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As filed with the Securities and Exchange Commission on January 28, 1999
File No. 333-46059
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 2
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
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(Primary Standard Industrial Classification Code Number)
300 Atlantic Street
Suite 302
Stamford, CT 06901
(203) 324-6338
(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
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(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 ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================
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>
Flexible Payment
Deferred Combination
Fixed and Variable * * $338,900 $100**
Annuity 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.
** Paid with the initial registration statement filing.
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.
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CROSS REFERENCE SHEET
Pursuant to Regulation S-K, Item 501(b)
ITEM OF FORM S-1
PROSPECTUS CAPTION
<TABLE>
<S> <C> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus . . . . . . . . . Outside Front Cover
2. Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . Summary; Table of Contents
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges . . Outside Front Cover; Profile; What
are my Investment Options?
4. Use of Proceeds . . . . . . . . . . . Additional Information About Sage
Life Assurance of America, Inc.
5. Determination of Offering Price . . . Not Applicable
6. Dilution . . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders . . . . . . Not Applicable
8. Plan of Distribution . . . . . . . . What Other Information Should I
Know?
9. Description of Securities to be
Registered . . . . . . . . . . . . . Description, Profile, What are the
Contracts? What are my Income
Payment Options? What are my
Investment Options? What are the
Expenses Under a Contract? What
Other Information Should I Know?
10. Interests of Named Experts and
Counsel . . . . . . . . . . . . . . N/A
11. Information with Respect to the
Registrant . . . . . . . . . . . . . What Other Information Should I
Know? What are my Investment
Options? Additional information
</TABLE>
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<TABLE>
<S> <C> <C>
about Sage Life Assurance of
America, Inc.
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . . . Item 14 of Part II
</TABLE>
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PROFILE DATED _________________________, 1999
FLEXIBLE PAYMENT DEFERRED COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
Issued By
THE SAGE VARIABLE ANNUITY ACCOUNT A AND
SAGE LIFE ASSURANCE OF AMERICA, INC.
THIS PROFILE IS A SUMMARY OF SOME IMPORTANT POINTS THAT YOU
SHOULD KNOW AND CONSIDER BEFORE PURCHASING A CONTRACT. THE
CONTRACT IS MORE FULLY DESCRIBED IN THE FULL PROSPECTUS THAT
ACCOMPANIES THIS PROFILE. PLEASE READ THAT PROSPECTUS CAREFULLY.
"We," "us," "our", "Sage Life" or the "Company" refer to Sage Life Assurance of
America, Inc. "You" and "your" refer to the Owner of a Contract.
1. WHAT ARE THE CONTRACTS?
The fixed and variable annuity Contract offered by Sage Life Assurance
of America, Inc. is a contract between you, the Owner, and us, Sage Life, an
insurance company.
We designed the Contract for use in your long-term financial and
retirement planning. It provides a means for allocating amounts on a
tax-deferred basis to our Variable Account and Fixed Account.
INVESTMENT FLEXIBILITY. Through our Variable Account you can invest
in up to 33 different investment portfolios (each a "Fund"). These Funds,
listed in Section 4, are professionally managed and use a broad range of
investment strategies (growth and income, aggressive growth, etc.), styles
(growth, value, etc.) and asset classes (stocks, bonds, international, etc.).
You can select a mix of Funds to meet your financial and retirement needs and
objectives, tolerance for risk, and view of the market. Amounts you invest in
these Funds will fluctuate daily based on underlying investment performance.
So, the value of your investment may increase or decrease.
Through our Fixed Account, you can invest to receive guaranteed rates
of interest for periods of 1, 2, 3, 4, 5, 7, and 10 years. We also guarantee
your principal while it remains in our Fixed Account. However, if you decide
to surrender your Contract, or transfer or access amounts in the Fixed Account
before the end of a Guarantee Period you have chosen, we ordinarily will apply
a Market Value Adjustment. This Adjustment reflects changes in interest rates
since your allocation to the Fixed Account. The Market Value Adjustment may
result in an increase or decrease in the amounts surrendered, transferred, or
accessed.
As your needs or financial or retirement goals change, your investment
mix can change with them. You may transfer funds among any of the investment
choices in our Fixed or Variable Accounts while continuing to defer current
income taxes.
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SAFETY OF SEPARATE ACCOUNTS. Significantly, both the Fixed and
Variable Accounts are considered separate investment accounts of Sage Life.
This provides you with an important safety feature: the assets supporting your
allocations to these Accounts cannot be charged with liabilities arising out of
any other business we may conduct.
The Contract also provides you with other important features,
including a death benefit, access to your money, and income plan options.
ACCESS TO AMOUNTS INVESTED. The Contract provides access to your
investment should you need it. During the savings, or Accumulation Phase, your
investment grows tax free until withdrawn. You decide how much to take and
when to take it (certain restrictions apply after the Accumulation Phase).
Ordinarily, once you access earnings, they are taxed as income. If
you access earnings before you are 59 1/2 years old, you may have to pay an
additional 10% federal tax penalty. Amounts you surrender or withdraw may be
subject to a surrender charge, and a Market Value Adjustment (positive or
negative) may apply if you take the amount from the Fixed Account.
PROTECTION FOR YOUR BENEFICIARIES. The Contract also provides a death
benefit feature to protect your family should you die during the Accumulation
Phase. In the event of your untimely death, the Beneficiary of your choice
will never receive less than you have invested in the Contract, and may even
receive more. Your Beneficiary will decide how he or she wishes to receive the
death benefit.
INCOME PAYMENTS. The payout, or Income Phase, of your Contract begins
when you inform us you want to start receiving regular income payments under the
various income plans we offer. The amount you accumulated during the
Accumulation Phase determines the amount of income payments you receive during
the Income Phase. You can use your Account Value to provide income payments that
are guaranteed, or income payments that vary with underlying investment
performance, or a combination of both. The income payments can be for life,
which means you can't outlive them!
A portion of each income payment is ordinarily considered a return of
your investment in the Contract. So, only the portion in excess of this amount
is taxed as income!
2. WHAT ARE MY INCOME PAYMENT OPTIONS?
Once the Income Phase of your Contract begins, we apply your Account
Value to provide you with regular income payments.
You can tailor your income to meet your needs by choosing from five
different income plans described below. In explaining the income plans, we are
assuming that you designate yourself as the Annuitant. Of course, you always
can designate someone other than yourself as Annuitant.
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Income Plan 1 - Life Annuity: You will receive payments for your life.
Income Plan 2 - Life Annuity with 10 or 20 Years Certain: You will
receive payments for your life. However, if you die before
the end of the guaranteed certain period you select (10 or 20
years), your Beneficiary will receive the payments for the
remainder of that period.
Income Plan 3 - Joint and Last Survivor Life Annuity: Payments will be
made as long as either you or a second person you select (such
as your spouse) is alive.
Income Plan 4 - Payments for a Specified Period Certain: You will
receive payments for the number of years you select. However,
if you die before the end of that period, your Beneficiary
will receive the payments for the remainder of the guaranteed
certain period.
Income Plan 5 - Annuity Plan: You can use your Account Value to
purchase any other income plan we offer at the time you want to
begin receiving regular income payments for which you and the
Annuitant are eligible.
You tell us how much of your Account Value to apply to fixed income
payments and to variable income payments. During the Income Phase, you still
have all of the investment choices you had prior to beginning income payments.
However, we currently limit transfers among your investment choices.
We will allocate the amount of Account Value you apply to provide
fixed income payments to the Fixed Account. The amount of each income payment
is guaranteed and remains level throughout the period you select.
We will allocate the amount of Account Value you apply to provide
variable income payments to the Variable Account and invest it in the Funds you
select. The amount of each income payment will vary according to the
investment performance of those Funds.
3. HOW DO I PURCHASE A CONTRACT?
In most cases, you may purchase a Contract with $5,000 or more.
For tax-qualified Contracts (like IRAs) we require only $2,000, but,
of course, for rollovers you always have the flexibility to invest more.
In addition, subject to limitations for tax-qualified Contracts, you
can add $250 or more to your Contract at any time during the Accumulation
Phase.
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4. WHAT ARE MY INVESTMENT OPTIONS?
There are 40 investment options under the Contracts available through
our Variable and Fixed Accounts. These choices are professionally managed and
allow for a broad range of investment strategies, styles and asset classes.
Additional investment options may be available in the future.
Through our Variable Account you can choose to have your money
invested in one or more of the following 33 Funds that are described in the
prospectuses for the Trusts:
- AIM Variable Insurance Funds, Inc.
[ ] AIM V.I. Government Securities Fund
[ ] AIM V.I. Growth and Income Fund
[ ] AIM V.I. International Equity Fund
[ ] AIM V.I. Value Fund
- The Alger American Fund
[ ] Alger American MidCap Growth Portfolio
[ ] Alger American Income and Growth Portfolio
[ ] Alger American Small Capitalization Portfolio
- Liberty Variable Investment Trust
[ ] Colonial High Yield Securities Fund, Variable Series
[ ] Colonial Small Cap Value Fund, Variable Series
[ ] Colonial Strategic Income Fund, Variable Series
[ ] Colonial U.S. Stock Fund, Variable Series
[ ] Liberty All-Star Equity Fund, Variable Series
[ ] Newport Tiger Fund, Variable Series
[ ] Stein Roe Global Utilities Fund, Variable Series
- SteinRoe Variable Investment Trust
[ ] Stein Roe Growth Stock Fund, Variable Series
[ ] Stein Roe Balanced Fund, Variable Series
- MFS(R) Variable Insurance Trust(TM)
[ ] MFS Growth With Income Series
[ ] MFS High Income Series
[ ] MFS Research Series
[ ] MFS Total Return Series
[ ] MFS Value Series
- Morgan Stanley Universal Funds, Inc.
[ ] Global Equity Portfolio
[ ] Mid Cap Value Portfolio
[ ] Value Portfolio
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- Oppenheimer Variable Account Funds
[ ] Oppenheimer Bond Fund
[ ] Oppenheimer Growth Fund
[ ] Oppenheimer Small Cap Growth Fund
- Sage Life Investment Trust
[ ] EAFE Equity Index Fund
[ ] S&P 500 Equity Index Fund
[ ] Money Market Fund
- T. Rowe Price Equity Series, Inc.
[ ] T. Rowe Price Equity Income Portfolio
[ ] T. Rowe Price Mid-Cap Growth Portfolio
[ ] T. Rowe Price Personal Strategy Balanced Portfolio
These Funds do not provide any performance guarantees, and therefore,
their values can increase or decrease depending upon investment performance.
Through our Fixed Account, you can choose to have your money invested
in one or more of 7 different periods for which we will guarantee your
principal and a rate of interest when your investment is left in the Fixed
Account for the entire period of the guarantee. You currently can choose
periods of 1, 2, 3, 4, 5, 7, and 10 years. However, if you decide to surrender
your Contract, or transfer or access amounts before the end of a period you
have chosen, we ordinarily will apply a Market Value Adjustment, which may be
positive or negative depending upon current interest rates.
5. WHAT ARE THE EXPENSES UNDER A CONTRACT?
The Contract has insurance and investment features. Each has related
costs. Below is a brief summary of the Contract's charges:
Annual Administration Charge - During the first seven Contract Years
only, we will deduct an annual $40 administration charge. However, there is no
charge if, at the time of deduction, your Account Value is at least $50,000.
Asset-Based Charges - We deduct Asset-Based Charges for mortality and
expense risks and for certain administrative costs monthly from the amounts you
allocate to the Variable Account. These charges are equal on an annual basis to
1.40% of Variable Account Value, decreasing to 1.25% after the seventh Contract
Year.
Surrender Charge - During the first seven Contract Years only, we
ordinarily will deduct a surrender charge when you surrender your Contract or
withdraw money in excess of the Free Withdrawal Amount. The maximum applicable
percentage is 7% in the first Contract Year, and declines to 0% in the eighth
Contract Year. We calculate the surrender charge as a percentage of the
purchase payment(s) you surrender or withdraw.
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Purchase Payment Tax Charge - During the first seven Contract Years
only, we will deduct any state premium tax that we incur if you surrender your
Contract or begin receiving regular income payments. This tax charge ranges
from 0% to 3.5% depending upon the state. We currently do not intend to deduct
this charge on or after the eighth Contract Year.
Fund Fees and Expenses - There are also Fund fees and expenses that
are based on the average daily value of your money invested in the Funds.
These charges range on an annual basis from 0.55% to 1.25%, depending upon the
Fund.
Sage Life's business strategy is to reward our long-term customers.
So, as you can see, after the seventh Contract Year we
eliminate the Annual Administration Charge
eliminate Surrender Charges
eliminate the Purchase Payment Tax Charge, if any
reduce Asset-Based Charges
This means more of your investment is working for you!
The following chart is designed to help you understand expenses under the
Contract.
<TABLE>
<CAPTION>
Examples of
Total Annual Total Expenses
Insurance Total Annual Total Annual Paid at the End
Fund Charges Fund Charges Charges of 1 Year
---- ------------ ------------ ------- ---------
<S> <C> <C> <C> <C>
AIM VARIABLE INSURANCE
FUNDS, INC.:
AIM V.I. Government
Securities Fund 1.53% 0.87% 2.40% $25
AIM V.I. Growth and
Income Fund 1.53% 0.69% 2.22% $23
AIM V.I. International
Equity Fund 1.53% 0.93% 2.46% $25
AIM V.I. Value Fund 1.53% 0.70% 2.23% $23
THE ALGER AMERICAN FUND:
Alger American MidCap
Growth Portfolio 1.53% 0.84% 2.37% $24
Alger American Income
and Growth Portfolio 1.53% 0.74% 2.27% $23
</TABLE>
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<TABLE>
<CAPTION>
Total Examples of
Annual Total Total Expenses
Insurance Total Annual Annual Paid at the End
Fund Charges Fund Charges Charges of 1 Year
---- ------- ------------ ------- ---------
<S> <C> <C> <C> <C>
Alger American Small
Capitalization Portfolio 1.53% 0.89% 2.42% $25
LIBERTY VARIABLE INVESTMENT TRUST:
Colonial High Yield Securities
Fund, Variable Series 1.53% 0.80% 2.33% $24
Colonial Small Cap Value Fund,
Variable Series 1.53% 1.00% 2.53% $26
Colonial Strategic Income Fund,
Variable Series 1.53% 0.80% 2.33% $24
Colonial U.S. Stock Fund,
Variable Series 1.53% 0.94% 2.47% $25
Liberty All-Star Equity Fund,
Variable Series 1.53% 1.00% 2.53% $26
Newport Tiger Fund,
Variable Series 1.53% 1.25% 2.78% $29
Stein Roe Global Utilities
Fund, Variable Series 1.53% 0.83% 2.36% $24
STEINROE VARIABLE INVESTMENT TRUST:
Stein Roe Growth Stock
Fund, Variable Series 1.53% 0.71% 2.24% $23
Stein Roe Balanced Fund,
Variable Series 1.53% 0.66% 2.19% $23
MFS VARIABLE INSURANCE TRUST:
MFS Growth With
Income Series 1.53% 1.00% 2.53% $26
MFS High Income Series 1.53% 1.00% 2.53% $26
MFS Research Series 1.53% 0.88% 2.41% $25
MFS Total Return Series 1.53% 1.00% 2.53% $26
MFS Value Series 1.53% 1.00% 2.53% $26
MORGAN STANLEY UNIVERSAL FUNDS, INC.:
Global Equity Portfolio 1.53% 1.15% 2.68% $28
Mid Cap Value Portfolio 1.53% 1.05% 2.58% $27
Value Portfolio 1.53% 0.85% 2.38% $24
</TABLE>
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<TABLE>
<CAPTION>
Total Examples of
Annual Total Total Expenses
Insurance Total Annual Annual Paid at the End
Fund Charges Fund Charges Charges of 1 Year
---- ------- ------------ ------- ---------
<S> <C> <C> <C> <C>
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Oppenheimer Bond Fund 1.53% 0.78% 2.31% $24
Oppenheimer Growth Fund 1.53% 0.75% 2.28% $23
Oppenheimer Small Cap
Growth Fund 1.53% 0.83% 2.36% $24
SAGE LIFE INVESTMENT TRUST:
EAFE Equity Index Fund 1.53% 0.90% 2.43% $25
S&P 500 Equity Index
Fund 1.53% 0.55% 2.08% $21
Money Market Fund 1.53% 0.65% 2.18% $22
T. ROWE PRICE EQUITY SERIES, INC.:
T. Rowe Price Equity
Income Portfolio 1.53% 0.85% 2.38% $24
T. Rowe Price Mid-Cap
Growth Portfolio 1.53% 0.85% 2.38% $24
T. Rowe Price Personal Strategy
Balanced Portfolio 1.53% 0.90% 2.43% $25
</TABLE>
Below is an explanation of what we included in each column of the
chart:
The column "Total Annual Insurance Charges" shows the sum
of the Asset-Based Charges and the Annual Administration
Charge (for purposes of the chart, we assume the average
Account Value is $30,000 and the Annual Administration
Charge to be 0.13% of the value of an average Contract).
The column "Total Annual Fund Charges" shows the fees and
expenses for each Fund.
A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its fees. Effective May 1, 1998, the Funds reimburse AIM in an amount up
to 0.25% of the average net asset value of each Fund, for expenses incurred in
providing, or assuring that participating insurance companies provide, certain
administrative services. Currently, the fee only applies to the average net
asset value of each Fund in excess of the net asset value of each Fund as
calculated on April 30, 1998.
Liberty Variable Investment Trust's Colonial High Yield Securities
Fund and Colonial SmallCap Value Fund did not commence Operations until 1998.
The figures shown are based on estimates for the current fiscal year. The
charges shown for Colonial Strategic Income Fund and Liberty All-Star Equity
Fund during 1997 reflect the fact that the Funds' investment adviser agreed to
reimburse the Colonial Strategic Income Fund and Liberty All-Star Equity Fund
for certain expenses incurred by each Fund. Without such reimbursements, the
expenses for the Colonial Strategic Income Fund and Liberty All-Star Equity
Fund would have been 0.82% and 1.45%, respectively.
The charges shown for MFS Variable Insurance Trust's Growth with Income
Series, High Income Series, Total Return Series and Value Series during 1997
reflect the fact that
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the Fund's investment adviser agreed to reimburse MFS Variable Insurance Trust's
Growth with Income Series, High Income Series, Total Return Series and Value
Series for certain expenses incurred by each Fund. Without such
reimbursements, the expenses for the MFS Variable Insurance Trust's Growth with
Income Series, High Income Series, Total Return Series and Value Series would
have been 1.45%, 1.55%, 1.29%, and 3.41%, respectively.
The charges shown for Morgan Stanley Universal Funds, Inc. during 1997
reflect the fact that the Fund's investment advisers agreed to reimburse the
Global Equity Portfolio, Mid Cap Value Portfolio, and Value Portfolio for
certain expenses incurred by each Fund. Without such reimbursements, the
expenses for the Global Equity Portfolio, MidCap Value Portfolio, and Value
Portfolio would have been 2.43%, 2.13% and 1.87%, respectively.
Oppenheimer Variable Account Fund's Small Cap Growth Fund did not
commence operations until 1998. The figures shown are based on estimates for
the current fiscal year.
Sage Life Investment Trust has not commenced operations. The charges
shown are based on estimates and reflect the fact that the Trust's investment
adviser agrees to reimburse each Fund for certain expenses. Without such
reimbursements, the expenses of Sage Life Investment Trust's EAFE Equity Index
Fund, S&P 500 Equity Index Fund, and Money Market Fund would be 1.07%, .72% and
.82%, respectively.
The column "Total Annual Charges" shows the sum of "Total Annual
Insurance Charges" and "Total Annual Fund Charges."
The next column shows you examples of the charges, in dollars, you
could pay under a Contract for each $1,000 you invested. The example assumes
that your Contract earns 5% annually before charges.
For more information about expenses under a Contract, please refer to
the "Fee Table" in the full Prospectus that accompanies this Profile.
