option 1 - Payments for Life: You will receive payments for your
life.
Option 2 - Life Annuity with 10 or 20 Years Certain: You will
receive payments for your life. However, if you die before the end of
the guaranteed certain period you select (10 or 20 years), your
Beneficiary will receive the payments for the remainder of that
period.
Option 3 - Joint and Last Survivor Life Annuity: We will make
payments as long as either you or a second person you select (such as
your spouse) is alive.
Option 4 - Payments for a Specified Period Certain: You will receive
payments for the number of years you select, which may be from 5-30
years. However, if you die before the end of that period, your
Beneficiary will receive the payments for the remainder of the
guaranteed certain period.
Your income payments will be made monthly, unless you or the Beneficiary,
as the case may be, choose quarterly, semi-annual or annual payments by giving
us Satisfactory Notice. Each payment must be at least $100. If any payment
would be less than $100, we may change the payment frequency to the next longer
interval, but in no event less frequent than annual.
If you told us that you want a life annuity, it is possible that you could
only receive one payment.
We will base your first income payment, whether fixed or variable, on the
amount of proceeds applied under the Settlement Option you or the Beneficiary,
as the case may be, have selected and on the applicable "purchase rates." If
applicable, these rates will vary based on: (i) the age and sex of the person
that will receive the income payments (the "Payee"); (ii) the age and sex of a
second designated person; and (iii) the specified period certain. The purchase
rate we apply will never be lower than the rate shown in your Contract.
If you told us you want fixed income payments, we guarantee the amount of
each income payment and it remains level throughout the period you selected.
If you told us you want variable income payments, the amount of each
payment will vary according to the investment performance of the Funds you
selected.
Variable Income Payments. To calculate your initial and future variable
income payments, we need to make an assumption regarding the investment
performance of the Funds you select. We call this
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your assumed investment rate. This rate is simply the total return, after
expenses, you need to earn to keep your variable income payments level. Rather
than building in our own estimate, we will allow you to tailor your variable
income payments to meet your needs by giving you a choice of rates. Currently,
you may select either 3% or 6%; if you do not select a rate, we will apply the
3% rate. (We may offer other rates in the future). The lower the rate, the lower
your initial variable income payment, but the better your payments will keep
pace with inflation (assuming net positive investment performance greater than
the assumed investment rate). Conversely, the higher the rate, the higher your
initial variable income payment, but the less likely your payments will keep
pace with inflation (assuming net positive investment performance greater than
the assumed investment rate).
For example, if you select 6%, this means that if the investment
performance, after expenses, of your Funds is less than 6%, then the dollar
amount of your variable income payment will decrease. Conversely, if the
investment performance, after expenses, of your Funds is greater than 6%, then
the dollar amount of your income payments will increase.
Your variable payments will fluctuate based on Variable Sub-Account
performance. The dollar amount of each payment attributable to each Variable
Sub-Account is the number of Income Units for each Variable Sub-Account times
the Income Unit value of that Sub-Account. The sum of the dollar amounts for
each Variable Sub-Account is the amount of the total variable income payment.
We will determine the Income Unit values for each payment no earlier than five
Business Days preceding the due date of the variable income payment (except for
Option 4, which is determined on the due date). We guarantee the payment will
not vary due to changes in mortality or expenses.
Income Unit Value. We calculate the value of an Income Unit at the same
time that we calculate the value of an Accumulation Unit and base it on the same
values for Fund shares and other assets and liabilities. The Income Unit value
for a Variable Sub-Account's first Business Day was set at $10. After that, we
determine the Income Unit value for every Business Day by multiplying (a) by
(b), and then dividing by (c) where:
(a) is the Income Unit value for the immediately preceding Valuation
Period;
(b) is the "net investment factor" for the Variable Sub-Account for the
Valuation Period for which the value is being determined; and
(c) is the daily equivalent of the assumed investment rate that you have
selected for the number of days in the Valuation Period.
Under a Settlement Option, we calculate the net investment factor slightly
different than is otherwise the case. Before a Settlement Option is elected, we
calculate Asset-Based Charges as a percentage of the Account Value on the date
of deduction. These charges on an annual basis equal 1.80%, decreasing to 1.30%
after the tenth Contract Year. However, once a Settlement Option is elected, we
call these charges Variable Sub-Account Charges and deduct them from the assets
in each Variable Sub-Account on a daily basis. Therefore, we determine the "net
investment factor" in (b), above, by dividing (i) by (ii), and then subtracting
(iii) where:
(i) is the Accumulation Unit value for the current Valuation Period;
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(ii) is the Accumulation Unit value for the immediately preceding
Valuation Period; and
(iii) is the daily equivalent Variable Sub-Account Charges (adjusted for
the number of days in the Valuation Period).
Exchange of Income Units. Under a Settlement Option, if there is an
exchange of value of a designated number of Income Units of particular Variable
Sub-Accounts into other Income Units, the value will be such that the dollar
amount of the income payment made on the date of exchange will be unaffected by
the exchange.
11. What Other Information Should I Know?
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Sage Life Assurance of America, Inc.
We are a Delaware stock life insurance company that is wholly owned by Sage
Life Holdings of America, Inc., also a Delaware corporation. Sage Life Holdings
is, in turn, wholly owned by Sage Insurance Group Inc., also a Delaware
corporation. Our Executive Office is located at 300 Atlantic Street, Stamford,
CT 06901. We were incorporated in 1981 and have been engaged in the life
insurance business since that year. We are subject to regulation by the
Insurance Department of the State of Delaware as well as by the insurance
departments of all other states and jurisdictions in which we do business. We
sell insurance in 49 states and the District of Columbia. We submit annual
statements on our operations and finance to insurance officials in such states
and jurisdictions where required. The Contracts described in this Prospectus
have been filed with and/or approved by insurance officials in jurisdictions
where they are sold.
Separate Accounts
The Sage Variable Life Account A. We established the Variable Account as a
separate investment account under Delaware law on December 3, 1997. The
Variable Account may invest in mutual funds, unit investment trusts, and other
investment portfolios. We own the assets in the Variable Account and are
obligated to pay all benefits under the Contracts. We use the Variable Account
to support the Contracts as well as for other purposes permitted by law. We
registered the Variable Account with the SEC as a unit investment trust under
the 1940 Act and it qualifies as a "separate account" within the meaning of the
federal securities laws. Such registration does not involve any supervision by
the SEC of the management of the Variable Account or Sage Life.
We divided the Variable Account into Variable Sub-Accounts, each of which
currently invests in shares of a specific Fund of AIM Variable Insurance Funds,
Inc., The Alger American Fund, Liberty Variable Investment Trust, SteinRoe
Variable Investment Trust, MFS(R) Variable Investment Trust SM, Morgan Stanley
Dean Witter Universal Funds, Inc., Oppenheimer Variable Account Funds, Sage Life
Investment Trust, and T. Rowe Price Equity Series, Inc. Variable Sub-Accounts
buy and redeem Fund shares at net asset value without any sales charge. We
reinvest any dividends from net investment income and distributions from
realized gains from security transactions of a Fund at net asset value in shares
of the same Fund. Income, gains and losses, realized or unrealized, of the
Variable Account are credited to or charged against the Variable Account without
regard to any other income, gains or losses of Sage Life. Assets equal to the
reserves and other Contract liabilities with respect to the Variable Account are
not chargeable with liabilities arising out of any other business or account of
Sage Life. If the assets exceed the required reserves and other liabilities, we
may transfer the excess to our General Account.
The Sage Fixed Interest Account A. The Fixed Account is a separate
investment account under state insurance law. We maintain it separate from our
General Account and separate from any other separate account that we may have.
We own the assets in the Fixed Account, and also offer the Fixed Account with
our variable annuity contracts. Assets equal to the reserves and other
liabilities of the Fixed Account will not be charged with liabilities that arise
from any other business that we conduct. Thus, the Fixed Account represents
pools of assets that provide an additional measure of assurance that Owners will
receive full payment of benefits under the Contracts. We may transfer to our
General Account assets that
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exceed the reserves and other liabilities of the Fixed Account. Notwithstanding
the foregoing, our obligations under (and values and benefits under) the Fixed
Account do not vary as a function of the investment performance of the Fixed
Account. Owners and Beneficiaries with rights under the Contracts do not
participate in the investment gains or losses of the assets of the Fixed
Account. These gains or losses accrue solely to us. We retain the risk that the
value of the assets in the Fixed Account may fall below the reserves and other
liabilities that we must maintain in connection with our obligations under the
Fixed Account. In such an event, we will transfer assets from our General
Account to the Fixed Account to make up the difference. We are not required to
register the Fixed Account as an investment company under the 1940 Act.
Voting of Fund Shares. We are the legal owner of shares held by the
Variable Sub-Accounts and as such, have the right to vote on all matters
submitted to shareholders of the Funds. However, as required by law, we will
vote shares held in the Variable Sub-Accounts at regular and special meetings of
shareholders of the Funds according to instructions received from Owners with
Account Value in the Variable Sub-Accounts. To obtain your voting instructions
before a Fund shareholder meeting, we will send you voting instruction
materials, a voting instruction form, and any other related material. We will
vote shares held by a Variable Sub-Account for which we received no timely
instructions in the same proportion as those shares for which we received voting
instructions. Should the 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:
. deregister the Variable Account under the 1940 Act;
. operate the Variable Account as a management company under the 1940
Act if it is operating as a unit investment trust;
. operate the Variable Account as a unit investment trust under the 1940
Act if it is operating as a managed separate account;
. restrict or eliminate any voting rights of Owners, or other persons
who have voting rights as to the Variable Account;
. combine the Variable Account with other separate accounts; and
. combine a Variable Sub-Account with another Variable Sub-Account.
We also reserve the right, subject to applicable law, to make additions to,
deletions from, or substitutions of shares of a Fund that are held by the
Variable Account 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
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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 Delaware
corporation registered as a broker-dealer under the Securities Exchange Act of
1934, and is a member of the National Association of Securities Dealers, Inc.
(the "NASD"). Sage Distributors is a wholly owned subsidiary of Sage Insurance
Group Inc. We compensate Sage Distributors for acting as principal underwriter
under a distribution agreement. We offer the Contracts on a continuous basis,
and do not anticipate discontinuing their sale. The Contracts may not be
available in all states.
The Contracts are sold by broker-dealers through their registered
representatives who are also appointed and licensed as insurance agents of Sage
Life. These broker-dealers receive commissions for selling Contracts calculated
as a percentage of purchase payments (up to a maximum of 7.5%). Broker-dealers
who meet certain productivity and profitability standards may be eligible for
additional compensation.
Experts
Ernst & Young LLP, independent auditors, have audited our financial
statements for the years ended December 31, 1998 and 1997, as set forth in their
report, which is included in this Prospectus. We included our financial
statements in this Prospectus in reliance on their report, given on their
authority as experts in accounting and auditing.
Legal Proceedings
Sage Life and its subsidiaries, as of the date of this Prospectus, are not
involved in any lawsuits. However, our direct and indirect parent companies,
like other companies, are involved in lawsuits. In some lawsuits involving
insurers, substantial damages have been sought and/or material settlement
payments have been made. Although the outcome of any litigation cannot be
predicted with certainty, we believe that at the present time there are no
pending or threatened lawsuits that are reasonably likely to have a material
adverse impact on the Variable Account, the Fixed Account, the General Account,
or Sage Life.
Reports to Contract Owners
We maintain records and accounts of all transactions involving the
Contracts, the Variable Account, and the Fixed Account at our Customer Service
Center. Each year, or more often if required by law, we will send you a report
showing information about your Contract for the period covered by the report.
We will also send you an annual and a semi-annual report for each Fund
underlying a Variable
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Sub-Account in which you are invested as required by the 1940 Act. In addition,
when you make purchase payments, or if you make transfers or withdrawals, we
will send you a confirmation of these transactions.