6. HOW WILL MY CONTRACT BE TAXED?
During the Accumulation Phase, your earnings are not taxed unless you
take them out. If you take money out, earnings come out first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you also may
be charged a 10% federal tax penalty on the withdrawn earnings.
Income payments during the Income Phase are considered partly a return
of your original investment. That part of each payment is not taxable as
income. However, once you have recovered all of your original investment,
income payments will then be fully taxable.
Special tax rules apply to withdrawals from a new type of IRA called
the Roth IRA.
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7. HOW DO I ACCESS MY MONEY?
There are a number of ways to withdraw money from your Contract. You
can tailor your income to meet your near-term or lifelong liquidity needs.
During the Accumulation Phase, if you want to take money out of your
Contract, you can choose among several different options.
You can withdraw some of your money.
You can surrender your Contract and take all of your money.
You can take withdrawals using our systematic partial withdrawal
program.
You can apply your Account Value to an Income Plan.
Keep in mind that amounts you surrender or withdraw may be subject to a
surrender charge if taken during the first seven Contract Years. However, the
Contract does provide a Free Withdrawal Amount, an amount not subject to a
surrender charge, that is equal to your cumulative earnings, or if greater, 10%
of total purchase payments you have invested. In addition, if you take the
amount from the Fixed Account, a Market Value Adjustment ordinarily will apply.
If you are younger than 59 1/2 when you take money out, you may owe a 10%
federal tax penalty in addition to the income tax that will apply to the extent
that you have gain in your Contract. Please remember that withdrawals will
reduce your death benefit.
Once you start receiving regular income payments and if you selected
the "payments for a specified period certain" income plan, you may request a
withdrawal.
8. HOW IS CONTRACT PERFORMANCE PRESENTED?
Because our Variable Sub-Accounts have not been in operation for more
than a year, we cannot show you how the Funds performed in the Variable
Account. When they have been in operation for a year or more, we will show you
the Funds' performance using standard methods prescribed by the SEC.
Please remember that the performance data represents past performance.
Amounts you invest in the Variable Account will fluctuate daily based on
underlying Fund investment performance, so the value of your investment may
increase or decrease.
9. DOES THE CONTRACT HAVE A DEATH BENEFIT?
Your Contract provides two different types of death benefits for your
Beneficiary. There is the basic death benefit and the accidental death
benefit.
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BASIC DEATH BENEFIT. We will pay the basic death benefit to the
Beneficiary of your choice in the event of your untimely death prior to the
Income Phase. This provides comfort knowing your Beneficiary will receive the
greatest of the following:
the current Account Value on the date we receive proof of death;
100% of the sum of all purchase payments you have invested in your
Contract, less any withdrawals you have made (including any associated
surrender charge and Market Value Adjustment incurred); or
the highest anniversary value on or before you reach age 80.
The highest anniversary value is equal to the greatest anniversary
value attained in the following manner. When we receive proof of death, we
will calculate an anniversary value for each Contract Anniversary prior to the
date of the Owner's death, but not beyond the Owner's attained age 80. An
anniversary value for a Contract Anniversary is equal to (1) the Account Value
on that Contract Anniversary, (2) increased by the dollar amount of any
purchase payments made since the Contract Anniversary, and (3) reduced
proportionately by any withdrawals (including any associated surrender charge
and Market Value Adjustment incurred) taken since that Contract Anniversary.
(By proportionately, we take the percentage by which the withdrawal decreases
the Account Value and we reduce the sum of (1) and (2) by that percentage.)
ACCIDENTAL DEATH BENEFIT. The Contract also provides an accidental
death benefit during the Accumulation Phase at no additional cost. If you die
as a direct result of an accident before reaching age 81, we will pay an
additional death benefit to the Beneficiary of your choice. This additional
benefit is equal to 100% of the sum of all purchase payments you have invested
in your Contract, less any withdrawals you have made (including any associated
surrender charge and Market Value Adjustment incurred) up to a maximum of
$250,000.
10. WHAT OTHER INFORMATION SHOULD I KNOW?
The Contract has several additional features available to you at no
additional charge:
FREE LOOK RIGHT: You have the right to return your Contract to us at
our Customer Service Center or to the registered representative who sold it to
you, and have us cancel the Contract within a certain number of days (usually
10 days from the date you receive the Contract, but some states require
different periods).
If you exercise this right, we will cancel your Contract as of the
Business Day we receive it and send you a refund equal to your Account Value
plus any charges we have deducted on or before the date we received the
returned Contract, or if required by the law of your state, your initial
purchase payment (less any withdraws previously taken). In the states where we
are required to return purchase payment less withdrawals, if you allocated
amounts
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to the Variable Account, we will temporarily allocate those amounts to the
Money Market Fund until the Free Look Period expires.
DOLLAR-COST AVERAGING PROGRAM: Under our optional Dollar-Cost
Averaging Program, you may choose to transfer a set dollar amount
systematically from the Money Market Fund and/or from specially designated
Fixed Sub-Accounts to any other Variable Sub-Account, subject to certain
limitations. By investing the same amount on a regular basis, you don't have
to worry about timing the market. Since you invest the same amount each
period, you automatically acquire more units when market values fall and fewer
units when they rise. The potential benefit is to lower your average cost per
unit. This proven investment technique does not guarantee that any Fund will
gain in value. It also will not protect against a decline in value if market
prices fall. However, if you can continue to invest regularly throughout
changing market conditions, this program can be an effective strategy to help
meet your long-term or retirement goals. Due to the effect of interest that
continues to be paid on the amount remaining in the Money Market Fund or the
specially designated Fixed Sub-Account, the amounts that we transfer will vary
slightly from month to month.
ASSET ALLOCATION PROGRAM: An optional Asset Allocation Program is
available if you do not wish to make your own particular investment decisions.
This investment planning tool is designed to find an asset mix that attempts to
achieve the highest expected return based upon your tolerance for risk, and
consistent with your needs and objectives. Bear in mind, that the use of an
asset-allocation model does not guarantee investment results.
AUTOMATIC PORTFOLIO REBALANCING PROGRAM: Our optional Automatic
Portfolio Rebalancing Program can help prevent a well-conceived investment
strategy from becoming diluted over time. Investment performance will likely
cause the allocation percentages you originally selected to shift. With this
program, you can instruct us to automatically rebalance your Contract to your
original percentages on a quarterly basis. Money invested in the Fixed Account
is not part of this program.
WAIVER OF SURRENDER CHARGE RIDER: This rider, which is automatically
included in your Contract at no additional cost, permits you to withdraw money
from your Contract without a surrender charge if you need it while you are
confined to a nursing care facility or hospital, or if you have a terminal
illness. Certain restrictions apply, and this feature may not be available in
all states.
11. HOW CAN I MAKE INQUIRIES?
If you need further information about the Contracts, please write or
call us at our Customer Service Center (877) TEL-SAGE (835-7243), or contact an
authorized registered representative. The address of our Customer Service
Center office is 1290 Silas Deane Highway, Wethersfield, CT 06109.
12
<PAGE> 17
PROSPECTUS DATED ___________, 1999
FLEXIBLE PAYMENT DEFERRED COMBINATION FIXED AND VARIABLE ANNUITY
CONTRACTS
ISSUED BY
THE SAGE VARIABLE ANNUITY ACCOUNT A AND
SAGE LIFE ASSURANCE OF AMERICA, INC.
<TABLE>
<S> <C>
Executive Office: Customer Service Center:
300 Atlantic Street 1290 Silas Deane Highway
Stamford, CT 06901 Wethersfield, CT 06109
Telephone: (877) 835-7243 (Toll Free)
</TABLE>
UNLESS OTHERWISE INDICATED, THIS PROSPECTUS DESCRIBES THE OPERATION OF
THE CONTRACTS BEFORE THE INCOME DATE. DEFINITIONS OF CERTAIN TERMS USED IN
THIS PROSPECTUS MAY BE FOUND BY REFERRING TO THE INDEX OF TERMS.
This Prospectus describes flexible payment deferred combination fixed
and variable annuity contracts offered by Sage Life Assurance of America, Inc.
We designed the Contracts for use in your long-term financial and retirement
planning, and are available for individuals and groups. The Contracts provide a
means for investing on a tax-deferred basis in our Variable Account and our
Fixed Account. You can purchase a Contract by making a minimum initial purchase
payment. After purchase, you determine the amount and timing of any additional
purchase payments.
You may allocate purchase payments and transfer Account Value to our
Variable Account and also to our Fixed Account within certain limits. We
divided the Variable Account into 33 Sub-Accounts.
Each Variable Sub-Account invests in a corresponding Fund of AIM
Variable Insurance Funds, Inc., The Alger American Fund, Liberty Variable
Investment Trust, SteinRoe Variable Investment Trust, MFS(R) Variable Insurance
Trust(TM), Morgan Stanley Universal Funds, Inc., Oppenheimer Variable Account
Funds, Sage Life Investment Trust, or T. Rowe Price Equity Series, Inc.
(collectively, the "Trusts"). The accompanying prospectuses describe each of
the Funds, including the risks of investing in each Fund, and provide other
information about the Trusts.
Your Account Value will vary daily as a function of the investment
performance of the Variable Sub-Accounts and any interest we credit under our
Fixed Account. We do not guarantee any minimum Account Value for amounts you
allocate to the Variable Account. We guarantee a minimum fixed rate of
interest for specified periods of time on the amounts you allocate to the Fixed
Account. However, amounts withdrawn, surrendered, transferred, or applied to an
income plan from the Fixed Account ordinarily will be subject to a Market Value
Adjustment, which may increase or decrease such amounts. The Contracts provide
additional benefits, including five income plan options, a death benefit upon
any Owner's death before the Income Date, and optional programs including
dollar-cost averaging, asset allocation, automatic portfolio rebalancing, and
systematic partial withdrawals.
<PAGE> 18
This Prospectus sets forth basic information about the Contracts, the
Variable Account, and the Fixed Account that you should know before purchasing
a Contract. You should read the Prospectus carefully and retain it for future
reference.
The Statement of Additional Information contains more information about
the Contracts and the Variable Account, is dated the same as this Prospectus,
and is incorporated herein by reference. The Table of Contents for the
Statement of Additional Information is on page ____ of this Prospectus. It has
been filed with the Securities and Exchange Commission. You may obtain a copy
of the Statement of Additional Information free of charge by contacting our
Customer Service Center at the address or phone number shown above. You may
also obtain a copy of the Prospectus and Statement of Additional Information by
accessing the Securities and Exchange Commission's website at
http://www.sec.gov.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS
PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUS FOR EACH OF THE
TRUSTS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED
BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT
TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE> 19
TABLE OF CONTENTS
Index of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fee Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. What are the Contracts? . . . . . . . . . . . . . . . . . . . . . . . . . .
2. What are my Income Payment Options? . . . . . . . . . . . . . . . . . . . .
3. How do I Purchase a Contract? . . . . . . . . . . . . . . . . . . . . . . .
Initial Purchase Payment . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of a Contract . . . . . . . . . . . . . . . . . . . . . . . . .
Free Look Right to Cancel Contract . . . . . . . . . . . . . . . . . . .
Making Additional Purchase Payments . . . . . . . . . . . . . . . . . .
4. What are my Investment Options? . . . . . . . . . . . . . . . . . . . . . .
Purchase Payments Allocations . . . . . . . . . . . . . . . . . . . . .
Variable Sub-Account Investment Options . . . . . . . . . . . . . . . .
Fixed Account Investment Options . . . . . . . . . . . . . . . . . . . .
Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . . .
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Transfers . . . . . . . . . . . . . . . . . . . . . . . . . .
Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar-Cost Averaging Program . . . . . . . . . . . . . . . . . . . . .
Asset Allocation Program . . . . . . . . . . . . . . . . . . . . . . . .
Automatic Portfolio Rebalancing Program . . . . . . . . . . . . . . . .
Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Account Value . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulation Unit Value . . . . . . . . . . . . . . . . . . . . . . . .
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Account Value . . . . . . . . . . . . . . . . . . . . . . . . . .
5. What are the Expenses under a Contract?
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual Administration Charge . . . . . . . . . . . . . . . . . . . . . .
Transfer Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-Based Charges . . . . . . . . . . . . . . . . . . . . . . . . . .
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6. How will my Contract be Taxed?
Tax Status of the Contract . . . . . . . . . . . . . . . . . . . . . . .
Tax Treatment of Annuities . . . . . . . . . . . . . . . . . . . . . . .
Taxation of a Non-Qualified Contract . . . . . . . . . . . . . . . . . .
Taxation of a Qualified Contract . . . . . . . . . . . . . . . . . . . .
Other Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . .
i
<PAGE> 20
7. How do I access my Money?
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Systematic Partial Withdrawal Program . . . . . . . . . . . . . . . . .
IRA Partial Withdrawal Program . . . . . . . . . . . . . . . . . . . . .
Requesting Payments . . . . . . . . . . . . . . . . . . . . . . . . . .
8. How is Contract Performance Presented?
9. Does the Contract have a Death Benefit?
Basic Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . .
Accidental Death Benefit . . . . . . . . . . . . . . . . . . . . . . . .
Proof of Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10. What Other Information Should I Know?
Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of the Contacts . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reports to Contract Owners . . . . . . . . . . . . . . . . . . . . . . .
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Owner, Beneficiary, or Annuitant . . . . . . . . . . . . . . .
Misstatement and Proof of Age, Sex, or Survival . . . . . . . . . . . .
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Authority to Make Agreements . . . . . . . . . . . . . . . . . . . . . .
Preparing for the Year 2000 . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .
11. How Can I Make Inquiries?
12. Additional Information about Sage Life Assurance of America, Inc.
History and Business . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . .
Transactions with Sage Insurance Group . . . . . . . . . . . . . . . . .
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS OF SAGE LIFE ASSURANCE OF AMERICA, INC.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
APPENDIX A
APPENDIX B
ii
<PAGE> 21
INDEX OF TERMS
We have tried to make this Prospectus as readable and understandable as
possible. However, for you to understand how the Contracts work, we have had
to use certain terms that have special meanings. We define these terms below.
Account Value - The Account Value is the entire amount we hold under your
Contract during the Accumulation Phase. It is equal to the sum of the Variable
Account Value and Fixed Account Value.
Accumulation Phase - The Accumulation Phase is the period during which you
accumulate savings under your Contract.
Accumulation Unit - An Accumulation Unit is the unit of measure we use before
the Income Date to keep track of the value of each Variable Sub-Account.
Annuitant - The Annuitant is the natural person whose age determines the
maximum Income Date and the amount and duration of income payments involving
life contingencies. The Annuitant may also be the person to whom any payment
will be made starting on the Income Date.
Asset-Based Charges - The Asset-Based Charges are charges for mortality and
expense risks and for administrative costs assessed monthly against the assets
of the Variable Account. After the Income Date, these charges are called
Variable Sub-Account Charges and are deducted daily from the assets of the
Variable Account.
Beneficiary - The Beneficiary is the person or persons to whom we pay a death
benefit if any Owner dies before the Income Date.
Business Day - A Business Day is any day the New York Stock Exchange ("NYSE")
is open for trading and we are open for business, exclusive of (i) Federal
holidays, (ii) any day on which an emergency exists making the disposal or fair
valuation of assets in the Variable Account not reasonably practicable, and
(iii) any day on which the Securities and Exchange Commission ("SEC") permits a
delay in the disposal or valuation of assets in the Variable Account.
Code - The Code is the Internal Revenue Code of 1986, as amended.
Contracts - The Contracts are flexible payment deferred combination fixed and
variable annuity contracts offered by us, Sage Life Assurance of America, Inc.
In some jurisdictions, we issue the Contracts directly to individuals. In most
jurisdictions, however, the Contracts are only available as a group contract.
We issue a group Contract to or on behalf of a group. Individuals who are part
of a group to which we issue a Contract receive a certificate that recites
substantially all of the provisions of the group Contract. Throughout this
Prospectus
1
<PAGE> 22
and unless otherwise stated, the term "Contract" refers to individual
contracts, group Contracts, and certificates for group Contracts.
Contract Anniversary - A Contract Anniversary is each anniversary of the
Contract Date.
Contract Date - The Contract Date is the date an individual Contract or a
certificate for a group Contract is issued at our Customer Service Center.
Contract Year - A Contract Year is each and every consecutive twelve-month
period beginning on the Contract Date and the anniversaries thereof.
Customer Service Center - The Customer Service Center is where we provide
service to you. The administrator of our center is Financial Administration
Services, Inc. The mailing address and telephone number of the Customer
Service Center are shown on the first page of this Prospectus.
Excess Withdrawal - An Excess Withdrawal is a withdrawal of Account Value that
exceeds the Free Withdrawal Amount.
Executive Office - The Executive Office is our main office. The mailing
address of our Executive Office is shown on the first page of this Prospectus.
Expiration Date - The Expiration Date is the last day in a Guarantee Period.
In the Contract, this is referred to as the "Expiry Date."
Fixed Account - The Fixed Account is The Sage Fixed Interest Account A. It is
a separate investment account of ours under state insurance law (but is not
required to be nor has it been registered under the federal securities laws)
into which purchase payments may be invested or Account Value may be
transferred. In certain states, we refer to the Fixed Account as the Interest
Account.
Fixed Account Value - The Fixed Account Value is the sum of the value of each
Fixed Sub-Account on a Business Day during the Accumulation Phase.
Fixed Sub-Account - A Fixed Sub-Account is established when a purchase payment
is invested or an amount is transferred to the Fixed Account. Each Fixed
Sub-Account is credited with a Guaranteed Interest Rate for a specified
Guarantee Period.
Free Withdrawal Amount - The Free Withdrawal Amount is the maximum amount that
can be withdrawn within a Contract Year during the Accumulation Phase without
being subject to a surrender charge.
Fund - A Fund is an investment portfolio in which a Variable Sub-Account
invests.
2
<PAGE> 23
General Account - The General Account consists of all our assets other than
those held in any separate investment accounts.
Guaranteed Interest Rate - A Guaranteed Interest Rate is the effective annual
interest rate that we will credit for a specified Guarantee Period for amounts
allocated to a Fixed Sub-Account. The Guaranteed Interest Rate will never be
less than the minimum shown in your Contract.
Guarantee Period - A Guarantee Period is a period of years for which a
specified effective annual interest rate (Guaranteed Interest Rate) is
guaranteed by us. Interest is credited daily at a rate to yield the declared
annual Guaranteed Interest Rate.
Income Date - The Income Date is the date you select for your income payments
to begin.
Income Phase - The Income Phase starts on the Income Date and is the period
during which you receive income payments.
Income Unit - An Income Unit is the unit of measure we use to calculate the
amount of income payments under a variable income plan option.
Market Value Adjustment - A Market Value Adjustment is a positive or negative
adjustment that may apply to a surrender, withdrawal, or transfer, and to
amounts applied to an income plan from a Fixed Sub-Account before the end of
its Guarantee Period.
Net Asset Value - The Net Asset Value is the price of one share of a Fund.
Owner - The Owner is the person or persons who owns (or own) a Contract.
Provisions relating to action by the Owner mean, in the case of joint Owners,
both Owners acting jointly. In the context of a Contract issued on a group
basis, Owners refer to holders of certificates under the group Contract.
Satisfactory Notice - Satisfactory Notice is a notice or request authorized by
you, in a form satisfactory to us, received at our Customer Service Center.
Surrender Value - The Surrender Value is the amount you receive upon surrender
of your Contract before the Income Date.
Valuation Period - The Valuation Period is the period between one calculation
of an Accumulation Unit value and the next calculation. Normally, we calculate
Accumulation Units once each Business Day, but we can delay this calculation if
an emergency exists, making disposal of or fair valuation of assets in the
Variable Account not reasonably practicable, or if the SEC permits such
deferral.
Variable Account - The Variable Account is The Sage Variable Annuity Account A.
It is a separate investment account of ours under the federal securities laws
into which purchase payments may be invested or Account Value may be
transferred.
3
<PAGE> 24
Variable Account Value - The Variable Account Value is the sum of the value of
each Variable Sub-Account on a Business Day during the Accumulation Phase.
Variable Sub-Account - A Variable Sub-Account is a division of the Variable
Account that invests in shares of a particular Fund.
Variable Sub-Account Charges - Variable Sub-Account Charges are Asset-Based
Charges that are deducted daily from the assets of the Variable Account after
the Income Date.
"We", "us", "our", "Sage Life" or the "Company" is Sage Life Assurance of
America, Inc.
"You" or "your" is the Owner of a Contract. You are entitled to exercise all
rights under a Contract. However, if you designate an irrevocable beneficiary,
you may need the consent of that beneficiary before you exercise your rights
under your Contract. Your death before the Income Date initiates payment of
the death benefit.
4
<PAGE> 25
FEE TABLE
The purpose of this Fee Table is to assist you in understanding the expenses
that you will pay directly or indirectly when you invest in the Contract.
TRANSACTION EXPENSES
Sales Load Imposed on Purchases (as a percentage of purchase
payments) . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Surrender Charge(1) (as a percentage of purchase payments withdrawn or
surrendered.)
<TABLE>
<CAPTION>
Applicable Applicable Surrender
Contract Year Charge Percentage
<S> <C>
1 7%
2 7%
3 6%
4 5%
5 4%
6 3%
7 1%
8 and thereafter 0%
</TABLE>
<TABLE>
<S> <C>
Transfer Charge(2) . . . . . . . . . . . . . . . . . . . . . . $ 0
Annual Administration Charge
Contract Years 1-7(3) . . . . . . . . . . . . . . . . . . . $40
After Contract Year 7 . . . . . . . . . . . . . . . . . . . $ 0
</TABLE>
In addition, the amount of any state and local taxes levied by any governmental
entity on purchase payments may be deducted from your Account Value when such
taxes are incurred. We reserve the right to defer the collection of this
charge and deduct it against your Account Value on the surrender of a Contract,
on an Excess Withdrawal, or on application of Account Value to provide income
payments. We refer to this as the Purchase Payment Tax Charge.
VARIABLE ACCOUNT ANNUAL EXPENSES(4) (deducted monthly as a percentage of the
Variable Account Value)
<TABLE>
<CAPTION>
Contract Years
--------------
1 - 7 8 +
----- ---
<S> <C> <C>
Mortality and Expense Risk Charge 1.25% 1.10%
Asset-Based Administrative Charge 0.15% 0.15%
----- -----
Total Asset-Based Charges 1.40% 1.25%
</TABLE>
5
<PAGE> 26
Fund Charges. The fees and expenses for each of the Funds (as a percentage of
net assets) for the year ended December 31, 1997 are set forth in the following
table. For more information on these fees and expenses, see the prospectuses
for the Trusts that accompany this Prospectus.
FUND ANNUAL EXPENSES (as a percentage of average daily net assets of a Fund)
<TABLE>
<CAPTION>
Management Fees Other Expenses
(after fee waiver (after reimbursement- Total
Fund as applicable) as applicable) Expenses
---- -------------- -------------- --------
<S> <C> <C> <C>
AIM VARIABLE INSURANCE
FUNDS, INC.:
AIM V.I. Government
Securities Fund 0.50% 0.37% 0.87%(5)
AIM V.I. Growth and
Income Fund 0.63% 0.06% 0.69%(5)
AIM V.I. International
Equity Fund 0.75% 0.18% 0.93%(5)
AIM V.I. Value Fund 0.62% 0.08% 0.70%(5)
THE ALGER AMERICAN FUND:
Alger American MidCap
Growth Portfolio 0.80% 0.04% 0.84%
Alger American Income and
Growth Portfolio 0.625% 0.115% 0.74%
Alger American Small
Capitalization Portfolio 0.85% 0.04% 0.89%
LIBERTY VARIABLE INVESTMENT TRUST:
Colonial High Yield Securities
Fund, Variable Series 0.60% 0.20% 0.80%(6)
Colonial Small Cap Value Fund,
Variable Series 0.80% 0.20% 1.00%(6)
Colonial Strategic Income Fund,
Variable Series 0.65% 0.15% 0.80%(7)
Colonial U.S. Stock Fund,
Variable Series 0.80% 0.14% 0.94%
Liberty All-Star Equity Fund,
Variable Series 0.80% 0.20% 1.00%(7)
</TABLE>
6
<PAGE> 27
<TABLE>
<CAPTION>
Other
Management Fees Expenses (after
(after fee waiver reimbursement- Total
Fund as applicable) as applicable) Expenses
---- -------------- -------------- --------
<S> <C> <C> <C>
Newport Tiger Fund,
Variable Series 0.90% 0.35% 1.25%
Stein Roe Global Utilities
Fund, Variable Series 0.65% 0.18% 0.83%
STEINROE VARIABLE INVESTMENT TRUST:
Stein Roe Growth Stock
Fund, Variable Series 0.65% 0.06% 0.71%
Stein Roe Balanced Fund,
Variable Series 0.60% 0.06% 0.66%
MFS VARIABLE INSURANCE TRUST:
MFS Growth With Income Series 0.75% 0.25%(7) 1.00%(8)
MFS High Income Series 0.75% 0.25%(7) 1.00%(8)
MFS Research Series 0.75% 0.13% 0.88%
MFS Total Return Series 0.75% 0.25%(7) 1.00%(8)
MFS Value Series 0.75% 0.25%(7) 1.00%(8)
MORGAN STANLEY UNIVERSAL FUNDS, INC.:
Global Equity Portfolio 0.00% 1.15% 1.15%(9)
Mid Cap Value Portfolio 0.00% 1.05% 1.05%(9)
Value Portfolio 0.00% 0.85% 0.85%(9)
OPPENHEIMER VARIABLE FUNDS:
Oppenheimer Bond Fund 0.73% 0.05% 0.78%
Oppenheimer Growth Fund 0.73% 0.02% 0.75%
Oppenheimer Small Cap
Growth Fund 0.75% 0.08% 0.83%(10)
SAGE LIFE INVESTMENT TRUST:
EAFE Equity Index Fund 0.73% 0.17% 0.90%(11)
S&P 500 Equity Index Fund 0.38% 0.17% 0.55%(11)
Money Market Fund 0.48% 0.17% 0.65%(11)
T. ROWE PRICE EQUITY SERIES, INC.:
T. Rowe Price Equity
Income Portfolio 0.85% 0.00% 0.85%
</TABLE>
7
<PAGE> 28
<TABLE>
<CAPTION>
Other
Management Fees Expenses (after
(after fee waiver reimbursement- Total
Fund as applicable) as applicable) Expenses
---- -------------- -------------- --------
<S> <C> <C> <C>
T. Rowe Price Mid-Cap
Growth Portfolio 0.85% 0.00% 0.85%
T. Rowe Price Personal Strategy
Balanced Portfolio 0.90% 0.00% 0.90%
</TABLE>
- ----------------------------
1/ You may withdraw a portion of your Account Value without incurring a
surrender charge. This amount is called the Free Withdrawal Amount and is equal
to the greater of (i) 10% of your total purchase payments less all prior
withdrawals (including any associated surrender charge and Market Value
Adjustment incurred) in that Contract Year, or (ii) cumulative earnings (i.e.,
the excess of the Account Value on the date of withdrawal over unliquidated
purchase payments).
2/ Currently, there is no transfer charge. However, we reserve the right
to charge up to $25 for the 13th and each subsequent transfer during a Contract
Year.
3/ We waive the Annual Administration Charge if the Account Value is at
least $50,000 on the date of deduction.
4/ We call the Asset-Based Charges Variable Sub-Account Charges and deduct
them on a daily basis after the Income Date. See "What are the Expenses under
the Contract?" on page __.
5/ A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its fees. Effective May 1, 1998, the Funds reimburse AIM in an amount up
to 0.25% of the average net asset value of each Fund, for expenses incurred in
providing, or assuring that participating insurance companies provide, certain
administrative services. Currently, the fee only applies to the average net
asset value of each Fund in excess of the net asset value of each Fund as
calculated on April 30, 1998.
6/ Liberty Variable Investment Trust's Colonial High Yield Securities Fund
and Colonial Small Cap Value Fund did not commence operations until 1998. The
figures shown are based on estimates for the current fiscal year.
7/ Without reimbursements, the total expenses for Liberty Variable
Investment Trust's Colonial Strategic Income Fund and Liberty All-Star Equity
Fund during 1997 would have been 0.82% and 1.45%, respectively.
8/ Without reimbursements, the other expenses and total expenses for MFS
Variable Insurance Trust's Growth with Income Series, High Income Series, Total
Return Series and Value Series during 1997 would have been .35% and 1.10%, .40%
and 1.15%, .27% and 1.02%, and 1.33% and 2.08%, respectively.
9/ Without reimbursements, the total expenses for of Morgan Stanley
Universal Funds, Inc.'s Global Equity Portfolio, Mid Cap Value Portfolio, Value
Portfolio would have been 2.43%, 2.13%, and 1.87%, respectively.
8
<PAGE> 29
10/ Oppenheimer Variable Account Fund's Small Cap Growth Fund did not
commence operations until 1998. The figures shown are based on estimates for
the current fiscal year.
11/ These Funds have not commenced operations. The figures shown
are based on estimates. Without reimbursements, the total expenses of Sage
Life Investment Trust's EAFE Equity Index Fund, S&P 500 Equity Index Fund, and
Money Market Fund would be 1.07%, .72%, and .82%, respectively.
EXAMPLES
The purpose of the following examples is to demonstrate the expenses
that you would pay on a $1,000 investment in the Variable Account. We
calculate the examples based on the fees and charges shown in the tables above.
For a more complete description of these expenses, see "What are the Expenses
under a Contract?" beginning on page __ of this Prospectus, and see the
prospectuses for the Trusts. The Examples assume that the average Account
Value is $30,000, and that you have invested all your money in the Variable
Account.
You should not consider the Examples a representation of past or future
expenses. Actual expenses may be greater or less than those shown. In
addition, we do not reflect Purchase Payment Tax Charges. These charges may
apply depending on the state where the Contract is sold. You might also incur
transfer fees if you make more than twelve transfers in a Contract Year. See
"Transfer Charge," page _. The assumed 5% annual rate of return is
hypothetical. You should not consider it to be a representation of past or
future annual returns, which may be greater or less than this assumed rate.
You would pay the following expenses on a $1,000 initial purchase
payment, assuming a 5% annual return on assets and the charges listed
in the Fee Table above.
<TABLE>
<CAPTION>
1. If you surrender 2. If you do not surrender
your Contract at the your Contract at the
Fund end of each time end of each time
- ---- period period
1 Year 3Years 1 Year 3 Years
------ ------ ------ -------
<S> <C> <C> <C> <C>
AIM VARIABLE INSURANCE
FUNDS, INC.:
AIM V.I. Government $95 $138 $25 $78
Securities Fund
AIM V.I. Growth and $93 $132 $23 $72
Income Fund
AIM V.I. International $95 $140 $25 $80
Equity Fund
AIM V.I. Value Fund $93 $132 $23 $72
</TABLE>
9
<PAGE> 30
<TABLE>
<CAPTION>
1. If you surrender 2. If you do not surrender
your Contract at the your Contract at the
end of each time end of each time
Fund period period
----
1 Year 3Years 1 Year 3 Years
------ ------ ------ -------
<S> <C> <C> <C> <C>
THE ALGER AMERICAN FUND:
Alger American MidCap $94 $137 $24 $77
Growth Portfolio
Alger American Income and $93 $134 $23 $74
Growth Portfolio
Alger American Small $95 $138 $25 $78
Capitalization Portfolio
LIBERTY VARIABLE INVESTMENT TRUST:
Colonial High Yield $94 $136 $24 $76
Securities Fund, Variable Series
Colonial Small Cap Value $96 $142 $26 $82
Fund, Variable Series
Colonial Strategic Income $94 $136 $24 $76
Fund, Variable Series
Colonial U.S. Stock Fund, $95 $140 $25 $80
Variable Series
Liberty All-Star Equity Fund, $96 $142 $26 $82
Variable Series
Newport Tiger Fund, $99 $150 $29 $90
Variable Series
Stein Roe Global Utilities $94 $136 $24 $76
Fund, Variable Series
STEINROE VARIABLE INVESTMENT TRUST:
Stein Roe Growth Stock $93 $133 $23 $73
Fund, Variable Series
Stein Roe Balanced Fund, $93 $131 $23 $71
Variable Series
MFS VARIABLE INSURANCE TRUST:
MFS Growth With Income $96 $142 $26 $82
Series
MFS High Income Series $96 $142 $26 $82
MFS Research Series $95 $138 $25 $78
</TABLE>
10
<PAGE> 31
<TABLE>
<CAPTION>
1. If you surrender 2. If you do not surrender
your Contract at the your Contract at the
Fund end of each time end of each time
---- period period
1 Year 3Years 1 Year 3 Years
------ ------ ------ -------
<S> <C> <C> <C> <C>
MFS Total Return Series $96 $142 $26 $82
MFS Value Series $96 $142 $26 $82
MORGAN STANLEY UNIVERSAL FUNDS, INC.:
Global Equity Portfolio $98 $147 $28 $87
Mid Cap Value Portfolio $97 $144 $27 $84
Value Portfolio $94 $137 $24 $77
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Oppenheimer Bond Fund $94 $135 $24 $75
Oppenheimer Growth Fund $93 $134 $23 $74
Oppenheimer Small Cap $94 $136 $24 $76
Growth Fund
SAGE LIFE INVESTMENT TRUST:
EAFE Equity Index Fund $95 $139 $25 $79
S&P 500 Equity Index Fund $91 $127 $21 $67
Money Market Fund $92 $131 $22 $71
T. ROWE PRICE EQUITY SERIES, INC.:
T. Rowe Price Equity $94 $137 $24 $77
Income Portfolio
T. Rowe Price Mid-Cap $94 $137 $24 $77
Growth Portfolio
T. Rowe Price Personal $95 $139 $25 $79
Strategy Balanced Portfolio
</TABLE>
1. WHAT ARE THE CONTRACTS?
The Contracts are flexible payment deferred combination fixed and
variable annuity Contracts offered by us, Sage Life Assurance of America, Inc.
Throughout this Prospectus, the term "Contracts" refers to individual
Contracts, group Contracts, and certificates for group Contracts. We designed
the Contracts for use in long-term financial and retirement planning. They
provide a means for investing amounts on a tax-deferred basis in our Variable
Account and our Fixed Account.
Under the terms of the Contracts, we promise to pay you (or the
Annuitant, if the Owner is other than an individual) regular income payments
after the Income Date. Until the
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<PAGE> 32
Income Date, you may make additional purchase payments under the Contract, and
will ordinarily not be taxed on increases in the value of your Contract as long
as you do not take distributions. When you use the Contract in connection with
tax-qualified retirement plans, federal income taxes may be deferred on your
purchase payments, as well as on increases in the value of your Contract. See
"How will my Contract be Taxed?" on page ___. The Contracts may not be
available in all states.
When you make purchase payments, you can allocate those purchase
payments to one or more of the 33 subdivisions of the Variable Account, known
as "Variable Sub-Accounts." Purchase payments allocated to a Variable
Sub-Account will be invested solely in a Fund, as you direct. Your Account
Value in a Variable Sub-Account will vary according to the investment
performance of the corresponding Fund. Depending on market conditions, your
value in each Variable Sub-Account could increase or decrease. No minimum
value is guaranteed. The total of the values in the Variable Sub-Accounts is
called the Variable Account Value.
You can also allocate purchase payments to our Fixed Account. See
"Fixed Account Investment Option, " page ___. The Fixed Account includes Fixed
Sub-Accounts to which we credit fixed rates of interest for the Guarantee
Periods you select. We currently offer Guarantee Periods with durations of 1,
2, 3, 4, 5, 7, and 10 years. If any amount allocated or transferred remains in
a Guarantee Period until the Expiration Date, its value will be equal to the
amount originally allocated or transferred, multiplied, on an annually
compounded basis, by its Guaranteed Interest Rate. Any surrender, withdrawal,
transfer, or amount applied to an income plan from a Fixed Sub-Account before
its Expiration Date ordinarily will be subject to a Market Value Adjustment
that may increase or decrease the value of the Fixed Sub-Account (or portion
thereof) being surrendered, withdrawn, transferred, or applied to an income
plan. See "Market Value Adjustment" page _____.
You can transfer Account Value from one Variable Sub-Account to
another, and from a Fixed Sub-Account to a Variable Sub-Account and from a
Variable Sub-Account to a Fixed Sub-Account, subject to certain conditions. See
"Transfers," page __.
Sage Life may offer other variable annuity contracts that also invest
in the same Funds offered under the Contracts. These contracts may have
different charges and they may offer different benefits.
2. WHAT ARE MY INCOME PAYMENT OPTIONS?
You choose the Income Date or other agreed upon date when you want
regular income payments to begin. The Income Date you choose must be on or
before the first calendar month following the Annuitant's 95th birthday. We
reserve the right to require that your Income Date be at least two years after
the Contract Date. After you choose the Income Date, you select an income plan
from the list below, and indicate whether you want your
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<PAGE> 33
income payments to be fixed or variable or a combination of fixed and variable.
You must give Satisfactory Notice of your choices at least 30 days prior to the
Income Date, and you must have at least $5,000 of Account Value to apply to a
variable or fixed income option.
On the Income Date, the Account Value under the Contract (adjusted for
any Market Value Adjustment, if applicable) will be used to provide income
payments. Unless you request otherwise, we will use any Variable Account Value
to provide variable income payments, and we will use any Fixed Account Value to
provide fixed income payments. If you have not chosen an income plan by the
Income Date, a "life annuity with 10 years certain" (described below) will be
used.
The available income plans are:
- INCOME PLAN 1 - LIFE ANNUITY. An amount payable
during the lifetime of the Annuitant terminating with the last
payment preceding the death of the Annuitant.
- INCOME PLAN 2 - LIFE ANNUITY WITH 10 OR 20 YEARS
CERTAIN. An amount payable during the lifetime of the
Annuitant with the guarantee that payments be made for a
minimum of 10 or 20 years, as elected.
- INCOME PLAN 3 - JOINT AND LAST SURVIVOR LIFE ANNUITY.
An amount payable during the joint lifetime of the Annuitant
and a designated second person, and thereafter during the
remaining lifetime of the survivor, ceasing with the last
payment prior to the death of the survivor.
- INCOME PLAN 4 - PAYMENTS FOR A SPECIFIED PERIOD
CERTAIN. An amount payable for the number of years selected
which may be from 5 to 30 years.
- INCOME PLAN 5 - ANNUITY PLAN. An amount can be used
to purchase any other income plan we offer on the Income Date
for which you and the Annuitant are eligible.
Your first income payment, whether fixed or variable, will be based on
the amount of proceeds applied under the income plan you have selected and on
the "annuity purchase rates" based on the Annuitant's age and sex, and if
applicable upon the age and sex of a second designated person. The annuity
purchase rate we apply will never be lower than the rate shown in your
Contract.
If you told us you want fixed income payments, the amount of each income
payment is guaranteed and remains level throughout the period you selected.
If you told us you want variable income payments, the amount of each
payment will vary
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<PAGE> 34
according to the investment performance of the Funds you selected.
To calculate your initial and future variable income payments, we need
to make an assumption regarding the investment performance of the Funds you
select. We call this your assumed investment rate. This rate is simply the total
return, after expenses, you need to earn to keep your variable income payments
level. Rather than building in our own estimate, we will allow you to tailor
your variable income payments to meet your needs by giving you a choice of
rates. You currently may select either 3% or 6%; if you do not select a rate, we
will apply the 3% rate. (We may offer other rates in the future). The lower the
rate, the lower your initial variable income payment, but the better your
payments will keep pace with inflation (assuming positive investment
performance.)
For example, if you select 3%, this means that if the investment
performance, after expenses, of your Funds is less than 3%, then the dollar
amount of your variable income payment will decrease. Conversely, if the
investment performance, after expenses, of your funds is greater than 3%,
then the dollar amount of your income payments will increase.