Assignment
You may assign your Contract at any time during the Insured's lifetime. No
assignment will be binding on us unless we receive Satisfactory Notice. We will
not be liable for any payments made or actions we take before we accept the
assignment. An absolute assignment will revoke the interest of any revocable
Beneficiary. We are not responsible for the validity of any assignment. An
assignment may be a taxable event.
The Owner
You are the Owner of the Contract. You are also the Insured unless you
named another Insured in the application. You have the rights and options
described in the Contract while the Insured is living and the Contract is in
force. One or more people may own the Contract.
The Beneficiary
We pay the Death Proceeds to the primary Beneficiary. If the primary
Beneficiary dies before the Insured, we pay the Death Proceeds to the Contingent
Beneficiary, if any. If there is no surviving Beneficiary, we pay the Death
Proceeds to the Owner's estate.
You may name one or more persons as primary Beneficiary or Contingent
Beneficiary. We will assume any Death Proceeds are to be paid in equal shares
to the multiple surviving Beneficiaries, unless you tell us otherwise.
You have the right to change Beneficiaries. However, if you designate the
primary Beneficiary as irrevocable, you may need the consent of that Beneficiary
to exercise the rights and options under your Contract.
Change of Owner or Beneficiary
During your lifetime and while your Contract is in force you can transfer
ownership of your Contract or change the Beneficiary. To make any of these
changes, you must send us Satisfactory Notice. If accepted, any change in Owner
or Beneficiary will take effect on the date you signed the notice. Any of these
changes will not affect any payment made or action we took before our
acceptance. A change of Owner may be a taxable event.
Misstatement And Proof of Age, Sex, or Survival
We may require proof of age, sex, or survival of any person on whose age,
sex, or survival any payments depend. If the age or sex of the Insured has been
misstated, the benefits will be those that the initial purchase payment and any
additional purchase payments would have provided for the correct age and sex.
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Incontestability
We will not contest the payment of the Death Proceeds based upon the
initial purchase payment after the Contract has been in force during the
Insured's lifetime for two years from the Issue Date.
For any increase in Insurance Amount requiring evidence of insurability, we
will not contest payment of the Death Proceeds based on such an increase after
it has been in force during the Insured's lifetime for two year from its
effective date.
Suicide
If the Insured dies by suicide, while sane or insane, within two years from
the Issue Date, we will not pay the Death Proceeds normally payable on the
Insured's death. Instead, we will limit the death benefit to the Account Value
as of the date we receive proof of death. We will otherwise calculate Death
Proceeds in the usual manner.
If the Insured dies by suicide, while sane or insane, within two years of
any date we receive and accept an additional purchase payment, any amount of
death benefit that would not be payable except for the fact the additional
purchase payment was made will be limited to the amount of such payment.
Authority to Make Agreements
One of our officers must sign all agreements we make. No other person,
including an insurance agent or registered representative, can change the terms
of your Contract or make changes to it without our consent.
Participation
The Contract does not participate in the surplus or profits of the Company,
and the Company does not pay dividends on the Contracts.
Safekeeping of Account Assets
We hold the title to the assets of the Variable Account. We keep the assets
physically segregated and hold them separate and apart from our General Account
assets and from the assets in any other separate account.
We maintain records of all purchases and redemptions of Fund shares held by
each of the Variable Sub-Accounts.
Lloyd's of London has issued a fidelity bond in the amount of approximately
$10 million per occurrence covering our directors, officers, and employees.
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Legal Matters
All matters relating to Delaware law pertaining to the Contracts, including
the validity of the Contracts and our authority to issue the Contracts, have
been passed upon by James F. Bronsdon, our Vice President, Legal and Compliance.
Sutherland Asbill & Brennan LLP has provided advice on certain matters relating
to the federal securities laws.
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
our 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. We used these issues as critical
components in the evaluation and selection of in-house systems and of third
party administrators.
Since we outsource most of our operating functions, there are only a
limited number of in-house systems utilized. At present, the only in-house
systems we utilize are the accounting system and a reserve valuation system.
These systems were certified as Year 2000 compliant before we selected and
installed them for operation.
We have 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 we have received assurances from all of our third party
administrators, we are currently working with them to assess all Year 2000
issues associated with the processing of our applications. This assessment
involves the testing of the data being processed by third party administrators
and electronically interfaced into our accounting system. We anticipate
completing all testing in advance of January 1, 2000. As this testing has and
continues to be done in the normal course of system development, we have not
budgeted any costs associated with the Year 2000 issue. In addition, Year 2000
costs have been deemed immaterial.
If any of our third party administrators fail to achieve complete
compliance, it could have a material adverse effect on our ability to conduct
our business, including delays in calculating unit values, redeeming shares,
delivering account statements and providing other information, communication and
servicing to Owners. We believe that we have taken the necessary provisions,
both through selection and testing, to assure that we will not experience any
material adverse effects on our ability to conduct our business. We do,
however, realize the importance of this issue, and we have developed a
contingency plan for operations in the unlikely event one or more of our third
party administrators is unable to fulfill its obligations.
56
<PAGE>
Financial Statements
No financial statements are presented for the Variable Account because the
operations to date are insignificant.
We have included unaudited financial statements for the six months ended
June 30, 1999 as well as the audited financial statements for Sage Life for the
years ended December 31, 1998 and 1997 in this Prospectus. You should consider
these financial statements only as bearing on the ability of Sage Life to meet
its obligations under the Contracts. You should not consider them as bearing on
the investment performance of the assets held in the Variable Account.
12. How Can I Make Inquiries?
You may make inquiries about your Contract by writing to us at our Customer
Service Center, by calling us at 877-835-7243 (Toll Free), or by contacting one
of our authorized registered representatives.
57
<PAGE>
Hypothetical Illustrations of Contract Values
To show you how the Contract works, we have included some hypothetical
illustrations for the following Insureds: a male issue age 45, a female issue
age 55, and a male issue age 65. These illustrations show how Account Values,
Surrender Values and death benefits under a Contract vary over time assuming the
following circumstances:
. An initial purchase payment of $10,000 allocated entirely to Variable
Sub-Accounts and remaining there for the entire period;
. The Insured is in good health, does not smoke and qualifies under our
simplified underwriting program;
. There are no additional purchase payments, no withdrawals, no charges
for supplemental benefits; and
. The Funds earn gross (that is, before deductions for investment
management fees and other operating expenses of the Funds) annual
rates of return of 0%, 6%, and 12%.
It is important to understand that the illustrations assume a level rate of
return for all years. The values under a Contract would be different from those
shown if the hypothetical returns averaged 0%, 6%, or 12% but fluctuated over
and under those averages throughout the years shown.
The illustrations also reflect an average daily charge equal to an annual
charge of 0.85% of the average daily net assets of the Funds for investment
management fees and other operating expenses. We calculated these fees based on
an average of the expense ratios of each of the Funds (in some cases, we
estimated those fees) for the last year of operations. Taking into account this
average charge, the net annual rates of return for the Variable Sub-Accounts are
- - 0.85%, 5.15% and 11.15%, respectively. The average daily charge for the Fund
expenses, reflects voluntary expense agreements between certain of the Funds and
their investment managers. These expense agreements could terminate at any
time. See "What Are The Expenses Under A Contract?" If these agreements
terminate, the values shown on the following pages would be less.
The illustrations also reflect the Monthly Deduction Amount and other
applicable charges for the hypothetical Insured. These include the Asset-Based
Charges and the cost of insurance charges that we deduct on each Monthly
Processing Date, and any annual administration charge that we deduct on a
Contract Anniversary. Our current charges and the higher guaranteed charges we
have the contractual right to charge are reflected in separate illustrations on
each of the following pages. All the illustrations reflect the fact that no
charges for Federal or state income taxes are currently made against the
Variable Account.
58
<PAGE>
Each illustration also has a column labeled "Payments Accumulated at 5%
Interest Per Year." This column shows the amount that would accumulate if the
initial purchase payment was invested to earn interest, after taxes, of 5% per
year, compounded annually.
Upon request, we will furnish you a personalized illustration based upon the
proposed Insured's individual circumstances. Such illustrations will reflect
the current cost of insurance charges and the guaranteed maximum cost of
insurance charges and may assume different hypothetical rates of return than
those shown in the following illustrations.
The investment rates of return we have chosen to use in the illustrations
are hypothetical only, and you should understand that they do not represent
actual past or future rates of return. The actual rates of return under a
Contract may be more or less than the hypothetical rates of return in the
illustrations.
59
<PAGE>
<TABLE>
<CAPTION>
Modified Single Payment Combination Fixed and Variable Life Insurance
Male Nonsmoker $10,000 Initial Purchase Payment
Issue Age 45 $34,078 Initial Insurance Amount
Maximum Charges Basis
Assumed Gross Annual Investment Assumed Gross Annual Investment Assumed Gross Annual Investment
Return of 0.00% (-0.85% Net) Return of 6.00% (5.15% Net) Return of 12.00% (11.15% Net)
---------------------------- --------------------------- ----------------------------
Payments
End of Accumulated
Contract at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,624 8,684 34,078 10,211 9,271 34,078 10,798 9,858 34,078
2 11,025 9,208 8,268 34,078 10,380 9,440 34,078 11,621 10,681 34,078
3 11,576 8,791 7,951 34,078 10,544 9,704 34,078 12,513 11,673 34,078
4 12,155 8,371 7,631 34,078 10,705 9,965 34,078 13,483 12,743 34,078
5 12,763 7,946 7,306 34,078 10,860 10,220 34,078 14,538 13,898 34,078
6 13,401 7,517 6,977 34,078 11,008 10,468 34,078 15,687 15,147 34,078
7 14,071 7,078 6,738 34,078 11,147 10,807 34,078 16,937 16,597 34,078
8 14,775 6,629 6,629 34,078 11,275 11,275 34,078 18,300 18,300 34,078
9 15,513 6,205 6,205 34,078 11,432 11,432 34,078 19,831 19,831 34,078
10 16,289 5,763 5,763 34,078 11,574 11,574 34,078 21,506 21,506 34,078
11 17,103 5,330 5,330 34,078 11,760 11,760 34,078 23,457 23,457 35,186
12 17,959 4,871 4,871 34,078 11,933 11,933 34,078 25,594 25,594 37,367
13 18,856 4,385 4,385 34,078 12,089 12,089 34,078 27,926 27,926 39,654
14 19,799 3,869 3,869 34,078 12,228 12,228 34,078 30,472 30,472 42,052
15 20,789 3,318 3,318 34,078 12,345 12,345 34,078 33,256 33,256 44,563
16 21,829 2,728 2,728 34,078 12,438 12,438 34,078 36,302 36,302 47,192
17 22,920 2,090 2,090 34,078 12,500 12,500 34,078 39,622 39,622 50,716
18 24,066 1,396 1,396 34,078 12,526 12,526 34,078 43,242 43,242 54,485
19 25,270 637 637 34,078 12,509 12,509 34,078 47,189 47,189 58,514
20 26,533 - - - 12,442 12,442 34,078 51,493 51,493 62,822
25 33,864 - - - 11,039 11,039 34,078 79,520 79,520 92,244
30 43,219 - - - 6,164 6,164 34,078 122,979 122,979 131,588
35 55,160 - - - - - - 191,437 191,437 201,009
</TABLE>
We emphasize that the assumed gross annual investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future gross annual investment rates of
return. Actual gross annual rates of return may be more or less than those shown
and will depend on a number of factors, including investment allocations made to
the Sub-Accounts. The death benefit, Account Values and Surrender Values for a
Contract would be different from those shown if the actual gross annual rates
of return averaged 0%, 6% and 12% over a period of years, but varied above or
below that average during the period. They would also be different if you take a
loan or withdrawal during the period of time illustrated. No representation can
be made that those assumed gross annual rates of return can be achieved for any
one year or sustained over any period of time.