If you told us that you want a life annuity, it is possible that you
could only receive one payment.
Your income payments will be made monthly, unless you choose quarterly,
semi-annual or annual payments by giving us Satisfactory Notice at least 30
days prior to the Income Date. Payments start on the Income Date. If any
payment would be less than $100, we may change the payment frequency to the
next longer interval, but in no event less frequent than annual. Also, if on
the Income Date, the Account Value is less than $5,000, we may pay the
Surrender Value on that date in one sum.
3. HOW DO I PURCHASE A CONTRACT?
INITIAL PURCHASE PAYMENT. Contracts may be purchased for use in
connection with tax-qualified plans ("Qualified Contracts"), or may be
purchased on a non-tax qualified basis ("Non-Qualified Contracts"). To
purchase a Contract, you and the Annuitant you selected may not be more than 85
years old on the Contract Date. A minimum initial purchase payment is required
depending on whether you are purchasing a Non-Qualified or Qualified Contract,
as shown in the following table:
<TABLE>
<CAPTION>
Minimum Initial Purchase Payment Required
<S> <C>
Non-Qualified Contract $5,000
Qualified Contract $2,000
</TABLE>
ISSUANCE OF A CONTRACT. Once we receive your initial purchase payment
and your application at our Customer Service Center, we will usually issue your
Contract within two Business Days. However, if you did not give us all the
information we need, we will try to contact you to get the additional needed
information. If we cannot complete the application within five Business Days,
we will either send your money back or obtain your permission to keep your
money until we receive the necessary information. Your Contract Date will be
the date we issue your Contract at our Customer Service Center.
FREE LOOK RIGHT TO CANCEL CONTRACT. During your "Free Look" Period,
you may cancel your Contract. The Free Look Period usually expires 10 days
after you receive your Contract. Some states may require a longer period. If
you decide to cancel your Contract, you must return it to our Customer Service
Center or to one of our authorized registered representatives. You will
receive a refund of your Account Value plus any charges we have deducted on or
before the date we receive your returned Contract at our Customer Service
Center, or if required by the law of your state, your initial purchase payment
(less any withdraws previously taken). In those latter states where this
requirement exists, amounts you allocate to the Variable Account will be
temporarily allocated to the Money Market Fund until the Free Look Period
expires. See "What are my Investment Options," page ___.
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<PAGE> 35
MAKING ADDITIONAL PURCHASE PAYMENTS. You may make additional purchase
payments of $250 or more at any time before the Income Date, subject to the
following conditions. We will accept additional purchase payments under a
Non-Qualified Contract until the earlier of the year in which you attain age 85
or the year in which the Annuitant attains age 85. We will accept additional
purchase payments under a Qualified Contract until the year in which you attain
70 1/2, except contributions to a Roth IRA or rollover contributions may be
made until the year in which you attain age 85. You must obtain our prior
approval before you make a purchase payment that causes the Account Value of
all annuities that you maintain with us to exceed $1,000,000. We will credit
any purchase payment received after the Contract Date to your Contract as of
the Business Day on which we receive it at our Customer Service Center.
Purchase payments received on other than a Business Day will be deemed received
on the next following Business Day.
In addition, if you have not made a purchase payment for more than two
years and your Account Value is less than $2,000 on a Contract Anniversary, we
may cancel your Contract and pay you the Surrender Value as though you had
surrendered by giving you written notice at your address of record. However,
you will be allowed 61 days from the date of that notice to submit an
additional purchase payment in an amount sufficient to maintain your Account
Value at $2,000 or more. If we have not received the required additional
purchase payment by the end of this period, we may cancel your Contract.
4. WHAT ARE MY INVESTMENT OPTIONS?
PURCHASE PAYMENT ALLOCATIONS. When you apply for a Contract, you
specify the percentage of your purchase payment to be allocated to each
Variable Sub-Account and/or to each Fixed Sub-Account. You can change the
allocation percentages at any time by sending Satisfactory Notice to our
Customer Service Center. The change will apply to all purchase payments we
receive on or after the date we receive your request. Purchase payment
allocations must be in percentages totaling 100%, and each allocation
percentage must be a whole number.
We may, however, require that an initial purchase payment allocated to
a Variable Sub-Account be temporarily invested in the Money Market Fund during
the Free Look Period. We will require this if the law of your state requires
us to refund your full initial purchase payment less any withdrawals previously
taken, should you cancel your Contract during the Free Look Period. At the end
of the Free Look Period, if your initial purchase payment was temporarily
allocated to the Money Market Fund by us, we will transfer the value of what is
in the Money Market Fund to the Variable Sub-Account(s) you specified in your
application. Solely for the purpose of processing transfers from the Money
Market Fund, we will deem the Free Look Period to end 15 days after the
Contract Date. This transfer from the Money Market Fund to the Variable
Sub-Accounts upon the expiration of the Free Look Period does not count as a
transfer for any other purposes under the Contract.
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<PAGE> 36
VARIABLE SUB-ACCOUNT INVESTMENT OPTIONS. The Variable Account has 33
Sub-Accounts, each investing in a specific Fund. Each of the Funds is either
an open-end diversified management investment company or a separate investment
portfolio of such a company, and is managed by a registered investment adviser.
The Funds, as well as brief descriptions of their investment objectives, are
provided below. There is no assurance that these objectives will be met.
Amounts you allocate to the Variable Account reflect the investment performance
of the Funds. You bear the investment gain or loss of investing in the Funds.
Not every fund may be available in every state or in every market.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. GOVERNMENT SECURITIES FUND. This Fund seeks to achieve a high
level of current income consistent with reasonable concern for safety of
principal by investing in debt securities issued, guaranteed, or otherwise
backed by the U.S. Government.
AIM V.I. GROWTH AND INCOME FUND. This Fund seeks to provide growth of
capital, with current income as a secondary objective. The Fund seeks to
achieve its objective by generally investing at least 65% of its net assets in
stocks of companies believed by the management to have the potential for above
average growth in revenues and earnings.
AIM V.I. INTERNATIONAL EQUITY FUND. This Fund seeks to provide
long-term growth of capital by investing in a diversified portfolio of
international equity securities, the issuers of which are considered by the
Fund's investment adviser to have strong earnings momentum.
AIM V.I. VALUE FUND. This Fund seeks to achieve long-term growth of
capital by investing primarily in equity securities judged by the Fund's
investment adviser to be undervalued relative to the current or projected
earnings of the companies issuing the securities, or relative to current market
values of assets owned by the companies issuing the securities, or relative to
the equity markets generally. Income is a secondary objective.
AIM Advisors, Inc. advises the AIM Variable Insurance Funds, Inc.
THE ALGER AMERICAN FUND
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO. This Fund seeks long-term
capital appreciation by investing in a diversified, actively managed portfolio
of equity securities, primarily of companies with total market capitalization
within the range included in the S&P MidCap 400 Index.
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO. This Fund seeks to provide
a high level of dividend income through investments in equity securities.
Capital appreciation is a secondary objective of this Fund.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO. This Fund seeks
long-term capital appreciation through investment primarily in equity
securities that, at the time of purchase, have total market capitalization
within the range of companies included in the Russell 2000 Growth Index or the
S&P SmallCap 600 Index.
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<PAGE> 37
Fred Alger Management, Inc. advises The Alger American Fund.
LIBERTY VARIABLE INVESTMENT TRUST
COLONIAL HIGH YIELD SECURITIES FUND, VARIABLE SERIES ("High Yield
Securities Fund"). This Fund seeks high current income and total return by
investing primarily in lower rated corporate debt securities (commonly referred
to as "junk bonds").
COLONIAL SMALL CAP VALUE FUND, VARIABLE SERIES ("Small Cap Value
Fund"). This Fund seeks long-term growth by investing primarily in smaller
capitalization equity securities.
COLONIAL STRATEGIC INCOME FUND, VARIABLE SERIES ("Strategic Income
Fund"). This Fund seeks a high level of current income, as is consistent with
prudent risk and maximizing total return, by diversifying investments primarily
in U.S. and foreign government and lower rated corporate debt securities.
COLONIAL U.S. STOCK FUND, VARIABLE SERIES ("U.S. Stock Fund"). This
Fund seeks long-term growth by investing primarily in large capitalization
equity securities.
LIBERTY ALL-STAR EQUITY FUND, VARIABLE SERIES ("All-Star Fund"). This
Fund seeks total investment return, comprised of long-term capital appreciation
and current income, through investment primarily in a diversified portfolio of
equity securities.
NEWPORT TIGER FUND, VARIABLE SERIES ("Tiger Fund"). This Fund seeks
long-term capital growth by investing primarily in equity securities of
companies located in the nine Tigers of Asia (Hong Kong, Singapore, South
Korea, Taiwan, Malaysia, Thailand, Indonesia, China and the Philippines).
STEIN ROE GLOBAL UTILITIES FUND, VARIABLE SERIES ("Global Utilities
Fund"). This Fund seeks current income and long-term growth of capital. The
Global Utilities Fund normally invests at least 65% of its total assets in U.S.
and foreign equity and debt securities of companies engaged in the manufacture,
production, generation, transmission, sale or distribution of electricity,
natural gas or other types of energy, or water or other sanitary services, and
companies engaged in telecommunication, including telephone, telegraph,
satellite, microwave and other communications media.
Liberty Advisory Services Corp. (formerly "Keyport Advisory Services
Corp.") provides investment management and advisory services to the Liberty
Variable Investment Trust. Colonial Management Associates, Inc. subadvises the
High Yield Securities Fund, the U.S. Stock Fund, the Small Cap Value Fund, and
the Strategic Income Fund. Stein Roe & Farnham Incorporated subadvises the
Global Utility Fund. Newport Fund Management, Inc. subadvises the Tiger Fund.
Liberty Asset Management Company subadvises the All-Star Fund.
17
<PAGE> 38
STEINROE VARIABLE INVESTMENT TRUST
STEIN ROE GROWTH STOCK FUND. This Fund seeks long-term growth of
capital through investment primarily in common stocks.
STEIN ROE BALANCED FUND. This Fund seeks high total investment return
through a changing mix of equities, debt securities, and cash.
Stein Roe & Farnham Incorporated advises the SteinRoe Variable
Investment Trust.
MFS(R) VARIABLE INSURANCE TRUST(TM)
MFS GROWTH WITH INCOME SERIES. This Fund seeks to provide reasonable
current income and long-term growth of capital and income. Under normal market
conditions, the MFS Growth with Income Series will invest at least 65% of its
assets in equity securities of companies that are believed to have long-term
prospects for growth and income.
MFS HIGH INCOME SERIES. This Fund seeks high current income by
investing primarily in a professionally managed diversified portfolio of fixed
income securities, some of which may involve equity features. Fixed income
securities offering the high current income sought by the High Income Series
normally include those fixed income securities which offer a current yield
above that generally available on debt securities in the three highest rating
categories by recognized rating agencies (commonly known as "junk bonds" if
rated below the four highest categories of recognized rating agencies). See
the prospectus for the Trust for more information.
MFS RESEARCH SERIES. This Fund seeks to provide long-term growth of
capital and future income. The MFS Research Series' policy is to invest a
substantial proportion of its assets in equity securities of companies believed
to possess better than average prospects for long-term growth.
MFS TOTAL RETURN SERIES. This Fund seeks primarily to provide
above-average income (compared to a portfolio invested entirely in equity
securities) consistent with the prudent employment of capital, and secondarily
to provide a reasonable opportunity for growth of capital and income.
MFS VALUE SERIES. This Fund seeks capital appreciation. Dividend
income, if any, is a consideration incidental to the Fund's objective of
capital appreciation.
Massachusetts Financial Services Company advises the MFS(R) Variable
Insurance Trust.(TM)
18
<PAGE> 39
MORGAN STANLEY UNIVERSAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO. This Fund seeks long-term capital
appreciation by investing primarily in equity securities of issuers throughout
the world, including U.S. issuers, using an approach that is oriented to the
selection of individual stocks that the Fund's investment adviser believes are
undervalued.
MID CAP VALUE PORTFOLIO. This Fund seeks above-average total return
over a market cycle of three to five years by investing in common stocks and
other equity securities of issuers with equity capitalizations in the range of
companies represented in the S&P MidCap 400 Index.
VALUE PORTFOLIO. This Fund seeks above-average return over a market
cycle of three to five years by investing primarily in a diversified portfolio
of common stocks and other equity securities that are deemed by the Fund's
investment adviser to be relatively undervalued based on various measures such
as price/earnings ratios and price/book ratios.
Morgan Stanley Asset Management advises the Global Equity Portfolio.
Miller Anderson & Sherrerd, LLP advises the Value Portfolio and the Mid Cap
Value Portfolio.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
OPPENHEIMER BOND FUND. This Fund seeks a high level of current income.
Secondarily, this Fund seeks capital growth when consistent with its primary
objective. The Fund will, under normal market conditions, invest at least 65%
of its total assets in investment grade debt securities.
OPPENHEIMER GROWTH FUND. This Fund seeks to achieve capital
appreciation by investing in securities of well-known, established companies.
OPPENHEIMER SMALL CAP GROWTH FUND. This Fund seeks capital
appreciation. Current income is not an objective. In seeking its investment
objective, the Fund emphasizes investments in securities of "growth type"
companies with market capitalizations of less than $1 billion, including common
stocks, preferred stocks, convertible securities, rights, warrants and options,
in proportions which may vary from time to time.
Oppenheimer Funds, Inc. manages Oppenheimer Variable Account Funds.
SAGE LIFE INVESTMENT TRUST
EAFE EQUITY INDEX FUND. This Fund seeks to replicate as closely as
possible the performance of the Morgan Stanley Capital International Europe,
Australasia, Far East Index before the deduction of Fund expenses.
19
<PAGE> 40
S&P 500 EQUITY INDEX FUND. This Fund seeks to replicate as closely as
possible the performance of the S&P 500 Composite Stock Price Index before the
deduction of Fund expenses.
MONEY MARKET FUND. This Fund seeks to provide high current income
consistent with the preservation of capital and liquidity. Although the Fund
seeks to maintain a constant net asset value of $1.00 per share, there can be
no assurance that the Fund can do so on a continuous basis. An investment in
the Money Market Fund is not guaranteed.
Sage Advisors, Inc. is the investment manager to the Sage Life
Investment Trust. State Street Global Advisors subadvises the EAFE Equity
Index Fund and S&P 500 Equity Index Fund. Conning Asset Management Company
subadvises the Money Market Fund.
T. ROWE PRICE EQUITY SERIES, INC.
T. ROWE PRICE EQUITY INCOME PORTFOLIO. This Fund seeks to provide
substantial dividend income and also long-term capital appreciation.
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO. This Fund seeks to provide
long-term capital appreciation by investing primarily in common stocks of
medium-sized (mid-cap) growth companies.
T. ROWE PRICE PERSONAL STRATEGY BALANCED PORTFOLIO. The Fund seeks to
provide the highest total return over time consistent with an emphasis on both
capital appreciation and income. The Personal Strategy Balanced Portfolio
invests in a diversified portfolio of stocks, bonds, and money market
securities.
T. Rowe Price Associates, Inc. provides investment management to the T.
Rowe Price Equity Series, Inc.
The investment objectives and policies of certain Funds may be similar
to the investment objectives and policies of other retail mutual funds which
can be purchased outside of a variable insurance product, and that are managed
by the same investment adviser or manager. The investment results of the
Funds, however, may be higher or lower than the results of such other retail
mutual funds. There can be no assurance, and no representation is made, that
the investment results of any of the Funds will be comparable to the investment
results of any other retail mutual fund, even if the other retail mutual fund
has the same investment adviser or manager.
Shares of the Funds may be sold to separate accounts of insurance
companies that are not affiliated with us or each other, a practice known as
"shared funding." They also may be sold to separate accounts to serve as the
underlying investment for both variable annuity
20
<PAGE> 41
contracts and variable life insurance contracts, a practice known as "mixed
funding." As a result, there is a possibility that a material conflict may
arise between the interests of Owners whose Account Values are allocated to the
Variable Account, and owners of other contracts whose contract values are
allocated to one or more other separate accounts investing in any of the Funds.
Shares of some of the Funds may also be sold directly to certain qualified
pension and retirement plans qualifying under Section 401 of the Code. As a
result, there is a possibility that a material conflict may arise between the
interest of Owners or owners of other contracts (including contracts issued by
other companies), and such retirement plans or participants in such retirement
plans. In the event of any such material conflicts, we will consider what
action may be appropriate, including removing a Fund from the Variable Account
or replacing the Fund with another Fund. There are certain risks associated
with mixed and shared funding and with the sale of shares to qualified pension
and retirement plans, as disclosed in each Trust's prospectus.
We have entered into agreements with either the investment adviser or
distributor for each of the Funds pursuant to which the adviser or distributor
pays us a fee ordinarily based upon an annual percentage of the average
aggregate net amount we have invested on behalf of the Variable Account and
other separate accounts. These percentages differ, and some investment
advisers or distributors pay us a greater percentage than other advisers or
distributors. These agreements reflect administrative services we provide.
More detailed information concerning the investment objectives,
policies, and restrictions of the Funds, the expenses of the Funds, the risks
attendant to investing in the Funds and other aspects of their operations can
be found in the current prospectus for each Trust which accompanies this
Prospectus. The Trusts' prospectuses should be read carefully before any
decision is made concerning the allocation of amounts to the Variable
Sub-Accounts.
FIXED ACCOUNT INVESTMENT OPTIONS. Each time you allocate purchase
payments or transfer funds to the Fixed Account, we establish a Fixed
Sub-Account. Each Fixed Sub-Account is guaranteed an interest rate (the
"Guaranteed Interest Rate") for a period of time (a "Guarantee Period"). A
Guaranteed Interest Rate is established on the date that an allocation is made
to the Fixed Sub-Account.
We have no specific formula for establishing the Guaranteed Interest
Rates for the different Guarantee Periods. The determination made will be
influenced by, but not necessarily correspond to, interest rates available on
fixed income investments that we may acquire with the amounts we receive as
purchase payments or transfers of Account Value under the Contracts. These
amounts will be invested primarily in investment-grade fixed income securities
including: securities issued by the U.S. Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the U.S.
Government; debt securities that have an investment grade, at the time of
purchase, within the four highest grades assigned by Moody's Investor Services,
Inc., Standard & Poor's Corporation, or any
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<PAGE> 42
other nationally recognized rating service; mortgage-backed securities
collateralized by real estate mortgage loans, or securities collateralized by
other assets, that are insured or guaranteed by the Federal Home Loan Mortgage
Association, the Federal National Mortgage Association, or the Government
National Mortgage Association, or that have an investment grade at the time of
purchase within the four highest grades described above; other debt
instruments; commercial paper; cash or cash equivalents. You will have no
direct or indirect interest in these investments, and you do not share in the
investment performance of the assets of the Fixed Account. We will also
consider other factors in determining the Guaranteed Interest Rates, including
regulatory and tax requirements, sales commissions, administrative expenses
borne by us, general economic trends, and competitive factors. THE COMPANY'S
MANAGEMENT WILL MAKE THE FINAL DETERMINATION OF THE GUARANTEED INTEREST RATES
IT DECLARES. WE CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE INTEREST
RATES. HOWEVER, OUR GUARANTEED INTEREST RATES WILL BE AT LEAST 3% PER YEAR.
GUARANTEED INTEREST RATES DO NOT DEPEND UPON AND DO NOT REFLECT THE PERFORMANCE
OF THE FIXED ACCOUNT.
We measure the length of a Guarantee Period from the end of the
calendar month in which you allocated or transferred the amount to the Fixed
Sub-Account. This means that the Expiration Date of any Guarantee Period will
always be the last day of a calendar month. The currently available Guarantee
Periods are 1, 2, 3, 4, 5, 7, and 10 years. We may offer different Guarantee
Periods in the future. Not all Guarantee Periods may be available in all
states. Any Guarantee Period you select cannot be longer than the number of
full years remaining until your Income Date.