60
<PAGE>
<TABLE>
<CAPTION>
Modified Single Payment Combination Fixed and Variable Life Insurance
Male Nonsmoker $10,000 Initial Purchase Payment
Issue Age 45 $34,078 Initial Insurance Amount
Current Charges Basis
Assumed Gross Annual Investment Assumed Gross Annual Investment Assumed Gross Annual Investment
Return of 0.00% (-0.85% Net) Return of 6.00% (5.15% Net) Return of 12.00% (11.15% Net)
---------------------------- --------------------------- ----------------------------
Payments
End of Accumulated
Contract at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,685 8,745 34,078 10,271 9,331 34,078 10,857 9,917 34,078
2 11,025 9,340 8,400 34,078 10,507 9,567 34,078 11,743 10,803 34,078
3 11,576 9,007 8,167 34,078 10,751 9,911 34,078 12,706 11,866 34,078
4 12,155 8,684 7,944 34,078 11,001 10,261 34,078 13,751 13,011 34,078
5 12,763 8,372 7,732 34,078 11,257 10,617 34,078 14,886 14,246 34,078
6 13,401 8,069 7,529 34,078 11,521 10,981 34,078 16,117 15,577 34,078
7 14,071 7,775 7,435 34,078 11,792 11,452 34,078 17,455 17,115 34,078
8 14,775 7,491 7,491 34,078 12,070 12,070 34,078 18,907 18,907 34,078
9 15,513 7,255 7,255 34,078 12,396 12,396 34,078 20,526 20,526 34,078
10 16,289 7,026 7,026 34,078 12,732 12,732 34,078 22,285 22,285 34,987
11 17,103 6,839 6,839 34,078 13,142 13,142 34,078 24,315 24,315 36,473
12 17,959 6,656 6,656 34,078 13,565 13,565 34,078 26,531 26,531 38,735
13 18,856 6,479 6,479 34,078 14,002 14,002 34,078 28,948 28,948 41,107
14 19,799 6,306 6,306 34,078 14,453 14,453 34,078 31,588 31,588 43,592
15 20,789 6,138 6,138 34,078 14,919 14,919 34,078 34,474 34,474 46,195
16 21,829 5,974 5,974 34,078 15,400 15,400 34,078 37,631 37,631 48,920
17 22,920 5,814 5,814 34,078 15,896 15,896 34,078 41,073 41,073 52,573
18 24,066 5,659 5,659 34,078 16,408 16,408 34,078 44,825 44,825 56,480
19 25,270 5,508 5,508 34,078 16,937 16,937 34,078 48,917 48,917 60,657
20 26,533 5,361 5,361 34,078 17,482 17,482 34,078 53,379 53,379 65,122
25 33,864 4,683 4,683 34,078 20,486 20,486 34,078 82,561 82,561 95,771
30 43,219 4,091 4,091 34,078 24,005 24,005 34,078 127,873 127,873 136,824
35 55,160 3,574 3,574 34,078 28,130 28,130 34,078 199,055 199,055 209,007
</TABLE>
We emphasize that the assumed gross annual investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future gross annual investment rates of
return. Actual gross annual rates of return may be more or less than those shown
and will depend on a number of factors, including investment allocations made to
the Sub-Accounts. The death benefit, Account Values and Surrender Values for a
Contract would be different from those shown if the actual gross annual rates of
return averaged 0%, 6% and 12% over a period of years, but varied above or below
that average during the period. They would also be different if you take a loan
or withdrawal during the period of time illustrated. No representation can be
made that those assumed gross annual rates of return can be achieved for any one
year or sustained over any period of time.
61
<PAGE>
<TABLE>
<CAPTION>
Modified Single Payment Combination Fixed and Variable Life Insurance
Female Nonsmoker $10,000 Initial Purchase Payment
Issue Age 55 $29,068 Initial Insurance Amount
Current Charges Basis
Assumed Gross Annual Investment Assumed Gross Annual Investment Assumed Gross Annual Investment
Return of 0.00% (-0.85% Net) Return of 6.00% (5.15% Net) Return of 12.00% (11.15% Net)
---------------------------- --------------------------- ----------------------------
Payments
End of Accumulated
Contract at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,685 8,745 29,068 10,271 9,331 29,068 10,857 9,917 29,068
2 11,025 9,340 8,400 29,068 10,507 9,567 29,068 11,743 10,803 29,068
3 11,576 9,007 8,167 29,068 10,751 9,911 29,068 12,706 11,866 29,068
4 12,155 8,684 7,944 29,068 11,001 10,261 29,068 13,751 13,011 29,068
5 12,763 8,372 7,732 29,068 11,257 10,617 29,068 14,886 14,246 29,068
6 13,401 8,069 7,529 29,068 11,521 10,981 29,068 16,117 15,577 29,068
7 14,071 7,775 7,435 29,068 11,792 11,452 29,068 17,455 17,115 29,068
8 14,775 7,491 7,491 29,068 12,070 12,070 29,068 18,907 18,907 29,068
9 15,513 7,255 7,255 29,068 12,396 12,396 29,068 20,526 20,526 29,068
10 16,289 7,026 7,026 29,068 12,732 12,732 29,068 22,294 22,294 29,068
11 17,103 6,839 6,839 29,068 13,142 13,142 29,068 24,365 24,365 29,238
12 17,959 6,656 6,656 29,068 13,565 13,565 29,068 26,646 26,646 31,708
13 18,856 6,479 6,479 29,068 14,002 14,002 29,068 29,138 29,138 34,383
14 19,799 6,306 6,306 29,068 14,453 14,453 29,068 31,861 31,861 37,277
15 20,789 6,138 6,138 29,068 14,919 14,919 29,068 34,836 34,836 40,410
16 21,829 5,974 5,974 29,068 15,400 15,400 29,068 38,086 38,086 43,799
17 22,920 5,814 5,814 29,068 15,896 15,896 29,068 41,645 41,645 47,059
18 24,066 5,659 5,659 29,068 16,408 16,408 29,068 45,546 45,546 50,556
19 25,270 5,508 5,508 29,068 16,937 16,937 29,068 49,824 49,824 54,309
20 26,533 5,361 5,361 29,068 17,482 17,482 29,068 54,524 54,524 58,341
25 33,864 4,683 4,683 29,068 20,486 20,486 29,068 85,547 85,547 89,824
30 43,219 4,091 4,091 29,068 24,005 24,005 29,068 132,922 132,922 139,568
35 55,160 3,574 3,574 29,068 28,130 28,130 29,536 205,566 205,566 215,845
</TABLE>
We emphasize that the assumed gross annual investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future gross annual investment rates of
return. Actual gross annual rates of return may be more or less than those shown
and will depend on a number of factors, including investment allocations made to
the Sub-Accounts. The death benefit, Account Values and Surrender Values for a
Contract would be different from those shown if the actual gross annual rates of
return averaged 0%, 6% and 12% over a period of years, but varied above or below
that average during the period. They would also be different if you take a loan
or withdrawal during the period of time illustrated. No representation can be
made that those assumed gross annual rates of return can be achieved for any one
year or sustained over any period of time.
62
<PAGE>
<TABLE>
<CAPTION>
Modified Single Payment Combination Fixed and Variable Life Insurance
Female Nonsmoker $10,000 Initial Purchase Payment
Issue Age 55 $29,068 Initial Insurance Amount
Maximum Charges Basis
Assumed Gross Annual Investment Assumed Gross Annual Investment Assumed Gross Annual Investment
Return of 0.00% (-0.85% Net) Return of 6.00% (5.15% Net) Return of 12.00% (11.15% Net)
---------------------------- --------------------------- ----------------------------
Payments
End of Accumulated
Contract at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,598 8,658 29,068 10,185 9,245 29,068 10,772 9,832 29,068
2 11,025 9,155 8,215 29,068 10,326 9,386 29,068 11,567 10,627 29,068
3 11,576 8,712 7,872 29,068 10,465 9,625 29,068 12,435 11,595 29,068
4 12,155 8,267 7,527 29,068 10,601 9,861 29,068 13,382 12,642 29,068
5 12,763 7,819 7,179 29,068 10,733 10,093 29,068 14,416 13,776 29,068
6 13,401 7,367 6,827 29,068 10,859 10,319 29,068 15,547 15,007 29,068
7 14,071 6,905 6,565 29,068 10,977 10,637 29,068 16,784 16,444 29,068
8 14,775 6,430 6,430 29,068 11,082 11,082 29,068 18,136 18,136 29,068
9 15,513 5,975 5,975 29,068 11,212 11,212 29,068 19,661 19,661 29,068
10 16,289 5,496 5,496 29,068 11,325 11,325 29,068 21,335 21,335 29,068
11 17,103 5,016 5,016 29,068 11,476 11,476 29,068 23,296 23,296 29,068
12 17,959 4,504 4,504 29,068 11,609 11,609 29,068 25,469 25,469 30,308
13 18,856 3,959 3,959 29,068 11,724 11,724 29,068 27,851 27,851 32,865
14 19,799 3,378 3,378 29,068 11,819 11,819 29,068 30,454 30,454 35,631
15 20,789 2,755 2,755 29,068 11,889 11,889 29,068 33,298 33,298 38,626
16 21,829 2,080 2,080 29,068 11,930 11,930 29,068 36,404 36,404 41,865
17 22,920 1,337 1,337 29,068 11,929 11,929 29,068 39,807 39,807 44,981
18 24,066 506 506 29,068 11,875 11,875 29,068 43,535 43,535 48,324
19 25,270 - - - 11,753 11,753 29,068 47,624 47,624 51,910
20 26,533 - - - 11,546 11,546 29,068 52,116 52,116 55,765
25 33,864 - - - 8,534 8,534 29,068 81,769 81,769 85,858
30 43,219 - - - - - - 127,017 127,017 133,368
35 55,160 - - - - - - 193,852 193,852 203,545
</TABLE>
We emphasize that the assumed gross annual investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future gross annual investment rates of
return. Actual gross annual rates of return may be more or less than those shown
and will depend on a number of factors, including investment allocations made to
the Sub-Accounts. The death benefit, Account Values and Surrender Values for a
Contract would be different from those shown if the actual gross annual rates of
return averaged 0%, 6% and 12% over a period of years, but varied above or below
that average during the period. They would also be different if you take a loan
or withdrawal during the period of time illustrated. No representation can be
made that those assumed gross annual rates of return can be achieved for any one
year or sustained over any period of time.
63
<PAGE>
<TABLE>
<CAPTION>
Modified Single Payment Combination Fixed and Variable Life Insurance
Male Nonsmoker $10,000 Initial Purchase Payment
Issue Age 65 $18,552 Initial Insurance Amount
Current Charges Basis
Assumed Gross Annual Investment Assumed Gross Annual Investment Assumed Gross Annual Investment
Return of 0.00% (-0.85% Net) Return of 6.00% (5.15% Net) Return of 12.00% (11.15% Net)
---------------------------- --------------------------- ----------------------------
Payments
End of Accumulated
Contract at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,685 8,745 18,552 10,271 9,331 18,552 10,857 9,917 18,552
2 11,025 9,340 8,400 18,552 10,507 9,567 18,552 11,743 10,803 18,552
3 11,576 9,007 8,167 18,552 10,751 9,911 18,552 12,706 11,866 18,552
4 12,155 8,684 7,944 18,552 11,001 10,261 18,552 13,751 13,011 18,552
5 12,763 8,372 7,732 18,552 11,257 10,617 18,552 14,886 14,246 18,552
6 13,401 8,069 7,529 18,552 11,521 10,981 18,552 16,117 15,577 18,552
7 14,071 7,775 7,435 18,552 11,792 11,452 18,552 17,455 17,115 19,724
8 14,775 7,491 7,491 18,552 12,070 12,070 18,552 18,907 18,907 20,986
9 15,513 7,255 7,255 18,552 12,396 12,396 18,552 20,534 20,534 22,382
10 16,289 7,026 7,026 18,552 12,732 12,732 18,552 22,318 22,318 23,880
11 17,103 6,839 6,839 18,552 13,142 13,142 18,552 24,401 24,401 25,621
12 17,959 6,656 6,656 18,552 13,565 13,565 18,552 26,669 26,669 28,003
13 18,856 6,479 6,479 18,552 14,002 14,002 18,552 29,138 29,138 30,595
14 19,799 6,306 6,306 18,552 14,453 14,453 18,552 31,823 31,823 33,414
15 20,789 6,138 6,138 18,552 14,919 14,919 18,552 34,741 34,741 36,478
16 21,829 5,974 5,974 18,552 15,400 15,400 18,552 37,910 37,910 39,806
17 22,920 5,814 5,814 18,552 15,896 15,896 18,552 41,365 41,365 43,433
18 24,066 5,659 5,659 18,552 16,408 16,408 18,552 45,134 45,134 47,390
19 25,270 5,508 5,508 18,552 16,937 16,937 18,552 49,246 49,246 51,709
20 26,533 5,361 5,361 18,552 17,482 17,482 18,552 53,733 53,733 56,420
25 33,864 4,683 4,683 18,552 20,486 20,486 21,510 83,100 83,100 87,255
30 43,219 4,091 4,091 18,552 24,050 24,050 24,290 128,754 128,754 130,041
35 55,160 3,574 3,574 18,552 28,221 28,221 28,504 199,400 199,400 201,394
</TABLE>
We emphasize that the assumed gross annual investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future gross annual investment rates of
return. Actual gross annual rates of return may be more or less than those shown
and will depend on a number of factors, including investment allocations made to
the Sub-Accounts. The death benefit, Account Values and Surrender Values for a
Contract would be different from those shown if the actual gross annual rates of
return averaged 0%, 6% and 12% over a period of years, but varied above or below
that average during the period. They would also be different if you take a loan
or withdrawal during the period of time illustrated. No representation can be
made that those assumed gross annual rates of return can be achieved for any one
year or sustained over any period of time.
64
<PAGE>
<TABLE>
<CAPTION>
Modified Single Payment Combination Fixed and Variable Life Insurance
Male Nonsmoker $10,000 Initial Purchase Payment
Issue Age 65 $18,552 Initial Insurance Amount
Maximum Charges Basis
Assumed Gross Annual Investment Assumed Gross Annual Investment Assumed Gross Annual Investment
Return of 0.00% (-0.85% Net) Return of 6.00% (5.15% Net) Return of 12.00% (11.15% Net)
---------------------------- --------------------------- ----------------------------
Payments
End of Accumulated
Contract at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,504 8,564 18,552 10,093 9,153 18,552 10,683 9,743 18,552
2 11,025 8,944 8,004 18,552 10,127 9,187 18,552 11,382 10,442 18,552
3 11,576 8,355 7,515 18,552 10,139 9,299 18,552 12,149 11,309 18,552
4 12,155 7,731 6,991 18,552 10,126 9,386 18,552 12,994 12,254 18,552
5 12,763 7,066 6,426 18,552 10,083 9,443 18,552 13,932 13,292 18,552
6 13,401 6,348 5,808 18,552 10,005 9,465 18,552 14,979 14,439 18,552
7 14,071 5,566 5,226 18,552 9,883 9,543 18,552 16,157 15,817 18,552
8 14,775 4,702 4,702 18,552 9,706 9,706 18,552 17,485 17,485 19,408
9 15,513 3,779 3,779 18,552 9,505 9,505 18,552 18,990 18,990 20,699
10 16,289 2,733 2,733 18,552 9,228 9,228 18,552 20,639 20,639 22,084
11 17,103 1,550 1,550 18,552 8,905 8,905 18,552 22,566 22,566 23,694
12 17,959 187 187 18,552 8,475 8,475 18,552 24,663 24,663 25,897
13 18,856 - - - 7,915 7,915 18,552 26,946 26,946 28,294
14 19,799 - - - 7,196 7,196 18,552 29,430 29,430 30,901
15 20,789 - - - 6,276 6,276 18,552 32,129 32,129 33,735
16 21,829 - - - 5,100 5,100 18,552 35,059 35,059 36,812
17 22,920 - - - 3,586 3,586 18,552 38,238 38,238 40,150
18 24,066 - - - 1,621 1,621 18,552 41,681 41,681 43,765
19 25,270 - - - - - - 45,404 45,404 47,674
20 26,533 - - - - - - 49,425 49,425 51,896
25 33,864 - - - - - - 74,654 74,654 78,387
30 43,219 - - - - - - 113,670 113,670 114,807
35 55,160 - - - - - - 174,106 174,106 175,847
</TABLE>
We emphasize that the assumed gross annual investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future gross annual investment rates of
return. Actual gross annual rates of return may be more or less than those shown
and will depend on a number of factors, including investment allocations made to
the Sub-Accounts. The death benefit, Account Values and Surrender Values for a
Contract would be different from those shown if the actual gross annual rates of
return averaged 0%, 6% and 12% over a period of years, but varied above or below
that average during the period. They would also be different if you take a loan
or withdrawal during the period of time illustrated. No representation can be
made that those assumed gross annual rates of return can be achieved for any one
year or sustained over any period of time.
65
<PAGE>
Part II
Additional Information
Additional Information about Sage Life Assurance of America, Inc.
History and Business
Ownership
- ---------
Sage Life was incorporated under the laws of the state of Delaware in 1981.
The Company is authorized to write general life insurance and fixed and variable
annuity contracts in all states except New York, and also is licensed to conduct
variable life insurance business in a majority of states.
Fidelity Mutual Life Insurance Company, a Pennsylvania insurer, sponsored
the Company's formation in 1981 under the name of Fidelity Standard Life
Insurance Company ("Fidelity Life"). Security First Life Insurance Company
"Security First" of Los Angeles, California acquired Fidelity Life in December
1984. In January 1997, Sage Insurance Group, Inc. ("Sage Insurance Group")
(formerly Finplan Investment Corp.), a Delaware corporation and an indirect
subsidiary of Sage Group Limited ("Sage Group"), a South African corporation and
the Company's ultimate parent, acquired Fidelity Life. The Company changed to
its present name in September 1997. In December 1998, Sage Insurance Group
formed a new company, Sage Life Holdings of America, Inc. ("Sage Life
Holdings"), to act as the new immediate parent of the Company. The transaction
is discussed more fully in the section below entitled "Holding Company Structure
and Background."
Prior Business Operations
- -------------------------
As a Security First subsidiary, the Company specialized in the marketing of
annuities qualifying under Section 403(b) of the Code. Under an assumption
reinsurance agreement, Fidelity Life's annuity business was irrevocably
transferred to Security First in January 1997 except for a small number of
contracts. During 1998, Security First assumption reinsured all of the
remaining annuity business of Fidelity Life. Security First is now a subsidiary
of The Metropolitan Life Insurance Company.
Holding Company Structure and Background
- -----------------------------------------
We are an indirect, wholly owned subsidiary of Sage Insurance Group, which
is a holding company for us and affiliated entities conducting life and annuity
insurance business in the United States. We also are an indirect, wholly owned
subsidiary of Sage Group, a corporation quoted on the Johannesburg Stock
Exchange. Sage Group is a holding company with a thirty-year history of
extensive operating experience in mutual funds, life assurance and investment
management. Sage Group has directly and indirectly engaged in insurance
marketing activities in the United States since 1977 through its financial
interests in Independent Financial Marketing Group Inc., a financial planning
and bank insurance marketing company. Sage Group sold its interest in
Independent Financial Marketing Group in March 1996 to the Liberty Financial
Companies of Boston.
66
<PAGE>
Sage Group entered into an agreement with Swiss Re Life and Health America,
Inc. ("Swiss Re") on December 1, 1998, whereby Swiss Re will enter into
reinsurance arrangements with us. In addition, Swiss Re invested $12.5 million
in non-voting non-redeemable cumulative preferred stock in a newly formed
company, Sage Life Holdings, that became our immediate parent and a wholly-owned
subsidiary of Sage Insurance Group. It is anticipated that during the third
quarter of 1999, Swiss Re will exchange part of its preferred stock for a voting
interest of not more than 9.9% in Sage Life Holdings. Swiss Re's ultimate
parent is Swiss Reinsurance Company, Switzerland, one of the world's largest
life and health reinsurance groups. The arrangements contemplated by the
agreement may be subject to regulatory approval.
Selected Financial Data
We cannot compare our historical financial results for the calendar year
1996 and all prior years, to the results for the years 1997, 1998 and 1999 due
to the substantial change in our business operations. We effectively disposed
of all in-force business existing as of December 31, 1996 and, therefore, on
January 1, 1997, had no insurance liabilities under any of our policies other
than the small number of policies that were not 100% assumption reinsured to our
former parent company. We subsequently novated these insurance liabilities
during 1998. Effectively, therefore, since January 1997, we became comparable
to a new company that had not yet begun its business activities.
We present the following selected financial data as of June 30, 1999 and
1998 and the six months then ended, which have been derived from unaudited
financial statements and include all adjustments (consisting only of normal
recurring accruals) that the Company considers necessary for a fair presentation
of such financial information for those periods. We also present selected
financial data as of December 31, 1998 and 1997 and for the years then ended,
which have been derived from our audited financial statements. Please read the
information below along with the financial statements, including related notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" we included elsewhere in this Prospectus.
67
<PAGE>
Selected Financial Data
(in thousands)
<TABLE>
<CAPTION>
Six months ended Six months ended Year ended Year ended
June 30, June 30, December 31, December 31,
1999 1998 1998 1997
------------------- ------------------- ---------------- ---------------
Income Statement Data:
Revenues:
<S> <C> <C> <C> <C>
Net investment income $ 647 $ 685 $ 1,244 $ 989
Other income 15 - - -
------- ------- ------- -------
Total revenue 662 685 1,244 989
Expenses:
Amortization expense 117 183 549 325
General and administrative expenses 2,394 1,000 1,264 1,016
------- ------- ------- -------
Total expenses 2,511 1,183 1,813 1,341
Loss from operations before (1,849) (498) (569) (352)
income taxes
Income tax expense - - - -
------- ------- ------- -------
Net loss before cumulative (1,849) (498) (569) (352)
effect adjustment
Cumulative effect adjustment/1/ (4,269) - - -
------- ------- ------- -------
Net loss $(6,118) $ (498) $ (569) $ (352)
======= ======= ======= =======
Balance Sheet Data:
Total Assets $31,452 $34,815 $36,542 $36,689
Total Stockholder's Equity $31,342 $34,546 $36,472 $33,202
</TABLE>
/1/ Represents the adaption of SOP 98-5, "Reporting on the Costs of Start-up
Activities" (SOP 98-05) on January 1, 1999.
68
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
- ------------
The following discussion highlights the significant factors that influence
our operations. Please read this discussion along with our financial statements
and the related notes included in this Prospectus.