We will notify you at least thirty days prior to an Expiration Date of
a Fixed Sub-Account in which you are invested of your options for renewal. Your
options are:
1. Take no action and we will transfer the value of the
expiring Fixed Sub-Account to the Fixed Sub-Account with the
same Guarantee Period, but not longer than five years or
extending beyond the Income Date, as of day the previous Fixed
Sub-Account expires. If such Guarantee Period is not
currently available, your value will be transferred to the
next shortest Guarantee Period. If there is no shorter
Guarantee Period, we will transfer your value to the Money
Market option.
2. Elect a new Guarantee Period(s) from among those
offered by us as of the day the previous Fixed Sub-Account
expires.
3. Elect to transfer the value of the Fixed Sub-Account
to one or more Variable Sub-Accounts.
Any amounts surrendered, withdrawn, transferred or applied to an income
plan other than during the thirty days before the Expiration Date of the
Guarantee Period are subject to a Market Value Adjustment with the exception of
the following transactions:
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<PAGE> 43
- - Transfers from specially designated Fixed Sub-Accounts made
automatically under our Dollar Cost Averaging Program, and
- - Withdrawals of interest earned made automatically under our Systematic
Partial Withdrawal Program.
In addition, we currently waive any Market Value Adjustment on
withdrawals taken to satisfy IRS minimum distribution requirements in relation
to your Contract.
MARKET VALUE ADJUSTMENT. A Market Value Adjustment reflects the
change in interest rates since a Fixed Sub-Account was established. It
compares: (1) the current Index Rate for a period equal to the time remaining
in the Guarantee Period, and (2) the Index Rate at the time we established the
Fixed Sub-Account for a period equal to the Guarantee Period.
Ordinarily, if the current Index Rate for a period equal to the time
remaining in the Guarantee Period is higher than the applicable Index Rate at
the time the Fixed Sub-Account was established, the Market Value Adjustment
will be negative. Similarly, if the current Index Rate for a period equal to
the time remaining in the Guarantee Period is lower than the applicable Index
Rate at the time the Fixed Sub-Account was established, the Market Value
Adjustment will be positive.
We will apply a Market Value Adjustment as follows:
For a surrender, withdrawal, transfer, or amount applied to an income
plan, the Market Value Adjustment will be calculated on the total amount
(including any applicable surrender charge) that must be surrendered,
withdrawn, transferred or applied to an income plan to provide the amount
requested.
- If the Market Value Adjustment is negative, it reduces any
remaining value in the Fixed Sub-Account, or amount of
Surrender Value. Any remaining Market Value Adjustment then
reduces the amount withdrawn, transferred, or applied to an
income plan.
- If the Market Value Adjustment is positive, it increases any
remaining value in the Fixed Sub-Account. In the case of
surrender, or if the full amount of the Fixed Sub-Account is
withdrawn, transferred or applied to an income plan, the
Market Value Adjustment increases the amount surrendered,
withdrawn, transferred, or applied to an income plan.
We will compute the Market Value Adjustment by multiplying the factor below by
the total amount (including any applicable surrender charge) that must be
surrendered, withdrawn,
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<PAGE> 44
transferred, or applied to an income plan from the Fixed Sub-Account in order
to provide the amount you requested.
N/365
[(1+I)/(1+J+.0025)] - 1
Where
I is the Index Rate for a maturity equal to the Fixed
Sub-Account's Guarantee Period at the time we established the
Sub-Account;
J is the Index Rate for a maturity equal to the time remaining
(rounded up to the next full year) in the Fixed Sub-Account's
Guarantee Period at the time of calculation; and
N is the remaining number of days in the Guarantee Period at
the time of calculation.
We currently base the Index Rate for a calendar week on the reported rate for
the preceding calendar week. We reserve the right to set it less frequently
than weekly but in no event less often than monthly. If there is no Index Rate
for the maturity needed to calculate I or J, straight-line interpolation
between the Index Rate for the next highest and next lowest maturities will be
used to determine that Index Rate. If the maturity is one year or less, we
will use the Index Rate for a one-year maturity.
In the states of Maryland and Washington, state insurance law requires
that the Market Value Adjustment be computed by multiplying the amount being
surrendered, withdrawn, transferred, or applied to an income plan, by the
greater of the factor above and the following factor:
[(1.03)/(1+K)](((G-N)/365))) - 1, where N is as defined above, K equals the
Guarantee Interest Rate for the Guarantee Period, and G equals the initial
number of days in the Guarantee Period.
Examples of how the Market Value Adjustment works are shown in Appendix
A.
TRANSFERS. Prior to the Income Date and while the Annuitant is living,
you may transfer Account Value from and among the Variable and Fixed
Sub-Accounts at any time. However, in certain states, you may not transfer
Account Value until after the end of the Free Look Period. See "What are my
Investment Options?, " page __. The minimum amount of Account Value that may
be transferred from a Variable Sub-Account or a Fixed Sub-Account is $250, or,
if less, the entire remaining Account Value held in that Sub-Account. You must
give us Satisfactory Notice of the Variable Sub-Accounts and/or Fixed
Sub-Accounts from which and to which transfers are to be made. Otherwise, we
will not transfer your Account Value. A transfer from a Fixed Sub-Account
ordinarily will be subject to a Market Value Adjustment. There is currently no
limit on the number of transfers from and among the Variable or Fixed
Sub-Accounts.
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<PAGE> 45
A transfer ordinarily will take effect on the Business Day Satisfactory
Notice is received at our Customer Service Center. Requests received on other
than a Business Day will be deemed received on the next following Business Day.
We may, however, defer transfers to, from, and among the Variable Sub-Accounts
under the same conditions that we may delay paying proceeds.
We reserve the right to impose a transfer charge of up to $25 on each
transfer in a Contract Year in excess of twelve, and to limit, upon notice, the
maximum number of transfers you may make per calendar month or per Contract
Year. For purposes of assessing any transfer charge, each transfer request
will be considered one transfer, regardless of the number of Variable or Fixed
Sub-Accounts affected by the transfer.
After the Income Date, you must have our prior consent to transfer
value from the Fixed Account to the Variable Account or from the Variable
Account to the Fixed Account. A Market Value Adjustment ordinarily will apply
to transfers from the Fixed Account. We reserve the right to limit the number
of transfers among the Variable Sub-Accounts to one transfer per Contract Year
after the Income Date.
TELEPHONE TRANSACTIONS. You may request transfers or withdrawals by
telephone. We will not be liable for following instructions communicated by
telephone that we reasonably believe to be genuine. To request transfers or
withdrawals by telephone, you must elect the option on our authorization form.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine and may only be liable for any losses due to
unauthorized or fraudulent instructions where we fail to follow our procedures
properly. Such procedures include the following: (a) upon telephoning a
request, you or your authorized representative will be asked to provide certain
identifying information, (b) all such conversations will be tape recorded, and
(c) all such telephone transactions will be followed by a confirmation
statement of the transaction.
Our telephone transaction authorization form may also allow you to
create a power of attorney by authorizing another person to give telephone
instructions. Unless prohibited by state law, such power will be treated as a
durable power of attorney, and shall not be affected by subsequent incapacity,
disability, or incompetency of the Owner. We may cease to honor the power by
sending written notice to you at your last known address. Neither we nor any
person acting on our behalf shall be subject to liability for any act executed
in good faith reliance upon your power of attorney.
POWER OF ATTORNEY. As a general rule and as a convenience to you, we
allow the use of powers of attorney whereby you can give a third party the
right to make transfers on your behalf. However, when the same third party
possesses powers of attorney executed by many Owners, the result can be
simultaneous transfers involving large amounts of Account Value. Such
transfers can disrupt the orderly management of the Funds, can result in higher
costs to Owners, and are ordinarily not compatible with the long-range goals of
purchasers of the
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<PAGE> 46
Contracts. We believe that such simultaneous transfers made by such third
parties are not in the best interest of all shareholders of the Funds, and this
position is shared by the managements of the Funds.
Therefore, to the extent necessary to reduce the adverse effects of
simultaneous transfers made by third parties holding multiple powers of
attorney, we may not honor such powers of attorney and have instituted or will
institute procedures to assure that the transfer requests that we receive have,
in fact, been made by the Owners in whose names they are submitted. However,
these procedures will not prevent Owners from making their own transfer
requests.
DOLLAR-COST AVERAGING PROGRAM. Our optional dollar-cost averaging
program permits you to systematically transfer on a monthly basis, or as
frequently as we allow, a set dollar amount from the Money Market Sub-Account
to any combination of Variable Sub-Accounts. We also allow dollar-cost
averaging from specially designated Fixed Sub-Accounts ("DCA Fixed
Sub-Accounts"). These DCA Fixed Sub-Accounts may have different Guarantee
Periods and different Guaranteed Interest Rates than the Fixed Sub-Accounts.
Please consult your registered representative about the DCA Fixed Sub-Accounts.
The dollar-cost averaging method of investment is designed to reduce
the risk of making purchases only when the price of Accumulation Units is high.
However, you should carefully consider your financial ability to continue the
program over a long enough period of time to purchase units when their value is
low as well as when high. Dollar-cost averaging does not assure a profit or
protect against a loss. Due to the effect of interest that continues to be
earned on the balance in the Money Market Fund or a DCA Fixed Sub-Account, the
amounts that are actually transferred will vary slightly from month to month.
An example of how our dollar-cost averaging program works is shown in Appendix
B.
You may elect to participate in the dollar-cost averaging program at
any time before the Income Date by sending us Satisfactory Notice. The minimum
transfer amount is $250 from the Money Market Sub-Account or from a DCA Fixed
Sub-Account. All dollar-cost averaging transfers will be made on the day of
each month that corresponds to your Contract Date unless that date is not a
Business Day. Otherwise, the transfer will be made on the next following
Business Day. If you want to dollar-cost average from more than one DCA Fixed
Sub-Account at the same time, certain restrictions may apply.
Once elected, dollar-cost averaging remains in effect from the date we
receive your request until the Income Date, until the Contract is surrendered,
until the value of the Sub-Account from which transfers are being made is
depleted, or until you cancel the program by written request. If you request
to cancel dollar-cost averaging from a DCA Fixed Sub-Account before the end of
the selected period, we reserve the right to treat this request as a transfer
request, and a Market Value Adjustment ordinarily will be assessed on the
amount canceled. You can request changes by writing us at our Customer
Service Center. There is
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<PAGE> 47
no additional charge for dollar-cost averaging. A transfer under this program
is not considered a transfer for purposes of assessing a transfer charge. We
reserve the right to discontinue offering this program at any time and for any
reason. Dollar-cost averaging is not available while you are participating in
the systematic withdrawal program.
ASSET ALLOCATION PROGRAM. You may select from six asset allocation
model portfolios, or you may use these models as a guide to help you develop
your own asset allocation model. The models are as follows:
<TABLE>
<CAPTION>
Model Investment and Risk Profile
----- ---------------------------
<S> <C>
I Stable Capital
II Stable Income
III Moderate Income
IV Moderate Growth
V Capital Growth
VI Aggressive Growth
</TABLE>
If you elect to participate in the asset allocation program, all initial and
additional purchase payments will automatically be allocated among the Variable
Sub-Accounts indicated by the model you select. The models do not include
allocations to the Fixed Account. Although you may only use one model at a
time, you may elect to change your selection as your tolerance for risk, and/or
your needs and objectives change. Bear in mind, the use of an asset allocation
model does not guarantee investment results. You may use a questionnaire that
is offered to determine the model that best meets your risk tolerance and time
horizons.
Because each Variable Sub-Account performs differently over time, your
portfolio mix may vary from its initial allocations. We will automatically
rebalance your Fund mix quarterly to bring your portfolio back to its original
allocation percentages.
From time to time the models are reviewed. It may be found that
allocation percentages among the Variable Sub-Accounts or even some of the
Variable Sub-Accounts within a particular model need to be changed. You will
be sent notice at least 30 days before any such change is made, and you will be
given an opportunity NOT to make the change.
If you participate in the asset allocation program, the transfers made
under the program are not taken into account in determining any transfer
charge. There is no additional charge for this program. We reserve the right
to discontinue offering this program at any time and for any reason.
AUTOMATIC PORTFOLIO REBALANCING PROGRAM. Once your money has been
allocated among the Variable Sub-Accounts, the investment performance of each
Variable Sub-Account may cause your allocation to shift. Prior to the Income
Date, you may instruct us to
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<PAGE> 48
automatically rebalance (on a calendar quarter, semi-annual, or annual basis)
Variable Account Value to return to your original allocation percentages. Your
request will be effective on the Business Day on which we receive your request
at our Customer Service Center. Requests received on other than a Business Day
will be deemed received on the next following Business Day. Your allocation
percentages must be in whole percentages. You may start and stop automatic
portfolio rebalancing at any time and make changes to your allocation
percentages by written request. There is no additional charge for using this
program. A transfer under this program is not considered a transfer for
purposes of assessing any transfer charge. We reserve the right to discontinue
offering this program at any time and for any reason. Any money allocated to
the Fixed Account will not be included in the rebalancing.
ACCOUNT VALUE. The Account Value is the entire amount we hold under
your Contract for you. The Account Value serves as a starting point for
calculating certain values under your Contract. It equals the sum of your
Variable Account Value and your Fixed Account Value. We determine your Account
Value first on the Contract Date and thereafter on each Business Day. The
Account Value will vary to reflect: (i) the performance of the Variable
Sub-Accounts you have selected, (ii) interest credited on amounts allocated to
the Fixed Account, and (iii) charges, transfers, withdrawals, and surrenders.
Account Value may be more or less than purchase payments paid.
SURRENDER VALUE. The Surrender Value on a Business Day before the
Income Date, is the Account Value, adjusted for any applicable Market Value
Adjustment that may be positive or negative, less any applicable surrender
charge that would be deducted if your Contract were surrendered that day, less
any applicable annual administration charge, and less any applicable Purchase
Payment Tax Charge.
VARIABLE ACCOUNT VALUE. On any Business Day, the Variable Account
Value equals the sum of the values in each Variable Sub-Account. The value in
each Variable Sub-Account equals the number of Accumulation Units attributable
to that Variable Sub-Account multiplied by the Accumulation Unit value for that
Variable Sub-Account on that Business Day. When you allocate a purchase
payment or transfer Account Value to a Variable Sub-Account, we credit your
Contract with Accumulation Units in that Variable Sub-Account. We determine
the number of Accumulation Units by dividing the dollar amount allocated or
transferred to the Variable Sub-Account by the Sub-Account's Accumulation Unit
value for that Business Day. Similarly, when you transfer, withdraw, or
surrender an amount from a Variable Sub-Account, we cancel Accumulation Units
in that Variable Sub-Account. We determine the number of Accumulation Units
canceled by dividing the dollar amount you transferred, withdrew, or
surrendered by the Variable Sub-Account's Accumulation Unit value for that
Business Day.
ACCUMULATION UNIT VALUE. An Accumulation Unit value varies to reflect
the investment experience of the underlying Fund, and may increase or decrease
from one Business Day to the next. We arbitrarily set the Accumulation Unit
value for each Variable
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<PAGE> 49
Sub-Account at $10 when we established the Sub-Account. For each Valuation
Period after the date of establishment, the Accumulation Unit value is
determined by multiplying the Accumulation Unit value for a Sub-Account for the
prior Valuation Period by the net investment factor for the Variable
Sub-Account for the Valuation Period.
NET INVESTMENT FACTOR. The net investment factor is an index used to
measure the investment performance of a Variable Sub-Account from one Valuation
Period to the next during the Accumulation Phase. The net investment factor
for any Valuation Period is determined by dividing (a) by (b) where:
(a) is the net result of:
(i) the Net Asset Value of the Fund in which the Variable
Sub-Account invests determined at the end of the current
Valuation Period, plus
(ii) the per share amount of any dividend or capital gain
distributions made by the Fund on shares held in the Variable
Sub-Account if the "ex-dividend" date occurs during the
current Valuation Period, and plus or minus
(iii) a per share charge or credit for any taxes reserved for,
which is determined by us to have resulted from the operations
of the Variable Sub-Account; and
(b) is the Net Asset Value of the Fund in which the Variable
Sub-Account invests determined at the end of the immediately preceding
Valuation Period.
The net investment factor may be more or less than, or equal to, one.
FIXED ACCOUNT VALUE. The Fixed Account Value is the sum of the value
of each Fixed Sub-Account (including a DCA Fixed Sub-Account) on any particular
day. The value in each Fixed Sub-Account is equal to: (1) the portion of the
purchase payment(s) allocated or amount transferred to the Sub-Account; plus
(2) interest at the Guaranteed Interest Rate; minus (3) any transfers from the
Sub-Account; minus (4) any withdrawals (including any associated surrender
charges) from the Sub-Account; and minus (5) any charges allocated to the
Sub-Account. We also adjust the Fixed Sub-Account Value for any Market Value
Adjustment, the value of which could be positive or negative.
5. WHAT ARE THE EXPENSES UNDER A CONTRACT?
We deduct the charges described below. The charges are for the
services and benefits we provide, costs and expenses we incur, and risks we
assume under the Contracts. Services and benefits we provide include: the
ability of Owners to make withdrawals and surrenders under the Contracts; the
death benefit paid on the death of the Owner; the available investment options,
including dollar-cost averaging, asset allocation, automatic portfolio
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<PAGE> 50
rebalancing, and systematic partial withdrawal programs; administration of the
income plan options available under the Contracts; and the distribution of
various reports to Owners. Costs and expenses we incur include those
associated with various overhead and other expenses related to providing the
services and benefits provided by the Contracts, sales and marketing expenses,
and other costs of doing business. Risks we assume include the risks that
Annuitants may live longer than estimated when the annuity factors under the
Contracts were established, that the amount of the death benefit will be
greater than Account Value, and that the costs of providing the services and
benefits under the Contracts will exceed the charges deducted. We may also
deduct a charge for taxes. See "Fee Table," page ___.
We may realize a profit or loss on one or more of the charges. We may
use any such profits for any corporate purpose, including, among other things,
payment of sales expenses.
Unless otherwise specified, charges are deducted proportionately from
all Variable Sub-Accounts and Fixed Sub-Accounts in which you are invested.
Charges under the Contracts may be reduced or eliminated when sales
result in savings, reduction of expenses and/or risks to the Company.
Generally, we will make such reductions based on the following factors:
(i) the size of the group;
(ii) the total amount of purchase payments to be received from the
group;
(iii) the purposes for which the Contracts are purchased;
(iv) the nature of the group for which the Contracts are purchased; and
(v) any other circumstances that could reduce Contract costs and
expenses.
We may also sell the Contracts with lower or no charges to a person who
is an officer, director or employee of Sage Life or of certain affiliates of
ours. Reductions in Contract charges will not be unfairly discriminatory
against any person.
SURRENDER CHARGE
If you make an Excess Withdrawal or surrender your Contract during the
first seven Contract Years, we may deduct a surrender charge calculated as a
percentage of the amount of purchase payment(s) withdrawn or surrendered. The
applicable percentage is 7% in the first Contract Year, and declines until it
reaches 0% in the eighth Contract Year.
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<PAGE> 51
If you surrender your Contract, we deduct the surrender charge from the
Account Value in determining the Surrender Value. If you take an Excess
Withdrawal, we deduct the surrender charge from the Account Value remaining
after we pay you the amount requested. We include any surrender charge we
assess in the calculation of any applicable Market Value Adjustment for
withdrawals from the Fixed Account. Each year you may withdraw a "Free
Withdrawal Amount" without incurring a surrender charge. For a table of
surrender charges and a description of the Free Withdrawal Amount, see the "Fee
Table," page __.
With an Excess Withdrawal, we will liquidate purchase payments in whole
or in part on a "first-in, first-out" basis. This means we liquidate purchase
payments in the order they were made: the oldest unliquidated purchase payment
first, the next oldest unliquidated purchase payment second, until all purchase
payments have been liquidated.