History and Business Overview
- -----------------------------
During February 1999, we began to market our new variable annuities. Sage
Insurance Group acquired the Company on December 31, 1996, and since that date,
we have prepared for the recommencement of our insurance underwriting and
marketing activities. (Before the acquisition of the Company, all new business
production and marketing ended in October 1996.) We totally reengineered our
products, systems and administration since the change of ownership. All of our
current senior management are experienced in the insurance industry (either in
the United States or in South Africa). We recruited most of the senior
management team since January 1997. Our ongoing business strategy is to focus
on the development, underwriting, and marketing of variable annuity and variable
life insurance products. Our obligations under these contracts are supported by
(1) variable accounts -- determined by the value of investments held in separate
accounts, and (2) fixed accounts -- backed by investments held in separate
accounts. We may not use the assets of these separate accounts that equal the
reserves and other liabilities supporting the contracts to which they relate, to
pay any of our other obligations or creditors. Currently, we anticipate
distributing the contracts through banks. We anticipate that, over the long-
term, our distribution channels will expand to include wirehouses, regional
broker-dealers, and financial planners.
Results of Operations
- ---------------------
Net losses for the six months ended June 30, 1999 and 1998 were $6,118,543
and $497,973, respectively. During the first six months of 1999 and 1998,
investment income was $646,840 and $685,360, respectively. Management fees
earned from invested assets have produced income of $15,517 during 1999.
Annuity charges and fee income for 1999 are $134. Effective investment yields
for our General Account were 5.4% for the six months ended June 30, 1999 and
5.2% for the six months ended June 30, 1998.
Insurance expenses and taxes for the six months ended June 30, 1999 were
$891,359 and $1,000,321 for the corresponding period during 1998. In accordance
with SOP 98-5, development costs of $1,502,953 were expensed during 1999. Prior
to this year, all development costs were capitalized and amortized. In
addition, the adoption of SOP 98-5 resulted in a cumulative effect adjustment in
the amount of $4,269,488 being deducted from earnings. This amount was the
amount of unamortized development costs as of January 1, 1999.
Net losses for the years ended December 31, 1998 and 1997 were $568,974,
and $351,786, respectively. As the Company was not underwriting or marketing
insurance products, all revenue for 1998 and 1997 was derived from investing
activities. Effective investment yields for our General Account were
69
<PAGE>
5.1% for the year ended December 31, 1998, and 5.4% for the year ended December
31, 1997. General expenses incurred in financing our daily activities more than
offset investment revenue.
Liquidity and Capital Resources
- -------------------------------
Since the beginning of 1997, we have needed money primarily to develop our
insurance products and related infrastructure, and to fund our daily operations.
We have met our cash needs through interest income and capital contributions
from Sage Insurance Group.
During 1999, we expect our cash needs will continue to increase as we have
begun our underwriting and marketing activities. As discussed below, we intend
to enter into a reinsurance arrangement with Swiss Re that will provide an
additional source of cash. We still anticipate that we will be unable to meet
all of our 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 that will provide an additional
source of funds to us for new business expenses. In addition, although not
required to do so, we believe that Sage Insurance Group will continue to provide
capital to us for our non-recurring costs associated with new products and
business development during 1999. Our 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
- -------------------
We currently plan to conduct our business as a single segment, and
anticipate that this segment will eventually include all of the following
products:
. Combination fixed and variable deferred annuities.
. Combination fixed and variable immediate annuities.
. Combination fixed and variable life insurance products.
Reinsurance
- -----------
We intend to enter into a coinsurance reinsurance arrangement with Swiss
Re, pursuant to which Swiss Re will reinsure a significant portion of our
liabilities under our variable insurance contracts. This arrangement will
provide additional capacity for growth of our variable insurance business.
In addition, we intend to reinsure certain mortality risks associated with
the guaranteed minimum death benefit and accidental death benefit features of
the Contracts. We intend to use only highly rated reinsurance companies to
reinsure these risks.
Reinsurance does not relieve us from our obligations to Owners. We remain
primarily liable to our Owners to the extent that any reinsurer does not meet
its obligations under the reinsurance agreements.
70
<PAGE>
Reserves
- --------
The insurance laws and regulations under which we operate obligate us to
carry on our books, as liabilities, actuarially determined reserves to meet our
obligations on outstanding Contracts. We base our reserves involving life
contingencies on mortality tables in general use in the United States. Where
applicable, we compute our reserves to equal amounts which, together with
interest on such reserves computed annually at certain assumed rates, will be
sufficient to meet our Contract obligations at their maturities or in the event
of the Owner's death. In the financial statements included in this Prospectus,
all reserves have been determined in accordance with generally accepted
accounting principles. As previously noted, all of Fidelity Life's existing
annuity business has been irrevocably transferred to Security First, resulting
in no remaining contract obligations at December 31, 1998.
Investments
- -----------
We invested our General Account cash and invested assets of $24.4 million,
$25.5 million, and 25.4 million at June 30, 1999 and December 31, 1998 and 1997,
respectively, entirely in investment grade securities and money market funds.
It is our stated policy to refrain from investing in securities having
speculative characteristics. Our entire portfolio is classified as available-
for-sale, and is reported at fair value, with resulting unrealized gains or
losses included as a separate component of stockholder's equity.
Dividend Restrictions
- ---------------------
We are subject to state regulatory restrictions that limit the maximum
amount of dividends payable. Subject to certain net income carryforward
provisions described below, we must obtain approval of the Insurance
Commissioner of the State of Delaware to pay, in any 12-month period,
"extraordinary" dividends which are defined as those in excess of the greater of
10% of surplus as regard to shareholders as of the prior year-end and statutory
net income less realized capital gains for such prior year. We may pay
dividends only out of unassigned surplus. In addition, we must provide notice
to the Insurance Commissioner of the State of Delaware of all dividends and
other distributions to shareholders within five business days after declaration
and at least ten days prior to payment. At December 31, 1998 the maximum amount
of dividends we could have paid out to our parent without prior approval from
state regulatory authorities was $2,310,910.
New Accounting Standards
- ------------------------
As of January 1, 1998, we 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. SFAS
130 requires us to report separately in stockholder's equity the accumulated
balance of other comprehensive income. Our only component of other
comprehensive income is net unrealized gains or losses on available-for-sale
securities, which we report separately in stockholder's equity. The adoption of
SFAS 130 had no impact on our net income or stockholder's equity.
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" (SFAS 133) was issued. SFAS 133 standardizes the accounting
for derivative instruments and the derivative portions of certain other
contracts that have similar characteristics by requiring that an entity
71
<PAGE>
recognize those instruments at fair value. This statement also requires a new
method of accounting for hedging transactions, prescribes the types of items and
transactions that may be hedged, and specifies detailed criteria to be met to
qualify for hedge accounting. This statement is effective for fiscal years
beginning after June 15, 2000. Earlier adoption is permitted. Upon adoption,
the Company will be required to record the cumulative effect adjustment to
reflect this accounting change. The Company has not completed its analysis and
evaluation of the requirements and impact of this statement.
Competition
We are engaged in a business that is highly competitive due to the large
number of stock and mutual life insurance companies as well as other entities
marketing insurance products comparable to our products. There are
approximately 1,600 stock, mutual and other types of insurers in the life
insurance business in the United States, a substantial number of which are
significantly larger than we are. We are unique in that we are one of the few
life insurers confining its activities to the marketing of separate account
variable insurance products.
Transactions with Sage Insurance Group
In 1997, we 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. Under this agreement, we have received $184,962 from Sage
Insurance Group for the six months ended June 30, 1999, and we have paid
expenses of $79,463 for the six months ended June 30, 1998. For the year ended
December 31, 1998, we have received $151,348 for Sage Insurance Group and paid
$76,048 for the year ended December 31, 1997. In addition, Sage Insurance Group
provides funds to us to meet various operating expenses. We pay these amounts
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 us. The
amount of these developmental costs paid for by companies affiliated with Sage
Life on June 30, 1999, December 31, 1998, and December 31, 1997 were $1,502,953,
$3,270,219, and $1,404,558, respectively. Sage Insurance Group regards these
expenditures as being of a developmental nature and does not intend to recover
these expenditures from us. Accordingly, these expenditures have been reflected
as contributed capital in our financial statements.
Employees
Due to our business strategy of outsourcing our primary administrative and
investment functions to organizations that specialize in these areas, the number
of full time personnel we employ is limited. As of June 30, 1999, we had 18
employees. As of December 31, 1998, we had 14 employees.
Properties
Our executive office is located at 300 Atlantic Street, in Stamford,
Connecticut, where we maintain our primary corporate records. We maintain
customer records at our Customer Service Center.
72
<PAGE>
Sage Insurance Group leases our office space. We reimburse Sage Insurance
Group for the office space under the Cost Sharing Agreement described above.
State Regulation
We are subject to the laws of the State of Delaware governing insurance
companies and to the regulations of the Delaware Department of Insurance (the
"Insurance Department"). We file a detailed financial statement in the
prescribed form (the "Statement") with the Insurance Department each year
covering our operations for the preceding year and our financial condition as of
the end of that year. Regulation by the Insurance Department means that the
Insurance Department may examine us and our books and records to determine,
among other things, whether contract liabilities and reserves as we state them
are correct. The Insurance Department, under the auspices of the National
Association of Insurance Commissioners ("NAIC"), will periodically conduct a
full examination of our operations.
In addition, we are subject to regulation under the insurance laws of all
jurisdictions in which we operate. The laws of the various jurisdictions
establish supervisory agencies with broad administrative powers with respect to
various matters, including licensing to transact business, overseeing trade
practices, licensing agents, approving contract forms, establishing reserve
requirements, fixing maximum interest rates on life insurance contract loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. We must file the Statement with supervisory agencies in
each of the jurisdictions in which we do business, and our operations and
accounts are subject to examination by these agencies at regular intervals.
The NAIC has adopted several regulatory initiatives designed to improve the
surveillance and financial analysis regarding the solvency of insurance
companies in general. These initiatives include the development and
implementation of a risk-based capital formula for determining adequate levels
of capital and surplus. Insurance companies are required to calculate their
risk-based capital in accordance with this formula and to include the results in
their Statements. We anticipate that these standards will have no significant
effect upon us.
Further, many states regulate affiliated groups of insurers like us and our
affiliates, under insurance holding company legislation. Under such laws,
inter-company transfers of assets and dividend payments from insurance
subsidiaries may be subject to prior notice or approval, depending on the size
of the transfers and payments in relation to the financial positions of the
companies involved.
73
<PAGE>
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for contract owner losses
incurred when other insurance companies have become insolvent. Most of these
laws provide that an assessment may be excused or deferred if it would threaten
an insurer's own financial strength.
Although the federal government ordinarily does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Our insurance products are subject to various federal
securities laws and regulations. In addition, current and proposed federal
measures that may significantly affect the insurance business include:
. regulation of insurance company solvency,
. employee benefit regulation,
. removal of barriers preventing banks from engaging in the insurance
business,
. tax law changes affecting the taxation of insurance companies, and
. tax treatment of insurance products and its impact on the relative
desirability of various personal investment vehicles.
74
<PAGE>
Directors and Executive Officers
<TABLE>
<CAPTION>
Position held with the Other Principal Positions
Name (Age) Company/Year Commenced During Past Five Years
<S> <C> <C>
Ronald S. Scowby/1/ Director, 1/97 to present, Chairman and Trustee, Sage
Age 60 Chairman, 2/98 to present Life Investment Trust, 7/98
to present; Director, Sage
Life Assurance Company of New
York, 5/98 to present; Deputy
Chairman 2/98 to present,
President, 1/97 to 2/98,
Director, 1/97 to present,
Sage Insurance Group Inc.;
Director, Sage Advisors,
Inc., 1/98 to 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
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
Director, 1/97 to President and Trustee, Sage
Robin I. Marsden/1/ present, President and Life Investment Trust, 7/98
Age 34 Chief Executive Officer, to present; Director, Sage
2/98 to present Life Assurance Company of New
York, 5/98 to present;
Director, President, Sage
Advisors, Inc., 1/98 to
present; Director, Sage
Distributors, Inc., 1/98 to
present; Director, 1/97 to
present, President and Chief
Executive Officer, 2/98 to
present, Sage Insurance
Group, Inc.; Chief Investment
Officer, Sage Life Holdings,
Ltd., 11/94 to
</TABLE>
75
<PAGE>
<TABLE>
<S> <C> <C>
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 46 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 55 1/97 to present Company of New York, 5/98 to
present; President, First
Interstate Securities,
1/95-12/95; 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 46 present, Senior Investment Trust, 7/98 to
Executive Vice present; Director, Sage Life
President, Chief Assurance Company of New
Financial Officer, York, 5/98 to present;
Chief Actuary Director, Treasurer, Sage
5/97 to present Advisors, Inc., 1/98 to
present; Director, Sage
Distributors, Inc., 1/98 to
present; Treasurer, 7/97 to
present, Senior Executive
Vice President, 12/97 to
present, Sage Insurance
Group, Inc.; Executive Vice
President,
Golden American Life
Insurance Company, 7/93-2/97.
</TABLE>
76
<PAGE>
/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
Our executive officers also serve as officers of our parent and of certain
affiliated companies. Cost allocations have been made to us as to the time
these individuals devoted to their duties with us. No allocation has been made
during 1997, 1998 nor 1999 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 us 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, 1998.
<TABLE>
<CAPTION>
Annual Compensation
- -------------------------------------------------------------------------------------------------
All Other
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Ronald S. Scowby,
Chairman(1) 1997 $337,500 $100,000
1998 $350,000 $100,000 $22,097
Robin I. Marsden,
President and Chief 1998 $275,000 $150,000 $20,956
Executive Officer(1)
Mitchell R. Katcher,
Senior Executive 1997 $114,583 $265,000
Vice President, Chief 1998 $250,000 $125,000 $19,037
Financial Officer and Chief
Actuary(1)
</TABLE>
(1) All salaries and bonuses are paid by Sage Insurance Group.
We pay outside directors $12,000 and $2,000 per meeting attended. For the
years ended December 31, 1998 and 1997, we paid each outside director $20,000.
We do not compensate directors who are officers or employees of ours or our
affiliates for serving on the Board. Directors do not receive retirement
benefits.
77
<PAGE>
Report of Independent Auditors
Board of Directors
Sage Life Assurance of America, Inc.
We have audited the accompanying balance sheets of Sage Life Assurance of
America, Inc. (formerly Fidelity Standard Life Insurance Company) as of December
31, 1998 and 1997, and the related statements of operations, stockholder's
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sage Life Assurance of America,
Inc. as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Stamford, Connecticut
February 15, 1999
78
<PAGE>
Sage Life Assurance of America, Inc.
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) December 31, December 31,
June 30, 1999 1998 1997
---------------------------------------------
Assets
Investments:
<S> <C> <C> <C>
Fixed maturities available for sale, at fair value
(amortized cost: 1999 - $16,853,372; 1998 -- $12,967,022
and 1997 $3,520,393) $16,099,509 $12,992,917 $ 3,595,326
Short-term investments 7,977,060 10,975,402 21,530,888
---------------------------------------------
Total investments 24,076,569 23,968,319 25,126,214
Cash and cash equivalents 372,144 1,531,165 228,605
Accrued investment income 206,169 203,425 58,039
Receivable from affiliates 15,517 25,941
Reinsurance recoverable - - 2,728,284
Goodwill 6,447,900 6,565,134 6,802,300
Development costs - 4,269,488 1,310,921
Deferred income taxes 256,314 - -
Other assets 5,000 5,000 11,443
Separate account assets 72,699 396,992
---------------------------------------------
Total assets $31,452,312 $36,542,531 $36,688,739
=============================================
Liabilities and stockholder's equity
Liabilities:
Accrued expenses $ 37,784 $ 61,670 $ 180,442
Policy liabilities - - 2,728,284
Deferred income taxes - 8,804 26,227
Amounts payable to affiliates - - 154,366
Separate account liabilities 72,699 - 396,992
---------------------------------------------
Total liabilities 110,483 70,474 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 2,500,000
Additional paid-in capital 36,378,682 34,875,727 31,005,508
Retained deficit (7,039,303) (920,760) (351,786)
Accumulated other comprehensive income (497,550) 17,090 48,706
---------------------------------------------
Total stockholder's equity 31,341,829 36,472,057 33,202,428
---------------------------------------------
Total liabilities and stockholder's equity $31,452,312 $36,542,531 $36,688,739
=============================================
</TABLE>
See accompanying notes to financial statements.
79
<PAGE>
Sage Life Assurance of America, Inc.
Statements of Operations
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Six Months Six Months Year Ended
Ended Ended December 31, Year Ended
June 30, 1999 June 30, 1998 1998 December 31, 1997
------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Annuity charges and fees $ 134 $ - $ - $ -
Management fees 15,517 - -
Net investment income 646,840 685,360 1,243,522 989,494
----------- ---------- ---------- ----------
Total Revenues 662,491 685,360 1,243,522 989,494
Benefits and Expenses:
Expenses:
Insurance expenses and taxes 891,359 1,000,321 1,263,678 1,015,874
Development expenses 1,502,953 - - -
Amortization of goodwill and
development costs 117,234 183,012 548,818 325,406
----------- ---------- ---------- ----------
Total Benefits and Expenses 2,511,546 1,183,333 1,812,496 1,341,280
----------- ---------- ---------- ----------
Loss from operations before income taxes (1,849,055) (497,973) (568,974) (351,786)
--------
Income tax expense - - - -
----------- ---------- ---------- ----------
Net loss before cumulative effect adjustment (1,849,055) (497,973) (568,974) (351,786)
Cumulative effect adjustment of change
in accounting for development costs (4,269,488)
(net of taxes) -----------
Net loss $(6,118,543) $ 497,973) $ (568,974) $ (351,786)
==================================================================
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
80
<PAGE>
Sage Life Assurance of America, Inc.
Statements of Stockholder's Equity
<TABLE>
<CAPTION>
Accumulated Other
Additional Comprehensive (Unaudited)
Common Stock Paid-In Capital Retained Deficit Income Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $2,500,000 $15,505,508 $18,005,508
Net loss $ (351,786) (351,786)
Change in unrealized gain on
investments $ 48,706 48,706
---------------
Comprehensive income (303,080)
Additional capital contributions 15,500,000 15,500,000
----------------------------------------------------------------------------------------
Balance at December 31, 1997 2,500,000 31,005,508 (351,786) 48,706 33,202,428
Net loss (568,974) (568,974)
Change in unrealized gain on
investments (31,616) (31,616)
---------------
Comprehensive income (600,590)
Additional capital contributions 3,870,219 3,870,219
----------------------------------------------------------------------------------------
Balance at December 31, 1998 2,500,000 34,875,727 (920,760) 17,090 36,472,057
Net loss (6,118,543) (6,118,543)
Change in unrealized gain on
investments (514,640) (514,640)
---------------
Comprehensive income (6,633,183)
Additional capital contributions 1,502,955 1,502,955
----------------------------------------------------------------------------------------
Balance at June 30, 1999 $2,500,000 $36,378,682 $(7,039,303) $(497,550) $31,341,829
========================================================================================
</TABLE>
See accompanying notes to financial statements.
81
<PAGE>
Sage Life Assurance of America, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Six Months Six Months Year Ended Year Ended
Ended Ended December 31 December 31
June 30, 1999 June 30, 1998 1998 1997
--------------------------------------------------------------
Operating activities
<S> <C> <C> <C> <C>
Net loss $(6,118,543) $(497,973) $ (568,974) $ (351,786)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Amortization expense 117,234 183,012 548,818 325,406
Development costs paid by parent 1,502,953 - -
Cumulative effect adjustment 4,269,488 - -
Changes in:
Accrued investment income (2,744) (6,985) (145,386) (29,638)
Receivable from affiliates (15,517) 25,941 25,941 (25,941)
Other assets (256,314) (38,199) 6,443 (11,443)
Accrued expenses (23,886) (50,488) (118,772) 116,216
Amounts payable to affiliates - (41,226) (154,366) 154,366
--------------------------------------------------------------
Net cash (used in) provided by operating
activities (527,329) (425,918) (406,296) 177,180
Investing activities
Purchase of fixed maturity securities $(3,947,436) - $(10,295,783) -
Proceeds from sales, maturities and
repayments of fixed maturity securities 75,212 - 849,153 42,941
Net sales (purchases) of short-term
investments 3,240,532 357,960 10,555,486 (15,507,987)
--------------------------------------------------------------
Net cash provided by (used in) investing
activities (631,692) 357,960 1,108,856 (15,465,046)
Financing activities
Capital contribution from the parent - 600,000 600,000 15,500,000
--------------------------------------------------------------
Net cash provided by financing activities - 600,000 600,000 15,500,000
--------------------------------------------------------------
(Decrease) increase in cash and cash
equivalents (1,159,021) 532,042 1,302,560 212,134
Cash and cash equivalents at beginning of
period 1,531,165 228,605 228,605 16,471
--------------------------------------------------------------
Cash and cash equivalents at end of period $ 372,144 $ 760,647 $ 1,531,165 $ 228,605
==============================================================
</TABLE>
See accompanying notes to financial statements.
82
<PAGE>
Sage Life Assurance of America, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1999 (Unaudited) and
Years Ended December 31, 1998 and 1997
1. Nature of Operations and Significant Accounting Policies
Organization and Operation
Sage Life Assurance of America, Inc. (the "Company") is a wholly-owned
subsidiary of Sage Life Holdings of America, Inc. ("SLHA"), which is a wholly-
owned indirect subsidiary of Sage Group Limited, a South African company.
Description of Business
Effective December 31, 1996, Sage Insurance Group, Inc. (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, all new business
production and marketing was ceased and Fidelity Standard entered into a
modified coinsurance arrangement to cede all of its separate account liabilities
to its then parent, 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. Effective
September 1, 1998, all of the in-force business of the Company was novated to
SFLIC. There was no gain or loss in connection with the novation. Accordingly,
no insurance liabilities exist at December 31, 1998.
The Company is in the process of developing and preparing to market variable
annuity and variable life insurance products. The marketing of these products
began in the first quarter of 1999. The Company has mutually agreed to enter
into a coinsurance reinsurance arrangement with Swiss Re Life & Health America
(Swiss Re), pursuant to which Swiss Re will reinsure a significant portion of
the liabilities under the variable insurance contracts. There were $72,699 of
insurance liabilities at June 30, 1999.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles.
New Accounting Pronouncements
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for the reporting and display of comprehensive income and
its components; however, adoption of this Statement had no impact on the
Company's net income or stockholder's equity. Comprehensive income is defined as
the change in equity during the financial reporting period of a business
83
<PAGE>
Safe Life Assurance of America, Inc.
Notes to Financial Statements (continued)
For the Six Months Ended June 30, 1999 (Unaudited) and
Years Ended December 31, 1998 and 1997
1. Nature of Operations and Significant Accounting Policies (continued)
For the Six Months Ended June 30, 1999 (Unaudited) and enterprise resulting from
non-owner sources. The primary element of comprehensive income is the unrealized
gains and losses on investments. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) was issued. SFAS 133 standardizes the accounting for
derivative instruments and the derivative portions of certain other contracts
that have similar characteristics by requiring that an entity recognize those
instruments at fair value. This statement also requires a new method of
accounting for hedging transactions, prescribes the types of items and
transactions that may be hedged, and specifies detailed criteria to be met to
qualify for hedge accounting. This statement is effective for fiscal years
beginning after June 15, 2000. Earlier adoption is permitted. Upon adoption,
the Company will be required to record the cumulative effect adjustment to
reflect this accounting change. The Company has not completed its analysis and
evaluation of the requirements and impact of this statement.