The total surrender charge will be the sum of the surrender charges for
each purchase payment being liquidated. The amount requested from a
Sub-Account may not exceed the value of that Sub-Account less any applicable
surrender charge.
EXAMPLE OF CALCULATION OF SURRENDER CHARGE. Assume the applicable
surrender charge is 7%, you have requested a withdrawal of $1,000, and no
Market Value Adjustment is applicable. Your initial purchase payment was
$5,000, your current Account Value is $5,250, and you made no prior withdrawals
during that Contract Year. Your Free Withdrawal Amount is the greater of (a)
or (b), where:
(a) is the excess of 10% of the total purchase payments over 100% of
all prior withdrawals (including any associated surrender charge and
Market Value Adjustment incurred) in that Contract Year (10% x $5,000 =
$500); and
(b) is the excess of the Account Value on the date of withdrawal over
the unliquidated purchase payments ($5,250 - $5,000 = $250).
Therefore, the Free Withdrawal amount is $500. A surrender charge will apply
to the excess of $1,000 over $500. The surrender charge is equal to $35 (7% x
$500).
WAIVER OF SURRENDER CHARGE. We will not deduct a surrender charge if,
at the time we receive your request for a withdrawal or a surrender, we have
also received due proof that you (or the Annuitant, if the Owner is not an
individual) have a "Qualifying Terminal Illness" or have been confined
continuously to a "Qualifying Hospital or Nursing Care Facility" for at least
45 days in a 60 day period. "Qualifying Terminal Illness" and "Qualifying
Hospital or Nursing Care Facility" are defined in your Contract.
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<PAGE> 52
ANNUAL ADMINISTRATION CHARGE
We will deduct an annual administration charge of $40 during the first
seven Contract Years (i) on each Contract Anniversary, and (ii) on the day of
any surrender if the surrender is not on the Contract Anniversary. We will
waive this fee on and after the eighth Contract Anniversary, or if the Account
Value is at least $50,000 when the annual administration charge would have
otherwise been deducted.
TRANSFER CHARGE
We currently do not deduct this charge. However, we reserve the right
to deduct a transfer charge of up to $25 for the 13th and each subsequent
transfer during a Contract Year. For the purpose of assessing the transfer
charge, each written or telephone request is considered to be one transfer,
regardless of the number of Sub-Accounts affected by the transfer. In the event
that the transfer charge becomes applicable, it will be deducted
proportionately from the Sub-Accounts from which the transfer is made.
Transfers made in connection with the dollar-cost averaging, asset allocation,
and automatic portfolio rebalancing programs will not count as transfers for
purposes of assessing this charge.
ASSET-BASED CHARGES
We deduct Asset-Based Charges for mortality and expense risks and
administrative costs assumed by us. Prior to the Income Date, Asset-Based
Charges are deducted monthly and calculated as a percentage of the Variable
Account Value on the date of deduction. On the Contract Date and monthly
thereafter, the Asset-Based Charges are deducted proportionately from the
Variable Sub-Accounts in which you are invested. After the Income Date,
however, these charges are called Variable Sub-Account Charges and are deducted
daily from the assets of such Variable Sub-Accounts. The maximum charges are:
<TABLE>
<CAPTION>
Combined Asset-Based Charges
----------------------------
Annual Charge Monthly Charge Daily Charge
------------- -------------- ------------
<S> <C> <C> <C>
Contract Years 1-7 1.40% .116667% .0038626%
Contract Years 8+ 1.25% .104167% .0034462%
</TABLE>
We reserve the right to deduct Asset-Based Charges on the effective date of any
transfer from the Fixed Account, or allocation of purchase payment to the
Variable Account, based on the amount transferred or allocated and based on the
number of days remaining until the next date of deduction. These charges do
not apply to any Fixed Account Value.
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<PAGE> 53
FUND EXPENSES
Because the Variable Account purchases shares of the various Funds
chosen by you, the net assets of the Variable Account will reflect the
investment management fees and other operating expenses incurred by those
Funds. A table of each Fund's management fees and other expenses can be found
in the front of this Prospectus in the Fee Table. For a description of each
Fund's expenses, management fees, and other expenses, see the Trusts'
prospectuses.
6. HOW WILL MY CONTRACT BE TAXED?
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
COUNSEL OR OTHER COMPETENT TAX ADVISERS SHOULD BE CONSULTED FOR MORE COMPLETE
INFORMATION.
INTRODUCTION
The following summary provides a general description of the federal
income tax considerations associated with the Contract and does not purport to
be complete or to cover all tax situations. This discussion is based upon our
understanding of the present federal income tax laws. No representation is
made as to the likelihood of continuation of the present federal income tax
laws or as to how they may be interpreted by the Internal Revenue Service (the
"IRS").
The Contract may be purchased on a non-tax-qualified basis or purchased
on a tax-qualified basis. A Qualified Contract is designed for use by
individuals whose purchase payments are comprised solely of proceeds from
and/or contributions under retirement plans that are intended to qualify as
plans entitled to special income tax treatment under Sections 408 or 408A of
the Code. The ultimate effect of federal income taxes on the amounts held
under a Contract, or income payments, depends on the type of retirement plan,
on the tax and employment status of the individual concerned, and on our tax
status. In addition, certain requirements must be satisfied in purchasing a
Qualified Contract with proceeds from a tax-qualified plan and receiving
distributions from a Qualified Contract in order to continue receiving
favorable tax treatment. Some retirement plans are subject to distribution and
other requirements that are not incorporated into our Contract administration
procedures. Owners, participants, and Beneficiaries are responsible for
determining whether contributions, distributions, and other transactions with
respect to the Contract comply with applicable law. Therefore, purchasers of a
Qualified Contract should seek competent legal and tax advice regarding the
suitability of a Contract for their situation. The following discussion
assumes that the Qualified Contract is purchased with proceeds from and/or
contributions under retirement plans that qualify for the intended special
federal income tax treatment.
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<PAGE> 54
TAX STATUS OF THE CONTRACT
DIVERSIFICATION REQUIREMENTS. The Code requires that the investments
of the Variable Account be "adequately diversified" in order for the Contract
to be treated as an annuity contract for federal income tax purposes. It is
intended that the Variable Account, through the Funds, will satisfy these
diversification requirements.
In certain circumstances, owners of variable annuity contracts have
been considered for federal income tax purposes to be the owners of the assets
of the variable account supporting their contracts due to their ability to
exercise investment control over those assets. When this is the case, the
contract owners have been currently taxed on income and gains attributable to
the variable account assets. There is little guidance in this area, and some
features of the Contract, such as the flexibility of an Owner to allocate
purchase payments and transfer Account Values, have not been explicitly
addressed in published rulings. While we believe that the Contract does not
give an Owner investment control over Variable Account assets, we reserve the
right to modify the Contract as necessary to prevent an Owner from being
treated as the owner of the Variable Account assets supporting the Contract.
REQUIRED DISTRIBUTIONS. To be treated as an annuity contract for
federal income tax purposes, the Code requires a Non-Qualified Contract to
contain certain provisions specifying how your interest in the Contract will be
distributed in the event of your death. The Non-Qualified Contracts contain
provisions that are intended to comply with these Code requirements, although
no regulations interpreting these requirements have yet been issued. We intend
to review such provisions and modify them if necessary to assure that they
comply with the applicable requirements when such requirements are clarified by
regulation or otherwise.
Other rules may apply to a Qualified Contract.
The following discussion assumes that the Contract will qualify as an
annuity contract for federal income tax purposes.
TAX TREATMENT OF ANNUITIES
IN GENERAL. We believe that if you are a natural person you will not be
taxed on increases in the value of a Contract until a distribution occurs or
until income payments begin. (An agreement to assign or pledge any portion of
the Account Value, and, in the case of a Qualified Contract, any portion of an
interest in the qualified plan, ordinarily will be treated as a distribution.)
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TAXATION OF A NON-QUALIFIED CONTRACT
NON-NATURAL PERSON. The Owner of any annuity contract who is not a
natural person ordinarily must include in income any increase in the excess of
the Account Value over the "investment in the contract" (ordinarily, the
purchase payments or other consideration paid for the contract) during the
taxable year. There are some exceptions to this rule and a prospective Owner
that is not a natural person may wish to discuss these with a tax adviser.
The following discussion generally applies to Contracts owned by natural
persons.
WITHDRAWALS. When a withdrawal (including Systematic Withdrawals) from
a Non-Qualified Contract occurs, the amount received will be treated as
ordinary income subject to tax up to an amount equal to the excess (if any) of
the Account Value immediately before the distribution over the Owner's
investment in the Contract at that time. It is possible that a positive Market
Value Adjustment at the time of a withdrawal may be treated as part of the
Account Value immediately before the distribution. You may want to consult a
tax adviser on the tax consequences of market value adjustments.
SURRENDERS. In the case of a surrender under a Non-Qualified Contract,
the amount received ordinarily will be taxable only to the extent it exceeds
the Owner's investment in the Contract.
PENALTY TAX ON SURRENDER AND CERTAIN WITHDRAWALS. In the case of a
distribution from a Non-Qualified Contract, a federal tax penalty equal to 10%
of the amount treated as income ordinarily will be imposed. In general,
however, there is no penalty on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of an Owner;
- attributable to the taxpayer's becoming disabled; or
- made as part of a series of substantially equal
periodic payments for the life (or life expectancy) of
the taxpayer.
Other exceptions may be applicable under certain circumstances and
special rules may be applicable in connection with the exceptions enumerated
above. A tax adviser should be consulted regarding exceptions from the penalty
tax.
INCOME PAYMENTS. Although tax consequences may vary depending on the
payment option elected under an annuity contract, a portion of each income
payment is ordinarily not taxed and the remainder is taxed as ordinary income.
The non-taxable portion of an income payment is ordinarily determined in a
manner that is designed to allow you to recover your investment in the Contract
ratably on a tax-free basis over the expected stream of income payments, as
determined when income payments start. Once your investment in the Contract
has been fully recovered, however, the full amount of each income payment is
subject to tax as ordinary income.
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TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of your death or the death of the Annuitant. Ordinarily, such
amounts are includible in the income of the recipient as follows: (i) if
distributed in a lump sum, they are taxed in the same manner as a surrender of
the Contract, or (ii) if distributed under an income payment option, they are
taxed in the same way as income payments.
TRANSFERS, ASSIGNMENTS OF A CONTRACT. A transfer or assignment of
ownership of a Contract, the designation of an Annuitant, the designation of a
payee other than yourself, the selection of certain Income Dates, or the
exchange of a Contract may result in certain tax consequences to you that are
not discussed herein. An Owner contemplating any such transfer or assignment
should consult a tax adviser as to the tax consequences.
WITHHOLDING. Annuity distributions are ordinarily subject to
withholding for the recipient's federal income tax liability. Recipients can
ordinarily elect, however, not to have tax withheld from distributions.
MULTIPLE CONTRACTS. All annuity contracts that we or our affiliates
issue to the same Owner during any calendar year are treated as one annuity
contract for purposes of determining the amount includible in such Owner's
income when a taxable distribution occurs.
TAXATION OF A QUALIFIED CONTRACT
The Contract is designed for use with several types of qualified plans.
The tax rules applicable to participants in these qualified plans vary
according to the type of plan and the terms and conditions of the plan itself.
Special favorable tax treatment may be available for certain types of
contributions and distributions. Adverse tax consequences may result from
contributions in excess of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; and in other specified
circumstances. Therefore, no attempt is made to provide more than general
information about the use of the Contract with the various types of qualified
retirement plans. Contract Owners, Annuitants, and Beneficiaries are cautioned
that the rights of any person to any benefits under these qualified retirement
plans may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Contract, but we shall not be
bound by the terms and conditions of such plans to the extent such terms
contradict the Contract, unless we consent. For IRAs under Section 408 of the
Code (described below), distributions generally must commence no later than
April 1 of the calendar year following the calendar year in which the Owner
reaches age 70 1/2. Roth IRAs under Section 408A of the Code do not require
distributions at any time prior to the Owner's death.
WITHDRAWALS. When a withdrawal from a Qualified Contract occurs, a
pro-rata portion of the amount received is taxable, ordinarily based on the
ratio of the Owner's
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investment in the contract (ordinarily, any non-deductible purchase payments or
other consideration paid for the Contract) to the Owner's total accrued benefit
balance under the retirement plan. For a Qualified Contract, the investment in
the contract can be zero. Special tax rules apply to withdrawals from Roth
IRAs (see below). Distributions from Qualified Contracts generally are subject
to withholding for the Owner's federal income tax liability. The withholding
rate varies according to the type of distribution and the Owner's tax status.
The Owner will be provided the opportunity to elect not to have tax withheld
from distributions.
Brief descriptions follow of the various types of qualified retirement
plans in connection with a Contract. We will endorse the Contract as necessary
to conform it to the requirements of such plan.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits
eligible individuals to contribute to an individual retirement program known as
an "Individual Retirement Annuity" or "IRA." These IRAs are subject to limits
on the amount that may be contributed, the persons who may be eligible, and on
the time when distributions may commence. IRA contributions may be deductible
in whole or in part depending on the Owner's income and whether the Owner is a
participant in a qualified plan. Earnings in the IRA are not taxed until
distributed. Also, distributions from certain other types of qualified
retirement plans may be rolled over on a tax-deferred basis into an IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject
to a 10% federal penalty tax.
SIMPLE IRAS. Certain small employers may establish SIMPLE plans as
provided by Section 408(p) of the Code, under which employees may elect to
defer to a SIMPLE IRA a percentage of compensation up to $6,000 (as increased
for cost of living adjustments). The sponsoring employer is required to make
matching or non-elective contributions on behalf of employees. Distributions
from SIMPLE IRAs are subject to the same restrictions that apply to IRA
distributions and are taxed as ordinary income. Subject to certain exceptions,
premature distributions prior to age 59 1/2 are subject to a 10% federal
penalty tax, which is increased to 25% if the distribution occurs within the
first two years after the commencement of the employee's participation in the
plan.
ROTH IRAS. Section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which
are subject to certain limitations, are not deductible and must be made in cash
or as a rollover or transfer from another Roth IRA or other IRA. A conversion
of an IRA to a Roth IRA may be subject to tax and other special rules may
apply. You should consult a tax adviser before combining any converted amounts
with any other Roth IRA contributions, including any other conversion amounts
from other tax years. Distributions from a Roth IRA ordinarily are not taxed,
except that, once aggregate distributions exceed contributions to the Roth IRA,
income tax and a 10% federal penalty tax may apply to distributions made (1)
before age 59 1/2 (subject to certain exceptions) or (2) during the five
taxable years starting with the year in which the first contribution is made to
the Roth IRA.
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A 10% federal penalty tax may apply to amounts attributable to a conversion from
an IRA if they are distributed during the five taxable years beginning with the
year in which the conversion was made.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax
consequences under the Contract are not exhaustive, and special rules are
provided with respect to other tax situations not discussed in this Prospectus.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of distributions under a Contract depend
on the individual circumstances of each Owner or recipient of the distribution.
A competent tax adviser should be consulted for further information.
Further, the federal income tax consequences discussed herein reflect
our understanding of current law, and the law may change. Although the
likelihood of legislative change is uncertain, there is always the possibility
that the tax treatment of the Contracts could change by legislation or other
means. It is also possible that any change could be retroactive (that is,
effective prior to the date of the change). A tax adviser should be consulted
with respect to legislative developments and their effect on the Contract.
7. HOW DO I ACCESS MY MONEY?
You can partially withdraw from or surrender your Contract. When you
surrender your Contract, you can take the proceeds in a single sum, or you can
request that we pay the proceeds under one of our income plans. See "What are
my Income Payment Options?," page __.
WITHDRAWALS
You may withdraw all or part of your Surrender Value at any time before
the Income Date. (If you have elected the "payments for a specified period
certain" income plan option, you may request a full withdrawal after the Income
Date; otherwise, no withdrawals are permitted after the Income Date). You may
make your withdrawal request in writing or by telephone. See "Requesting
Payments," page __. Any withdrawal must be at least $250. We will pay you the
withdrawal amount in one sum. Under certain circumstances, we may delay this
payment. See "Requesting Payments," page __ .
When you request a withdrawal, you can direct how the withdrawal will
be deducted from your Account Value. If you provide no directions, we will
deduct the withdrawal from your Account Value in the Sub-Accounts on a pro-rata
basis.
A PARTIAL WITHDRAWAL WILL REDUCE YOUR DEATH BENEFIT AND MAY BE SUBJECT
TO A SURRENDER CHARGE AND MARKET VALUE ADJUSTMENT. (SEE "WHAT ARE THE EXPENSES
UNDER A CONTRACT?" AND "DOES THE CONTRACT HAVE A DEATH BENEFIT?")
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Please note that if your requested withdrawal would reduce your Account
Value below $2,000, we reserve the right to treat the request as a withdrawal
of only the excess over $2,000.
SYSTEMATIC PARTIAL WITHDRAWAL PROGRAM
The systematic partial withdrawal program provides automatic monthly,
quarterly, semi-annual, or annual payments to you from the amounts you have
accumulated in the Variable Sub-Accounts and/or the Fixed Sub-Accounts. You
select the day withdrawals will be taken, but this day can be no later than the
28th day of the month. If a day is not selected, the day of each month that
corresponds to your Contract Date will be used. If that date is not a Business
Day, we will use the next following Business Day. The minimum payment is $100.
You can elect to withdraw either earnings in a prior period (for example, prior
month for monthly withdrawals or prior quarter for quarterly withdrawals) or a
specified dollar amount.
- If you elect earnings, we will deduct the withdrawals from the
Sub-Accounts in which you are invested on a pro-rata basis.
- If you elect a specified dollar amount, we will deduct the
withdrawals from the Sub-Accounts in which you are invested on
a pro-rata basis unless you specify otherwise. Any amount in
excess of the Free Withdrawal Amount may be subject to a
surrender charge (see "Surrender Charge," page ___). Also, any
amount in excess of interest earned on a Fixed Sub-Account in
the prior period ordinarily will be subject to a Market Value
Adjustment (see "Market Value Adjustment," page ___).
You may elect to participate in the systematic partial withdrawal
program at any time before the Income Date by providing Satisfactory Notice.
Once we have received your request, the program will begin and will remain in
effect until your Account Value drops to zero. You may cancel or make changes
in the program at any time by providing us with Satisfactory Notice. We do not
deduct any other charges for this program. We reserve the right to discontinue
offering the systematic partial withdrawal program at any time and for any
reason. Systematic partial withdrawals are not available while you are
participating in the dollar-cost averaging program.
IRA PARTIAL WITHDRAWAL PROGRAM
If your Contract is an IRA Contract and you will attain age 70 1/2 in
the current calendar year, distributions may be made to satisfy requirements
imposed by federal tax law. An IRA partial withdrawal provides payout of
amounts required to be distributed by the IRS rules governing mandatory
distributions under qualified plans. A notice before distributions must
commence will be sent, and you may elect this program at that time, or at a
later date.
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The IRA Partial Withdrawal program may not be elected while you are
participating in the systematic partial withdrawal program. IRA partial
withdrawals may be taken on a monthly, quarterly, semi-annual, or annual basis.
A minimum withdrawal of $100 is required. You select the day withdrawals will
be taken, but this day can be no later than the 28th day of the month. If a
day is not elected, the day of each month that corresponds to your Contract
date will be used.
REQUESTING PAYMENTS
You must provide us with Satisfactory Notice of your request for
payment. We will ordinarily pay any death benefit, withdrawal, or surrender
proceeds within seven days after receipt at our Customer Service Center of all
the requirements for such a payment. The amount will be determined as of the
date our Customer Service Center receives all such requirements.