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 statements of operations. The
separate account balances existing at December 31, 1997 were novated to SFLIC
effective September 1, 1998. As a result, no separate account assets or
liabilities are reported at December 31, 1998. As the Company began
84
<PAGE>
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
For the Six Months Ended June 30, 1999 (Unaudited) and
Years Ended December 31, 1998 and 1997
1. Nature of Operations and Significant Accounting Policies (continued)
underwriting new business during 1999, separate account assets and liabilities
were both $72,699 as of June 30, 1999.
Policy Liabilities
Policy liabilities at December 31, 1997 consisted 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%. There were no policy liabilities at
December 31, 1998 as all in-force business was novated to SFLIC, effective
September 1, 1998.
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 June 30, 1999, December 31, 1998 and
December 31, 1997 was $586,169, $468,935 and $231,769, respectively.
Development Costs
Prior to the adoption of Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" (SOP 98-5), the Company capitalized certain costs incurred
in the development and registration of the Company's insurance products. These
development costs were being amortized on a straight line basis over fifteen
years. Accumulated amortization at December 31, 1998 and December 31, 1997 was
$405,287 and $93,637, respectively.
In April 1998, 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
development costs. Accordingly, the Company wrote-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.
85
<PAGE>
Safe Life Assurance of America, Inc.
Notes to Financial Statements (continued)
For the Six Months Ended June 30, 1999 (Unaudited) and
Years Ended December 31, 1998 and 1997
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.
2. Investments
Investments in fixed maturity securities as of June 30, 1999 consisted of the
following:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Amortized Cost Gains Losses Value
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Obligations $ 9,304,635 $42,692 $481,380 $ 8,865,947
Corporate Obligations 7,548,737 4,429 319,604 7,233,562
--------------------------------------------------------------------
$16,853,372 $47,121 $800,984 $16,099,509
====================================================================
</TABLE>
Investments in fixed maturity securities as of December 31, 1998 consisted of
the following:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Amortized Cost Gains Losses Value
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Obligations $ 9,356,479 $89,549 $54,974 $ 9,391,054
Corporate Obligations 3,610,543 4,282 12,962 3,601,863
--------------------------------------------------------------------
$12,967,022 $93,831 $67,936 $12,992,917
====================================================================
</TABLE>
Investments in fixed maturity securities as of December 31, 1997 consisted of
the following:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Amortized Cost 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 December 31, 1998 are summarized below. Actual maturities will
differ from contractual maturities because certain borrowers have the right to
call or prepay obligations.
86
<PAGE>
Safe Life Assurance of America, Inc.
Notes to Financial Statements (continued)
For the Six Months Ended June 30, 1999 (Unaudited) and
Years Ended December 31, 1998 and 1997
2. Investment (continued)
Amortized Fair
Cost Value
--------------------------------
Due after one year through five years $ 4,750,473 $ 4,811,245
Due after five years through ten years 8,216,549 8,181,672
--------------------------------
Total $12,967,022 $12,992,917
================================
Investment income by major category of investment for the periods ended June 30,
1999, December 31, 1998, June 30, 1998 and December 31, 1997 is summarized as
follows:
<TABLE>
<CAPTION>
June 30, June 30, December 31, December 31,
1999 1998 1998 1997
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds $460,698 $149,255 $ 261,781 $ 255,778
Short-term investments 207,221 552,764 787,873 720,556
Cash and cash equivalents 2,462 16,761 239,700 49,035
--------------------------------------------------------------------------
Total investment income 670,376 718,780 1,289,354 1,025,369
Investment expenses 23,536 33,420 45,832 35,875
--------------------------------------------------------------------------
Net investment income $646,840 $685,360 $1,243,522 $ 989,494
==========================================================================
</TABLE>
At December 31, 1998 and 1997, investment securities with an amortized cost of
$6,678,745 and $6,128,048, respectively, and a fair value of $6,623,770 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
(U.S.A.), Inc. and its subsidiaries.
The provision for income taxes varies from the amount which would be computed
using the federal statutory income tax rate as follows:
87
<PAGE>
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
For the Six Months Ended June 30, 1999 (Unaudited) and
Years Ended December 31, 1998 and 1997
3. Income Taxes (continued)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 December 31, 1997
-----------------------------------------------------------
<S> <C> <C> <C>
Pre-tax loss $(6,118,543) $(568,974) $(351,786)
Application of the federal statutory
tax rate 34% 2,080,306 (193,451) (119,607)
Tax effect of:
State income taxes - (75)
Change in valuation allowance 2,080,306 193,451 119,532
-----------------------------------------------------------
Total income tax provision $ - $ - $ -
===========================================================
</TABLE>
Significant components of the Company's deferred tax assets and liabilities as
of June 30, 1999, December 31, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 December 31, 1997
-----------------------------------------------------------
Deferred tax assets:
<S> <C> <C> <C>
Net operating loss carryforwards $ 2,596,207 $ 1,967,528 $ 756,521
Unrealized loss on depreciation of 256,314
investments
----------- ----------- ----------
Total deferred tax assets 2,852,521 1,967,528 756,521
Deferred tax liabilities:
Unrealized gain on appreciation of investments (8,804) (26,227)
Amortization of goodwill and development costs (202,918) (1,654,545) (636,989)
----------- ----------- ----------
Total deferred tax liabilities (202,918) (1,663,349) (663,216)
Valuation allowance for deferred tax assets (2,393,289) (312,983) (119,532)
-----------------------------------------------------------
Net deferred tax liability $ 256,314 $ (8,804) $ (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 June 30, 1999, the Company has net operating loss carryforwards of $7.6
million which expire through 2019.
88
<PAGE>
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
For the Six Months Ended June 30, 1999 (Unaudited) and
Years Ended December 31, 1998 and 1997
4. Retained Deficit and Dividend Restrictions
Statutory-basis net income and surplus of the Company are as follows:
<TABLE>
<CAPTION>
June 30, December 31, December 31,
1999 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C>
Net (loss) income $ (241,090) $ 27,002 $ 51,133
Surplus 25,367,629 25,609,097 25,017,752
</TABLE>
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, 1998,
the maximum amount of dividends the Company could pay SLHA without prior
approval from state regulatory authorities is $2,310,910.
5. Related Party Transactions
In 1997, the Company entered into a Cost Sharing Agreement with Sage Insurance
Group, Inc. (SIGI), the parent of SLHA, to share the personnel costs, office
rent and equipment costs. These costs are allocated between the companies based
upon the estimated time worked, square footage of space utilized and upon
monitored usage of the equipment, respectively. Pursuant to this agreement, the
Company has received $184,962 from SIGI for the six months ended June 30, 1999,
and have paid expenses of $79,463 for the six months ended June 30, 1998. For
the year ended December 31, 1998, we have received $151,348 from SIGI and paid
$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.
SIGI has also incurred expenditures in connection with the costs of establishing
new systems, new products, and premises for us. The amount of development costs
paid for by affiliated companies during the six months ended June 30, 1999 were
$1,502,953 and for the years ended December 31, 1998 and December 31, 1997 were
$3,270,219 and $1,404,558, respectively.
89
<PAGE>
Appendix A
Market Value Adjustment
We will apply a Market Value Adjustment to amounts surrendered, withdrawn,
transferred, or borrowed 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 borrowed amount, 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 borrowed in order to provide the amount requested.
[(1+I)/(1+J+.0025)](to the Nth power divided by 365) - 1
Where
. I is the Index Rate for a maturity equal to the Fixed Sub-Account's
Guarantee Period, at the time that we established the Sub-Account;
. J is the Index Rate for a maturity equal to the time remaining
(rounded up to the next full year) in the Fixed Sub-Account's
Guarantee Period, at the time of surrender, withdrawal, transfer, or
loan; 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 borrow.
A-1
<PAGE>
. 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 borrow the full amount of the Fixed Sub-Account,
we add the Market Value Adjustment to the amount you withdraw,
transfer, or borrow.
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, withdrawals, or loans affecting this Fixed Sub-Account have been
made, and no surrender charge is applicable.
Calculate the Market Value Adjustment
1. The Account Value of the Fixed Sub-Account on the date of surrender is
$124,230 ($100,000 x 1.075 to the third power)
2. N = 2,555 (365 x 7)
3. Market Value Adjustment = $124,230 x {[(1.07)/(1.0825)] to the 2555th
power divided by 365-1} = -$9,700
Therefore, the amount paid on full surrender is $114,530 ($124,230 - $9,700).
Example #2: Surrender -- Example of a Positive Market Value Adjustment
Assume you invest $100,000 in a Fixed Sub-Account with a Guarantee Period of ten
years, with a Guaranteed Interest Rate of 7.5% and an Index Rate ("I") of 7.0%
based on the U.S. Treasury Constant Maturity Series at the time we established
the Sub-Account. You request a surrender three years into the Guarantee Period,
the Index Rate based on the U.S. Treasury Constant Maturity Series for a seven-
year Guarantee Period ("J") is 6.0% at the time of the surrender, no prior
transfers, withdrawals, or loans affecting this Fixed Sub-Account have been
made, and no surrender charge is applicable.
A-2
<PAGE>
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 to the third power)
2. N = 2,555 (365 x 7)
3. Market Value Adjustment = $124,230 x {[(1.07)/(1.0625)] to the 2555th
power divided by 365-1} = +$6,270
Therefore, the amount paid on full surrender is $130,500 ($124,230 + $6,270).
Example #3: Withdrawal -- Example of a Negative Market Value Adjustment
Assume you invest $200,000 in a Fixed Sub-Account with a Guarantee Period of ten
years, with a Guaranteed Interest Rate of 7.5% and an Index Rate ("I") of 7.0%
based on the U.S. Treasury Constant Maturity Series at the time we established
the Sub-Account. You request a withdrawal of $100,000 three years into the
Guarantee Period, the Index Rate based on the U.S. Treasury Constant Maturity
Series for a seven-year Guarantee Period ("J") is 8.0% at the time of
withdrawal, no prior transfers, withdrawals, or loans affecting this Fixed Sub-
Account have been made, and no surrender charge is applicable.
Calculate the Market Value Adjustment
1. The Account Value of the Fixed Sub-Account on the date of withdrawal
is $248,459 ($200,000 x 1.075 to the third power).
2. N = 2,555 (365 x 7)
3. Market Value Adjustment = $100,000 x {[(1.07)/(1.0825)] to the 2555 th
power divided by 365 -1} = -$7,808
Therefore, the amount of the withdrawal paid is $100,000, as requested. The
Fixed Sub-Account will be reduced by the amount of the withdrawal paid
($100,000) and by the Market Value Adjustment ($7,808), for a total reduction in
the Fixed Sub-Account of $107,808.
A-3
<PAGE>
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, withdrawals, or loans affecting this Fixed
Sub-Account have been made, and no surrender charge is applicable.
Calculate the Market Value Adjustment
1. The Account Value of the Fixed Sub-Account on the date of withdrawal
is $248,459 ($200,000 x 1.075 to the third power)
2. N = 2,555 (365 x 7)
3. Market Value Adjustment = $100,000 x {[(1.07)/(1.0625)](to the 2555th
power divided by 365) - 1} = +$5,047
Therefore, the amount of the withdrawal paid is $100,000, as requested. The
Fixed Sub-Account will be reduced by the amount of the withdrawal paid
($100,000) and increased by the amount of the Market Value Adjustment
($5,047), for a total reduction of $94,953 from your Sub-Accounts to the Loan
Account.
A-4
<PAGE>
Appendix B
Dollar-Cost Averaging Program
Below is an example of how the Dollar-Cost Averaging Program works. Assume
that the Dollar-Cost Averaging Program has been elected and that $24,000 is
invested in a DCA Fixed Sub-Account with a Guarantee Period of two years and an
annual Guaranteed Interest Rate of 6.0%.
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
--- --- --- --- ---
Beginning of Dollar Cost Interest
Beginning Month Averaging Amount Dollar Credited End of Month
Of Month Account Value Monthly Factor Cost Averaged For Month Account Value
- --------- -------------- -------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
1 24,000 - - 117 24,117
2 24,117 1 / 24 1,005 112 23,224
3 23,224 1 / 23 1,010 108 22,323
4 22,323 1 / 22 1,015 104 21,412
5 21,412 1 / 21 1,020 99 20,492
6 20,492 1 / 20 1,025 95 19,562
7 19,562 1 / 19 1,030 90 18,622
8 18,622 1 / 18 1,035 86 17,673
9 17,673 1 / 17 1,040 81 16,715
10 16,715 1 / 16 1,045 76 15,746
11 15,746 1 / 15 1,050 72 14,768
12 14,768 1 / 14 1,055 67 13,780
13 13,780 1 / 13 1,060 62 12,782
14 12,782 1 / 12 1,065 57 11,774
15 11,774 1 / 11 1,070 52 10,756
16 10,756 1 / 10 1,076 47 9,727
17 9,727 1 / 9 1,081 42 8,688
18 8,688 1 / 8 1,086 37 7,639
19 7,639 1 / 7 1,091 32 6,580
20 6,580 1 / 6 1,097 27 5,510
21 5,510 1 / 5 1,102 21 4,429
22 4,429 1 / 4 1,107 16 3,338
23 3,338 1 / 3 1,113 11 2,236
24 2,236 1 / 2 1,118 5 1,124
25 1,124 1 / 1 1,124 - -
</TABLE>
Note:
Column (3) = Column (1) x Column (2)
Column (5) = Column (1) - Column (3) + Column(4)
B-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission
Registration Fees (Approximate) $10,100.00
Printing and engraving $27,500.00
Accounting fees and expenses $10,000.00
Legal fees and expenses $30,000.00
Miscellaneous $ 5,000.00
----------
Total Expenses (Approximate) $82,600.00
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sage Life's Articles of Incorporation provide that a director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except that (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which would involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any personal benefit. Notwithstanding the foregoing, the
Articles provide that if the Delaware General Corporation Law is amended to
authorize further limitations of the liability of a director or a corporation,
then a director of the Company, in addition to circumstances in which a director
is not personally liable as set forth in the preceding sentence, shall be held
free from liability to the fullest extent permitted by the Delaware General
Corporation Law as amended.
Sage Life's Bylaws provide that the Company shall indemnify its
officers, directors, employees and agents to the extent permitted by the General
Corporation Law of Delaware.
Further, Section 145 of Delaware General Corporation Law provides that
a corporation shall have power to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit, or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the
PII-1
<PAGE>
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 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits
1. Distribution Agreement with Sage Distributors, Inc. and Form of Selling
Agreement./1/
3. (i) Articles of Incorporation of the Company./2/
(ii) By-Laws of the Company./2/
4. (a) Form of Individual Contract./3/
(b) Form of Individual Contract with Interest Account./3/
(c) Form of Individual Contract with Market Value Adjustment
Floor./3/
(d) Form of Individual Contract without Market Value Adjustment./3/
(e) Form of Group Contract./3/
(f) Form of Group Certificate./3/
(g) Form of Individual Certificate of Insurance Coverage./3/
PII-2
<PAGE>
(h) Form of Group Certificate of Insurance Coverage./3/
(i) Form of Individual Temporary Insurance Certificate./3/
(j) Form of Group Temporary Insurance Certificate./3/
(k) Form of Individual Accelerated Death Benefit Rider./3/
(l) Form of Group Accelerated Death Benefit Rider./3/
(m) Form of Individual Accidental Death Benefit Rider./3/
(n) Form of Group Accidental Death Benefit Rider./3/
(o) Form of Individual Waiver of Surrender Charge Rider./3/
(p) Form of Group Waiver of Surrender Charge Rider./3/
(q) Form of Individual Contract Application - Part I./3/
(r) Form of Individual Contract Application - Part II./3/
(s) Form of Group Certificate Application - Part I./3/
(t) Form of Group Certificate Application - Part II./3/
5. Opinion and Consent of James F. Bronsdon.*
10. (a) Form of Participation Agreement with AIM Variable Insurance Funds,
Inc./1/
(b) Form of Participation Agreement with The Alger American Fund./1/
(c) Form of Participation Agreement with Liberty Variable Investment
Trust./4/
(d) Form of Participation Agreement with MFS(R) Variable Insurance
Trust./1/
(e) Form of Participation Agreement with Morgan Stanley Universal Funds,
Inc./4/
(f) Form of Participation Agreement with Oppenheimer Variable Account
Funds./4/
(g) Form of Participation Agreement with Sage Life Investment Trust./1/
(h) Form of Participation Agreement with SteinRoe Variable Investment
Trust./4/
(i) Form of Participation Agreement with T. Rowe Price Equity Series,
Inc./4/
PII-3
<PAGE>
(j) Form of Services Agreement with Financial Administration Services,
Inc./4/
(k) Form of Services Agreement with PMSI./3/
23. (a) Consent of Sutherland Asbill & Brennan LLP.*
(b) Consent of Ernst & Young LLP.*
(c) Opinion and Consent of Ralph Gorter, Actuary.*
24. (a) Power of Attorney for Ronald S. Scowby./4/
(b) Power of Attorney for H. Louis Shill./5/
(c) Power of Attorney for Paul C. Meyer./6/
(d) Power of Attorney for Richard D. Starr./6/
(e) Power of Attorney for Robin I. Marsden./7/
(f) Power of Attorney for Mitchell R. Katcher./5/
27. Not Applicable
(B) Financial Statement Schedules - Not Applicable.
________________
/1/ This exhibit was previously filed in Pre-Effective Amendment No. 1
to the Registration Statement on Form N-4 (File No. 333-43329) dated December
31, 1998, and is incorporated herein by reference.
/2/ This exhibit was previously filed in the Registration Statement on From N-4
dated December 24, 1997 (File No. 333-43329), and is incorporated herein by
reference.
/3/ This exhibit was filed in Pre-Effective Amendment No. 1 to the Registration
Statement filed on Form S-6 (File No. 333-78581) dated September 21, 1999, and
is incorporated herein by reference.
/4/ This exhibit was previously filed in Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-4 (File No. 333-43329) dated January 28, 1999,
and is incorporated herein by reference.
/5/ This exhibit was previously filed in Pre-Effective Amendment No. 2 to the
Registration Statement filed on Form N-4 (file No. 333-44751) dated February 10,
1999, and is incorporated
/6/ This exhibit was previously filed in the Registration Statement filed on
Form S-6 (File No. 333-78581) dated May 17, 1999, and is incorporated herein by
reference.
/7/ This exhibit was previously filed in Post-Effective Amendment No. 1 to the
Registration Statement filed on Form N-4 (File No. 333-43329) dated February 26,
1999, and is incorporated herein by reference.
- ------------------
* filed herewith
PII-4
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
PII-5
<PAGE>
As required by the Securities Act of 1933, the registrant has caused
Amendment No. 1 to this Registration Statement to be signed on its behalf, in
the City of Stamford, and the State of Connecticut, on this 8th day of
September, 1999.
By: Sage Life Assurance of America, Inc.
(Registrant)
Attest: By: /s/Robin I. Marsden*
-------------------------
Robin I. Marsden
/s/William J. Evers Director, President, Chief Executive Officer
- -------------------
<PAGE>
As required by the Securities Act of 1933, Amendment No. l to this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- --------------------------------- ----------------------
<S> <C> <C>
/s/Ronald S. Scowby*
- --------------------------- Chairman September 8, 1999
Ronald S. Scowby
/s/H. Louis Shill*
- --------------------------- Director September 8, 1999
H. Louis Shill
/s/Paul C. Meyer* Director September 8, 1999
- ---------------------------
Paul C. Meyer
/s/Richard D. Starr * Director September 8, 1999
- ---------------------------
Richard D. Starr
/s/Mitchell R. Katcher* Director, Senior Executive September 8, 1999
- --------------------------- Vice President, Chief Financial
Mitchell R. Katcher Officer, Chief Actuary
- -----------------------------------------------------------------------------------------------------
</TABLE>
* By: James F. Bronsdon, Esq.
As Attorney-In-Fact pursuant to a
Power of Attorney as dated below.
Director Date
-------------------- ----------------
Ronald S. Scowby January 26, 1999
H. Louis Shill February 8, 1999
Paul C. Meyer May 12, 1999
Richard D. Starr May 13, 1999
Mitchell R. Katcher January 26, 1999
Robin I. Marsden January 26, 1999
<PAGE>
EXHIBIT LIST
5. Opinion and Consent of James F. Bronsdon.
23. (a) Consent of Sutherland Asbill & Brennan LLP.
(b) Consent of Ernst & Young LLP.
(c) Opinion and Consent of Ralph Gorter, Actuary.
<PAGE>
EXHIBIT 5
[SAGE LIFE ASSURANCE OF AMERICA, INC.]
September 20, 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"), a Delaware corporation, I have
supervised the preparation of Amendment No. 1 to the registration statement for
certain modified single payment combination fixed and variable life insurance
contracts ("Contracts") to be filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933 and the Investment Company
Act of 1940.
I am of the following opinion:
1. The Company was organized in accordance with the laws of the State of
Delaware and is a duly authorized stock life insurance company under
the laws of Delaware and the laws of those states in which the Company
is admitted to do business;
2. The Company is authorized to issue Contracts in those states in which
it is admitted and upon compliance with applicable local law;
3. The Contracts, when issued in accordance with the prospectus contained
in the aforesaid registration statement and upon compliance with the
applicable local law, will be legal and binding obligations of the
Company in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law
and examined such records and other documents as in my judgment are necessary or
appropriate.
<PAGE>
Board of Directors
September 20, 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 Prospectus contained in said registration statement.
Very truly yours,
/s/ James F. Bronsdon
---------------------------
James F. Bronsdon
Vice President, Legal and Compliance
<PAGE>
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
EXHIBIT 23(a)
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Legal Matters"
included in Amendment No. 1 to the Registration Statement on Form S-1 for
certain modified single payment combination fixed and variable life insurance
contracts issued by Sage Life Assurance of America, Inc. (File No. 333-78583).
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.
Washington, D.C.
September 20, 1999
<PAGE>
Exhibit 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Prospectus and to the use of our report dated February 15, 1999, with respect to
the financial statements of Sage Life Assurance of America, Inc. included in the
Amendment No. 1 to the Registration Statement (Form S-1, File No. 333-78583) and
related Prospectus for the registration of its variable life insurance
contracts.
/s/ Ernst & Young LLP
-----------------------------
Ernst & Young LLP
Stamford, Connecticut
September 20, 1999
<PAGE>
Exhibit 23(C)
Actuarial Opinion and Consent for S-1
Gentlemen:
This opinion is furnished in connection with the registration by Sage Life
Assurance of America, Inc. of certain modified single payment combination fixed
and variable life insurance contracts ("Contracts") under the Securities Act of
1933. The prospectus included in Amendment No. 1 to Registration Statement No.
333-78583 on Form S-1 describes the Contracts. I have provided actuarial advice
concerning the preparation of the Registration Statement and the preparation of
the Contract form described in the Registration Statement and Exhibits thereto.
In my professional opinion, the illustration of death benefits, account
values, and surrender values included in the prospectus, based on the
assumptions stated in the illustrations, are consistent with the provisions of
the Contracts. The rate structure of the Contracts has not been designed so as
to make the relationship between purchase payments and benefits, as shown in the
illustrations, appear more favorable to a prospective purchaser of a Contract
than at ages or classes not shown.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the heading
"Experts" in the prospectus.
Sincerely,
Ralph Gorter, FSA, MAAA
Vice President and Actuary