We may delay making a payment, applying Account Value to an income
plan, or processing a transfer request if: (1) the disposal or valuation of
the Variable Account's assets is not reasonably practicable because the New
York Stock Exchange is closed for other than a regular holiday or weekend,
trading is restricted by the SEC, or the SEC declares that an emergency exists;
or (2) the SEC, by order, permits postponement of payment to protect our
Contract Owners. We also may defer making payments attributable to a check
that has not cleared (which may take up to 15 days), and we may defer payment
of proceeds from the Fixed Account for a withdrawal, surrender, or transfer
request for up to six months from the date we receive the request. If payment
is deferred 30 days or more, the amount deferred will earn interest at a rate
not less than the minimum required in the jurisdiction in which the Contract is
delivered.
8. HOW IS CONTRACT PERFORMANCE PRESENTED?
We may advertise or include in sales literature yields, effective
yields, and total returns for the Variable Sub-Accounts. Effective yields and
total returns for the Variable Sub-Accounts are based on the investment
performance of the corresponding Funds. THESE FIGURES ARE BASED ON HISTORICAL
PERFORMANCE AND DO NOT INDICATE OR PROJECT FUTURE RESULTS. We may also
advertise or include in sales literature a Variable Sub-Account's performance
compared to certain performance rankings and indexes compiled by independent
organizations, and we may present performance rankings and indexes without such
a comparison.
The yield of the Money Market Sub-Account refers to the annualized
income generated by an investment in the Sub-Account over a specified seven-day
period. The yield is calculated by assuming that the income generated for that
seven-day period is generated each seven-day period over a 52-week period. The
effective yield is calculated similarly but, when annualized, the income earned
by an investment in the Money Market Sub-Account is assumed to be reinvested.
The effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
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The yield of a Variable Sub-Account (except the Money Market
Sub-Account) refers to the annualized income generated by an investment in the
Variable Sub-Account over a specified 30-day or one-month period. The yield is
calculated by assuming that the income generated by the investment during that
30-day or one-month period is generated each period over a 12-month period.
The total return of a Variable Sub-Account refers to return quotations
assuming an investment under a Contract has been held in the Variable
Sub-Account for the stated times. Average annual total return of a Variable
Sub-Account tells you the return you would have experienced if you allocated a
$1,000 purchase payment to a Variable Sub-Account for the specified period.
Standardized average annual total return reflects all historical investment
results for the Variable Sub-Account, less all charges and deductions applied
against the Variable Sub-Account, including any surrender charge that would
apply if you surrendered your Contract at the end of each period indicated, but
excluding any deductions for purchase payment taxes. Standardized total return
may be quoted for various periods including 1 year, 5 years, and 10 years, or
from inception of the Variable Sub-Account if any of those periods are not
available. "Non-Standard" average annual total return information may be
presented, computed on the same basis as described above, except that
deductions will not include the Surrender Charge. In addition, we may from
time to time disclose average annual total return for non-standard periods and
cumulative total return for a Variable Sub-Account.
We may, from time to time, also disclose yield, standard total returns,
and non-standard total returns for the Funds. We may also disclose yield,
standard total returns, and non-standard total returns of funds or other
accounts managed by the Adviser or Sub-adviser with investment objectives
similar to those of the Funds, and Variable Sub-Account performance based on
that performance data. Non-standard performance will be accompanied by
standard performance.
In advertising and sales literature, the performance of each Variable
Sub-Account may be compared to the performance of other variable annuity
issuers in general or to the performance of particular types of variable
annuities investing in mutual funds, or investment series of mutual funds with
investment objectives similar to each of the Variable Sub-Accounts. Advertising
and sales literature may also compare the performance of a Variable Sub-Account
to the S&P 500 Composite Stock Price Index, a widely used measure of stock
performance. This unmanaged index assumes the reinvestment of dividends but
does not reflect any deduction for the expense of operating or managing an
investment portfolio. Other independent ranking services and indexes may also
be used as a source of performance comparison. We may also report other
information, including the effect of tax-deferred compounding on a Variable
Sub-Account's investment returns, or returns in general, which may be
illustrated by tables, graphs, or charts.
9. DOES THE CONTRACT HAVE A DEATH BENEFIT?
Your Contract provides two different types of death benefits for your
Beneficiary. There is the basic death benefit and the accidental death
benefit.
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BASIC DEATH BENEFIT
If any Owner dies before the Income Date, we will pay the Beneficiary
the greatest of:
(i) the Account Value determined as of the Business Day we receive
proof of death (if proof of death is received on other than a
Business Day, the proof will be deemed received on the next
following Business Day);
(ii) 100% of the sum of all purchase payments made under the
Contract, reduced by the amount of any prior withdrawal
(including any associated surrender charge and Market Value
Adjustment incurred); or
(iii) the highest anniversary value (the "Highest Anniversary
Value").
The Highest Anniversary Value is equal to the greatest anniversary
value attained in the following manner. When we receive proof of death, we
will calculate an anniversary value for each Contract Anniversary prior to the
date of the Owner's death, but not beyond the Owner's attained age 80. An
anniversary value for a Contract Anniversary is equal to (1) the Account Value
on that Contract Anniversary, (2) increased by the dollar amount of any
purchase payments made since the Contract Anniversary, and (3) reduced
proportionately by any withdrawals (including any associated surrender charge
and Market Value Adjustment incurred) taken since that Contract Anniversary.
(By proportionately, we take the percentage by which the withdrawal decreases
the Account Value and we reduce the sum of (1) and (2) by that percentage.)
If there are multiple Owners, the age of the oldest Owner will be used
to determine the applicable death benefit. If there is no Owner who is a
natural person (that is, an individual), we will treat the Annuitant as Owner
for the purpose of determining when the Owner dies and the Annuitant's age will
determine the death benefit payable to the Beneficiary.
OWNER'S DEATH BEFORE THE INCOME DATE. If an Owner dies before the
Income Date, the Beneficiary has up to five years from the Owner's date of
death to request that the death benefit be paid in one lump sum. If the lump
sum is elected and paid, the Contract will terminate, and we will have no
further obligations under the Contract. Alternatively, the Beneficiary may
provide us with Satisfactory Notice and request that the Contract continue, in
which case we will continue the Contract subject to the following conditions:
1. If there are joint Owners, the surviving Owner becomes
the new Owner. Otherwise, the Beneficiary becomes the
new Owner.
2. Unless otherwise specified, any excess of the death
benefit over the Account Value will be allocated to
and among the Variable and Fixed Accounts in
proportion to their values as of the date on which the
death benefit is
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determined. We will establish a new Fixed Sub-Account
for any allocation to the Fixed Account based on the
Guarantee Period the new Owner then elects.
3. No additional purchase payments may be applied to the
Contract.
However, certain distribution rules will apply to the continued
Contract. If the new Owner is not the deceased Owner's spouse, we must
distribute the entire interest in the Contract either: (i) over the life of
the new Owner, but not extending beyond the life expectancy of the new Owner,
with distributions beginning within one year of the prior Owner's death; or
(ii) within five years of the deceased Owner's death. These distributions, if
from the Fixed Account, are subject to our Market Value Adjustment rules.
Alternatively, if the new Owner is the deceased Owner's spouse, the
Contract will continue with the surviving spouse as the new Owner. The
surviving spouse may name a new Beneficiary. If no Beneficiary is so named,
the surviving spouse's estate will be the Beneficiary. Upon the death of the
surviving spouse, the death benefit will equal the Account Value as of the
Business Day we receive proof of the spouse's death. We will distribute the
entire interest in this contract to the new Beneficiary in accordance with the
provisions that apply in the case when the new Owner is not the surviving
spouse.
If there is more than one Beneficiary, the distribution provisions will
independently apply to each Beneficiary.
If no Owner of the Contract is an individual, the death of any
Annuitant under the Contract will be treated as the death of an Owner.
In all events, death benefit distributions will be made in accordance
with section 72(s) of the Code, or any applicable successor provision.
OWNER'S DEATH AFTER THE INCOME DATE. If any Owner dies on or after the
Income Date, but before the time the entire interest in the Contract has been
distributed, the remaining portion will be distributed at least as rapidly as
under the method of distribution being used as of the date of the Owner's
death.
If income payments have been selected based on an income plan providing
for payments for a guaranteed period and the Annuitant dies on or after the
Income Date, we will make the remaining guaranteed payments to the Beneficiary.
Any remaining payments will be made as rapidly as under the method of
distribution being used as of the date of the Annuitant's death. If no
Beneficiary is living, we will commute any unpaid guaranteed payments to a
single sum (on the basis of the interest rate used in determining the payments)
and pay that single sum to the estate of the last to die of the Annuitant or
the Beneficiary.
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ACCIDENTAL DEATH BENEFIT
Under certain circumstances, if the Owner dies before the Income Date,
we will provide an additional death benefit called the accidental death
benefit. This additional benefit will be equal to the purchase payments made
minus any withdrawals (including any associated surrender charge or Market
Value Adjustment incurred), determined as of the date of the Owner's death (or
the next Business Day if the Owner dies on other than a Business Day), up to a
maximum of $250,000.
To qualify for this benefit, the Owner's death must: (i) occur prior
to the first Contract Anniversary after the Owner attains age 80; and (ii) be a
direct result of accidental bodily injury, independent of all other causes. If
there is no Owner who is a natural person (that is, an individual), we will
treat the Annuitant as Owner and use the Annuitant's age for purposes of
determining whether the accidental death benefit is payable.
Further, all the terms and conditions described in the Contract must
be satisfied, including the requirement that we receive satisfactory proof of
accidental death at our Customer Service Center within 30 days after an
accidental death or as soon thereafter as reasonably possible. We will pay the
accidental death benefit to the Beneficiary or the person entitled to receive
the death benefit under the Contract, after receipt of satisfactory proof of
accidental death.
We terminate the accidental death benefit provision when the benefit is
paid, when the Contract is surrendered or the entire Account Value is applied
to an income plan, when the interest in the Contract is distributed due to the
death of an Owner, or when you request termination of the benefit.
PROOF OF DEATH
Proof of death must be received at our Customer Service Center before
we will pay any death benefit. We will accept one of the following items:
1. An original certified copy of an official death
certificate; or
2. An original certified copy of a decree of a court of
competent jurisdiction as to the finding of death; or
3. Any other proof satisfactory to us.
10. WHAT OTHER INFORMATION SHOULD I KNOW?
SEPARATE ACCOUNTS
THE SAGE VARIABLE ANNUITY ACCOUNT A. We established the Variable
Account as a separate investment account under Delaware law on December 3,
1997. The Variable Account may invest in mutual funds, unit investment trusts,
and other investment portfolios. We own the assets in the Variable Account and
are obligated to pay all benefits under the Contracts. The
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Variable Account is used to support the Contracts as well as for other purposes
permitted by law. The Variable Account is registered with the SEC as a unit
investment trust under the 1940 Act and qualifies as a "separate account"
within the meaning of the federal securities laws. Such registration does not
involve any supervision by the SEC of the management of the Variable Account or
Sage Life.
The Variable Account is divided into Variable Sub-Accounts, each of
which currently invests in shares of a specific Fund of AIM Variable Insurance
Funds, Inc., The Alger American Fund, Liberty Variable Investment Trust,
SteinRoe Variable Investment Trust, MFS(R) Variable Investment Trust (TM),
Morgan Stanley Universal Funds, Inc., Oppenheimer Variable Account Funds, Sage
Life Investment Trust, and T. Rowe Price Equity Series, Inc. Variable
Sub-Accounts buy and redeem Fund shares at net asset value without any sales
charge. Any dividend from net investment income and distribution from realized
gains from security transactions of a Fund are reinvested at net asset value in
shares of the same Fund. Income, gains and losses, realized or unrealized, of
the Variable Account are credited to or charged against the Variable Account
without regard to any other income, gains or losses of Sage Life. Assets equal
to the reserves and other Contract liabilities with respect to the Variable
Account are not chargeable with liabilities arising out of any other business
or account of Sage Life. If the assets exceed the required reserves and other
liabilities, we may transfer the excess to our General Account.
THE SAGE FIXED INTEREST ACCOUNT A. The Fixed Account is a separate
investment account under state insurance law. It is maintained separate from
our General Account and separate from any other separate account that we may
have. We own the assets in the Fixed Account. Assets equal to the reserves
and other liabilities of the Fixed Account will not be charged with liabilities
that arise from any other business that we conduct. Thus, the Fixed Account
represents pools of assets that provide an additional measure of assurance that
Owners will receive full payment of benefits under the Contracts. We may
transfer to our General Account assets that exceed the reserves and other
liabilities of the Fixed Account. Notwithstanding the foregoing, our
obligations under (and values and benefits under) the Fixed Account do not vary
as a function of the investment performance of the Fixed Account. Owners and
Beneficiaries with rights under the Contracts do not participate in the
investment gains or losses of the assets of the Fixed Account. Such gains or
losses accrue solely to us. We retain the risk that the value of the assets in
the Fixed Account may fall below the reserves and other liabilities that we
must maintain in connection with our obligations under the Fixed Account. In
such an event, we will transfer assets from our General Account to the Fixed
Account to make up the difference. The Fixed Account is not required to be
registered as an investment company under the 1940 Act.
VOTING OF FUND SHARES. We are the legal owner of shares held by the
Variable Sub-Accounts and as such, have the right to vote on all matters
submitted to shareholders of the Funds. However, as required by law, we will
vote shares held in the Variable Sub-Accounts at regular and special meetings
of shareholders of the Funds in accordance with instructions
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received from Owners with Account Value in the Variable Sub-Accounts. To
obtain voting instructions from Owners, before a meeting of shareholders of the
Funds, we will send Owners voting instruction materials, a voting instruction
form, and any other related material. Shares held by a Variable Sub-Account
for which no timely instructions are received will be voted by us in the same
proportion as those shares for which voting instructions are received. Should
the applicable federal securities laws, regulations, or interpretations thereof
change so as to permit us to vote shares of the Funds in our own right, we may
elect to do so.
MODIFICATION
When permitted by applicable law, we may modify the Contracts as
follows: (1) deregister the Variable Account under the 1940 Act; (2) operate
the Variable Account as a management company under the 1940 Act if it is
operating as a unit investment trust; (3) operate the Variable Account as a
unit investment trust under the 1940 Act if it is operating as a managed
separate account; (4) restrict or eliminate any voting rights of Owners, or
other persons who have voting rights as to the Variable Account; (5) combine
the Variable Account with other separate accounts; and (6) combine a Variable
Sub-Account with another Variable Sub-Account. We also reserve the right,
subject to applicable law, to make additions to, deletions from, or
substitutions of shares of a Fund that are held by the Variable Account or that
the Variable Account may purchase; and to establish additional Variable
Sub-Accounts or eliminate Variable Sub-Accounts, if marketing, tax, or
investment conditions so warrant. Subject to any required regulatory
approvals, we reserve the right to transfer assets of a Variable Sub-Account
that we determine to be associated with the class of Contracts to which the
Contract belongs, to another separate account or to another separate account
sub-account.
If the actions we take result in a material change in the underlying
investments of a Variable Sub-Account in which you are invested, we will notify
you of the change. You may then make a new choice of Variable Sub-Accounts.
DISTRIBUTION OF THE CONTRACTS
Sage Distributors, Inc. ("Sage Distributors"), acts as the distributor
(principal underwriter) of the Contracts. Sage Distributors is a corporation
organized under the laws of the state of Delaware in 1997, is registered as a
broker-dealer under the Securities Exchange Act of 1934, and is a member of the
National Association of Securities Dealers, Inc. (the "NASD"). Sage
Distributors is a wholly owned subsidiary of Sage Insurance Group, Inc. We
compensate Sage Distributors for acting as principal underwriter under a
distribution agreement. The Contracts are offered on a continuous basis and we
do not anticipate discontinuing their sale. The Contracts may not be available
in all states.
The Contracts are sold by broker-dealers through registered
representatives of such broker-dealers who are also appointed and licensed as
insurance agents of Sage Life. These broker-dealers receive commissions for
selling Contracts calculated as a percentage of purchase
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<PAGE> 67
payments (up to a maximum of 6%). Broker-dealers who meet certain productivity
and profitability standards may be eligible for additional compensation.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements for the year ended December 31, 1997, as set forth in their report,
which is included in this Prospectus. Our financial statements are included in
this Prospectus in reliance on their report, given on their authority as experts
in accounting and auditing.
LEGAL PROCEEDINGS
Sage Life and its subsidiaries, as of the date of this Prospectus, are
not involved in any lawsuits. However, Sage Life's direct and indirect parent
companies, like other companies, are involved in lawsuits. In some lawsuits
involving insurers, substantial damages have been sought and/or material
settlement payments have been made. Although the outcome of any litigation
cannot be predicted with certainty, Sage Life believes that at the present time
there are no pending or threatened lawsuits that are reasonably likely to have
a material adverse impact on the Variable Account, the Fixed Account, the
General Account, or Sage Life.
REPORTS TO CONTRACT OWNERS
We maintain records and accounts of all transactions involving the
Contracts, the Variable Account, and the Fixed Account at our Customer Service
Center. Each year, or more often if required by law, you will be sent a report
showing information about your Contract for the period covered by the report.
You will also be sent an annual and a semi-annual report for each Fund
underlying a Variable Sub-Account in which you are invested as required by the
1940 Act. In addition, when you make purchase payments, or if you make
transfers or withdrawals, you will receive a confirmation of these
transactions.
ASSIGNMENT
You may assign your Contract at any time prior to the Income Date. No
assignment will be binding on us unless we receive Satisfactory Notice. We
will not be liable for any payments made or actions we take before the
assignment is accepted by us. An absolute assignment will revoke the interest
of any revocable Beneficiary. We are not responsible for the validity of any
assignment. AN ASSIGNMENT MAY BE A TAXABLE EVENT.
CHANGE OF OWNER, BENEFICIARY, OR ANNUITANT
During your lifetime and while your Contract is in force, you can
transfer ownership of your Contract, change the Beneficiary, or change the
Annuitant. However, the Annuitant cannot be changed after the Income Date. To
make any of these changes, you must send us Satisfactory
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<PAGE> 68
Notice. If accepted, any change in Owner, Beneficiary, or Annuitant will take
effect on the date you signed the notice. Any of these changes will not affect
any payment made or action taken by us before our acceptance. A CHANGE IN
OWNER MAY BE A TAXABLE EVENT AND MAY ALSO EFFECT THE AMOUNT OF DEATH BENEFIT
PAYABLE UNDER YOUR CONTRACT.
MISSTATEMENT AND PROOF OF AGE, SEX, OR SURVIVAL
We may require proof of age, sex, or survival of any person upon whose
age, sex, or survival any payments depend. If the age or sex of the Annuitant
has been misstated, or if the age of the Owner has been misstated, the benefits
will be those that the Account Value applied would have provided for the
correct age and sex. If we have made incorrect income payments, we will pay
the amount of any underpayment. The amount of any overpayment will be deducted
from future income payments.
INCONTESTABILITY
Your Contract is incontestable from its Contract Date.
AUTHORITY TO MAKE AGREEMENTS
All agreements made by us must be signed by one of our officers. No
other person, including an insurance agent or registered representative, can
change the terms of your Contract or make changes to it without our consent.
PREPARING FOR THE YEAR 2000
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the year 2000. This potential problem has become known as the "Year 2000
issue." The Year 2000 issue affects virtually all companies and organizations.
Computer applications that are affected by the Year 2000 issue could
impact the Company's business functions in various ways, ranging from a
complete inability to perform critical business functions to a loss of
productivity in varying degrees. Likewise, the failure of some computer
applications could have no impact on critical business functions. The Company
used these issues as critical components in the evaluation and selection of
in-house systems and of third party administrators.
Since the Company plans to outsource most of its operating functions,
there will only be a limited number of in-house systems utilized. At present,
the only in-house system utilized is the accounting system. This system was
certified as Year 2000 compliant before it was selected and installed for
operation. The Company also intends to purchase a reserve valuation system
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<PAGE> 69
and a reinsurance system. Year 2000 compliance will be a critical component in
the evaluation and selection process for those two systems.
The Company has various third party administrators (including
investment advisors, brokers, transfer agents, and other financial services
institutions) for the processing of such tasks as contract administration, fund
administration, underwriting and investment administration. The quality of
these third party administrators was of paramount importance in the selection
process.
Although the Company has received assurances from all of its third
party administrators, it is currently working with them to assess all Year 2000
issues associated with the processing of the Company's applications. This
assessment involves the testing of the data being processed by third party
administrators and electronically interfaced into the Company's accounting
system. As to outside organizations from which the Company will not be relying
on electronic interface, the Company will be relying on responses to
questionnaires supplied to these service providers as to their status on Year
2000 compliance. Based upon the responses received from these third party
administrators, the Company will develop a plan to assure Year 2000 compliance
by all third party administrators. The Company anticipates completing all
testing well in advance of January 1, 2000. As this testing has and continues
to be done in the normal course of system development, the Company has not
budgeted any costs associated with the Year 2000 issue. In addition, Year 2000
costs have been deemed immaterial.
The failure of any of the Company's third party administrators to
achieve complete compliance could have a material adverse effect on the
Company's ability to conduct its business, including delays in calculating unit
values, redeeming shares, delivering account statements and providing other
information, communication and servicing to Contract Owners. The Company
believes that it has taken the necessary provisions, both through selection and
testing, to assure that it will not experience any material adverse effects on
the Company's ability to conduct its business. The Company does however
realize the importance of this issue and is currently developing a detailed
contingency plan for operations in the unlikely event one or more of its third
party administrators is unable to fulfill its obligations.
FINANCIAL STATEMENTS
No financial statements are presented for the Variable Account because
it has yet to commence operations.
The audited financial statements for Sage Life for the year ended
December 31, 1997 are included in this Prospectus. These financial statements
should be considered only as bearing on the ability of Sage Life to meet its
obligations under the Contracts. They should not be considered as bearing on
the investment performance of the assets held in the Variable Account.
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<PAGE> 70
11. HOW CAN I MAKE INQUIRIES?
Inquiries regarding your Contract may be made by writing to us at our
Customer Service Center, by calling us at 877-835-7243 (Toll Free), or by
contacting one of our authorized registered representatives.
12. ADDITIONAL INFORMATION ABOUT SAGE LIFE ASSURANCE OF AMERICA, INC.
HISTORY AND BUSINESS
Ownership
Sage Life Assurance of America, Inc. was incorporated under the laws of
the state of Delaware in 1981. The Company is authorized to write general life
insurance and fixed and variable annuity contracts in all states except New
York, and also is licensed to conduct variable life insurance business in a
majority of states.
The Company's formation was sponsored in 1981 by Fidelity Mutual Life
Insurance Company, a Pennsylvania insurer, under the name of Fidelity Standard
Life Insurance Company ("Fidelity Life"). Fidelity Life was acquired by
Security First Life Insurance Company ("Security First") of Los Angeles,
California in December 1984. In January 1997, Fidelity Life was acquired by
Sage Insurance Group, Inc. ("Sage Insurance Group") (formerly Finplan
Investment Corp.), a Delaware corporation and an indirect subsidiary of Sage
Group Limited ("Sage Group"), a South African corporation, which is the
Company's ultimate parent. The Company changed to its present name in September
1997. In December, 1998, a new company, Sage Life Holdings of America, Inc., was
formed by Sage Insurance Group to act as the new immediate parent of the
Company. This transaction is discussed more fully in the section below entitled,
"Holding Company Structure and Background."
Prior Business Operations
As a Security First subsidiary, the Company specialized in the
marketing of annuities qualifying under Section 403(b) of the Internal Revenue
Code. Under an assumption reinsurance agreement, Fidelity Life's annuity
business was irrevocably transferred to Security First in January 1997 except
for a small number of contracts. During 1998, all of the remaining annuity
business of Fidelity Life was assumption reinsured by Security First. Security
First is now a subsidiary of The Metropolitan Life Insurance Company.
Holding Company Structure and Background
As mentioned above, the Company is a wholly owned subsidiary of Sage
Life Holdings of America, Inc. ("Sage Life Holdings"), which in turn is a wholly
owned subsidiary of Sage Insurance Group, a holding company for affiliated
entities connected with the life and annuity insurance business in the United
States. The Company is also an indirect wholly owned subsidiary of Sage Group, a
corporation quoted on the Johannesburg Stock Exchange. Sage Group is a holding
company with a thirty-year history of extensive operating experience in mutual
funds, life assurance and investment management. Sage Group has directly and
indirectly engaged in
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<PAGE> 71
insurance marketing activities in the United States since 1977 through its
financial interests in Independent Financial Marketing Group Inc., a financial
planning and bank insurance marketing company. Sage Group sold its interest in
Independent Financial Marketing Group in March 1996 to the Liberty Financial
Companies of Boston.
Sage Group signed a letter of intent with Swiss Re Life and Health
America, Inc. ("Swiss Re") on December 1, 1998. Swiss Re's ultimate parent is
Swiss Reinsurance Company, Switzerland, one of the world's largest life and
health reinsurance groups. The letter of intent contemplates that Swiss Re
will enter into reinsurance arrangements with the Company. In addition, it
provides for an investment by Swiss Re in a newly formed company, Sage Life
Holdings, that has become the immediate parent of the Company and a wholly-owned
subsidiary of Sage Insurance Group. The arrangements contemplated by the letter
of intent may be subject to regulatory approval.
SELECTED FINANCIAL DATA
The historical financial results of the Company for the calendar year
1996 and all prior years are not comparable to the results for the years 1997
and 1998 due to the substantial change in the business operations of the
Company. The Company effectively disposed of all in-force business existing as
of December 31, 1996 and, therefore, on January 1, 1997, had no insurance
liabilities under any policy contracts of the Company other than the small
number of contracts that were not 100% assumption reinsured to the Company's
former parent company. These insurance liabilities were subsequently reinsured
during 1998. Effectively, therefore, since January 1997, the Company became
comparable to a new company that had not yet commenced business activities.
The following selected financial data as of December 31, 1997 and for
the year then ended, has been derived from the audited financial statements of
the Company. The following selected financial data as of October 31, 1998 and
for the ten months then ended, has been derived from the unaudited financial
statements of the Company, which have been prepared on the same basis as the
Company's audited financial statements and, in the opinion of management,
contain all adjustments consisting of only normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations for this period. The results of operations for the ten months ended
October 31, 1998 may not be indicative of results for the full year. The data
set forth below should be read in conjunction with the financial statements,
including related notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
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<PAGE> 72
Selected Financial Data
(in thousands)
<TABLE>
<CAPTION>
Ten months
ended Year ended
October 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Income Statement Data:
Revenues:
Net investment income $1,075 $ 989
Expenses:
Amortization expense 337 325
General and administrative expenses 1,071 1,016
------- ------
Total expenses 1,408 1,341
Loss before taxes (332) (352)
Income tax expense - -
-------- -------
Net loss $ (332) $ (352)
======== =======
Balance Sheet Data:
Total Assets $36,317 $36,689
Stockholder's Equity $36,242 $33,202
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Introduction
The following discussion highlights significant factors influencing the
results of operations of the Company. It should be read in conjunction with
the Company's financial statements and the related notes included in this
Prospectus.
History and Business Overview
In early 1999, the Company plans to commence marketing of new variable
insurance products. The Company was acquired by Sage Insurance Group on
December 31, 1996, and since that date has been preparing for the
recommencement of insurance underwriting and marketing activities. (Prior to
the acquisition of the Company, all new business production and marketing
ceased in October 1996.) There has been a total reengineering of the Company's
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<PAGE> 73
products, systems and administration since the change of ownership. All of the
Company's current senior management are experienced in the insurance industry
(either in the United States or in South Africa) and most have been recruited
since January 1997. The ongoing business strategy of the Company is to focus
its activities on the development, underwriting, and marketing of variable
insurance products. The Company's obligations under these contracts are (1)
variable accounts -- determined by the value of investments held in separate
accounts, and (2) fixed accounts -- backed by investments held in separate
accounts. Assets of these separate accounts that equal the reserves and other
liabilities supporting the contracts to which they relate, may not be used to
pay any other obligations or creditors of the Company. The Contracts initially
will be distributed through banks. The Company currently anticipates that,
over the long-term, its distribution channels will expand to include
wirehouses, regional broker-dealers and financial planners.
Results of Operations
Net losses for the ten months ended October 31, 1998 were $332,442 and
were $351,786 for the year ended December 31, 1997. As the Company is not
currently underwriting or marketing insurance products, all revenue for 1998
and 1997 is derived from investing activities. Effective investment yields for
the Company's General Account were 5.3% for the ten months ended October 31,
1998, and 5.4% for the year ended December 31, 1997. General expenses incurred
in financing of the Company's daily activities more than offset investment
revenue. As the Company commences business in 1999, management anticipates
that revenues will increase primarily by charges and fees associated with
products being offered, while expenses will increase by acquisition expenses,
the cost of administering this new business and the payment of benefits.
The Company has capitalized certain costs that have been incurred in
the development and registration of the Company's insurance products and have
been paid for by Sage Insurance Group. These development costs are being
amortized on a straight line basis over fifteen years. Accumulated amortization
at October 31, 1998 and December 31, 1997 was $234,474 and $93,637,
respectively.
In April 1998, Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" (SOP 98-5) was issued. SOP 98-5 requires entities to
charge to expense all start-up costs as incurred. SOP 98-5 is effective for
years beginning after December 15, 1998 (i.e., January 1, 1999). In addition,
SOP 98-5 requires entities upon adoption to write-off as the cumulative effect
of a change in accounting principle any previously unamortized capitalized
start-up costs. Accordingly, the Company will be required to write-off any
unamortized capitalized development costs on January 1, 1999.
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<PAGE> 74
Liquidity and Capital Resources
Since the beginning of 1997, the Company's primary cash needs have been
for the development of its insurance products and related infrastructure and to
fund the daily operations of the Company. The Company's cash needs have been
met through interest income and capital contributions from Sage Insurance
Group.
During 1999, the Company expects its cash needs will continue to
increase as its underwriting and marketing activities begin. The Company
anticipates that it will be unable to meet all of its liquidity requirements in
1999 without capital contributions from Sage Insurance Group. However, as
discussed above, Swiss Re has made an equity investment in a newly formed
holding company, Sage Life Holdings, that will provide an additional source of
funds to the Company for new business expenses. In addition, although not
required to do so, the Company believes that Sage Insurance Group will continue
to provide capital to the Company for its non-recurring costs associated with
new products and business development during 1999. The Company's future
marketing efforts could be hampered in the unlikely event that Swiss Re, Sage
Insurance Group and/or their affiliates are unwilling to commit additional
funding.
Segment Information
The Company currently plans to conduct its business as a single segment,
and anticipates that this segment will eventually include all of the following
products:
- Combination fixed and variable deferred annuities.
- Combination fixed and variable immediate annuities.
- Combination fixed and variable life insurance products.
Reinsurance
The Company intends to enter into a coinsurance reinsurance arrangement
with Swiss Re, pursuant to which Swiss Re will reinsure a significant portion
of the Company's liabilities under its variable insurance contracts. This
arrangement will provide additional capacity for growth of the Company's
variable insurance business.
In addition, the Company intends to reinsure certain mortality risks
associated with the guaranteed minimum death benefit and accidental death
benefit features of the Contracts. The Company intends to use only highly
rated reinsurance companies to reinsure these risks.
Reinsurance does not relieve the Company from its obligations to
Contract Owners. The Company remains primarily liable to its Contract Owners
to the extent that any reinsurer does not meet its obligations under the
reinsurance agreements.
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Reserves
In accordance with the insurance laws and regulations under which it
operates, the Company is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on outstanding
contracts. Reserves involving life contingencies are based on mortality tables
in general use in the United States and, where applicable, are computed to
equal amounts which, together with interest on such reserves computed annually
at certain assumed rates, will be sufficient to meet the Company's Contract
obligations at their maturities, or the event of the Contract Owner's death. In
the financial statements included in this Prospectus, all reserves have been
determined in accordance with generally accepted accounting principles. As
previously noted, all of Fidelity Life's existing annuity business has been
irrevocably transferred to Security First, resulting in no remaining contract
obligations at October 31, 1998.
Investments
The Company's General Account cash and invested assets of $25.6 million
and $25.3 million at October 31, 1998 and December 31, 1997, respectively, were
invested entirely in investment grade securities and money market funds. It is
the stated policy of the Company to refrain from investing in securities having
speculative characteristics. The Company's entire portfolio is classified as
available-for-sale, and is reported at fair value, with resulting unrealized
gains or losses included as a separate component of stockholder's equity.
Dividend Restrictions
The Company is subject to state regulatory restrictions that limit the
maximum amount of dividends payable. Subject to certain net income
carryforward provisions as described below, the Company must obtain approval of
the Insurance Commissioner of the State of Delaware in order to pay, in any
12-month period, "extraordinary" dividends which are defined as those in excess
of the greater of 10% of surplus as regards Contract Owners as of the prior
year-end and statutory net income less realized capital gains for such prior
year. Dividends may be paid by the Company only out of earned surplus. In
addition, the Company must provide notice to the Insurance Commissioner of the
State of Delaware of all dividends and other distributions to shareholders
within five business days after declaration and at least ten days prior to
payment. At December 31, 1997, the maximum amount of dividends the Company
could have paid its parent without prior approval from state regulatory
authorities was $2,501,775.
New Accounting Standards
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130),
which establishes new rules for the reporting and display of comprehensive
income and its components, consisting of net income and other comprehensive
income. The accumulated balance of other comprehensive income is required to
be reported separately in stockholder's equity. The Company's only
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<PAGE> 76
component of other comprehensive income is net unrealized gains or losses on
available-for-sale securities, which is reported separately in stockholder's
equity. The adoption of SFAS 130 had no impact on the Company's net income or
stockholder's equity.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards
for the reporting of operating segment information in both annual financial
reports and interim financial reports issued to shareholders. Operating
segments are components of an entity for which separate financial information
is available and is evaluated regularly by the entity's chief operating
management. SFAS is effective for fiscal year 1998 and is not anticipated to
have a material impact on the Company.
COMPETITION
The Company is engaged in a business that is highly competitive due to
the large number of stock and mutual life insurance companies as well as other
entities marketing insurance products comparable to those being offered by the
Company. There are approximately 1,600 stock, mutual, and other types of
insurers in the life insurance business in the United States, a substantial
number of which are significantly larger than the Company. The Company is
unique in that it is one of the few life insurers that confines its activities
to the marketing of separate account variable insurance products.
TRANSACTIONS WITH SAGE INSURANCE GROUP
In 1997 the Company entered into a Cost Sharing Agreement with Sage
Insurance Group to share personnel costs, office rent and equipment costs.
These costs are allocated between the companies based upon the estimated time
worked, square footage of space utilized and upon monitored usage of the
equipment, respectively. Pursuant to this agreement, the Company has received
$109,923 from Sage Insurance Group for the ten months ended October 31, 1998
and paid expenses of $76,048 for the year ended December 31, 1997. In
addition, Sage Insurance Group provides funds to the Company to meet various
operating expenses. These amounts are paid back to Sage Insurance Group at the
end of each quarter.
Sage Insurance Group has also incurred expenditures in connection with
the costs of establishing new systems, new products, and premises for the
Company. The amount of these developmental costs paid for by companies
affiliated with Sage Life on October 31, 1998 and December 31, 1997 were
$2,749,628 and $1,504,558, respectively. Sage Insurance Group regards these
expenditures as being of a developmental nature and does not intend to recover
these expenditures from the Company. Accordingly, these expenditures have been
capitalized as development costs and reflected as contributed capital in the
Company's financial statements.
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EMPLOYEES
Due to the Company's business strategy of outsourcing its primary
administrative and investment functions to organizations that specialize in
these areas, the number of full time personnel employed by the Company will be
limited. As of October 31, 1998, the Company had 14 employees. As of December
31, 1997, the Company had 8 employees.
PROPERTIES
The Company's executive office is located at 300 Atlantic Street, in
Stamford, Connecticut, where the Company's primary records are maintained.
Customer records, however, are maintained at the Company's Customer Service
Center.
Sage Insurance Group leases the Company's office space. The Company
reimburses Sage Insurance Group for the office space under the Cost Agreement
described above.
STATE REGULATION
The Company is subject to the laws of the State of Delaware governing
insurance companies and to the regulations of the Delaware Department of
Insurance (the "Insurance Department"). A detailed financial statement in the
prescribed form (the "Statement") is filed with the Insurance Department each
year covering the Company's operations for the preceding year and its financial
condition as of the end of that year. Regulation by the Insurance Department
means that the Insurance Department may examine the Company and its books and
records to determine, among other things, whether contract liabilities and
reserves as stated by the Company are correct. A full examination of the
Company's operations will be conducted periodically by the Insurance Department
under the auspices of the NAIC.
In addition, the Company is subject to regulation under the insurance
laws of all jurisdictions in which it operates. The laws of the various
jurisdictions establish supervisory agencies with broad administrative powers
with respect to various matters, including licensing to transact business,
overseeing trade practices, licensing agents, approving contract forms,
establishing reserve requirements, fixing maximum interest rates on life
insurance contract loans and minimum rates for accumulation of surrender
values, prescribing the form and content of required financial statements and
regulating the type and amounts of investments permitted. The Company is
required to file the Statement with supervisory agencies in each of the
jurisdictions in which it does business, and its operations and accounts are
subject to examination by these agencies at regular intervals.
The NAIC has adopted several regulatory initiatives designed to improve
the surveillance and financial analysis regarding the solvency of insurance
companies in general. These initiatives include the development and
implementation of a risk-based capital formula for determining adequate levels
of capital and surplus. Insurance companies are required to
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<PAGE> 78
calculate their risk-based capital in accordance with this formula and to
include the results in their Statement. It is anticipated that these standards
will have no significant effect upon the Company.
Further, many states regulate affiliated groups of insurers, such as
the Company and its affiliates, under insurance holding company legislation.
Under such laws, inter-company transfers of assets and dividend payments from
insurance subsidiaries may be subject to prior notice or approval, depending on
the size of the transfers and payments in relation to the financial positions
of the companies involved.
Under insurance guaranty fund laws in most states, insurers doing
business therein can be assessed (up to prescribed limits) for contract owner
losses incurred when other insurance companies have become insolvent. Most of
these laws provide that an assessment may be excused or deferred if it would
threaten an insurer's own financial strength.
Although the federal government ordinarily does not directly regulate
the business of insurance, federal initiatives often have an impact on the
business in a variety of ways. The insurance products of the Company are
subject to various federal securities laws and regulations. In addition,
current and proposed federal measures that may significantly affect the
insurance business include regulation of insurance company solvency, employee
benefit regulation, removal of barriers preventing banks from engaging in the
insurance business, tax law changes affecting the taxation of insurance
companies, and the tax treatment of insurance products and its impact on the
relative desirability of various personal investment vehicles.
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS
Position held with the Other Principal Positions
Name (Age) Company/Year Commenced During Past Five Years
- ---------- ---------------------- ----------------------
<S> <C> <C>
Ronald S. Scowby(1) Director, 1/97 to present, Trustee, Sage Life
Age 60 Chairman, 2/98 to present Investment Trust, 7/98 to
present; Director, Sage Life
Assurance Company of New York, 5/98 to
present; Vice Chairman 2/98 to
present, President, 1/97 to 2/98,
Director, 1/97 to present, Sage
Insurance Group Inc.; Director,
Sage Advisors, Inc., 1/98 to
present; President, Chief
Executive Officer, Sage Life
Assurance of America Inc.,
1/97-2/98; Director, Sage
Distributors, Inc., 1/98 to
present; Director, President, Chief
Executive Officer, Sage
</TABLE>
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<TABLE>
<S> <C> <C>
Management Services (USA),
Inc., 6/96 to present; Owner,
Sheldon Scowby Resources
7/95-6/96; Executive Vice
President, Mutual of America
Life Insurance Group, 6/91-
7/95; President, Mutual of
America Financial Services,
6/91-7/95
Robin I. Marsden(1) Director, 1/97 to Trustee, Sage Life Investment
Age 33 present, President and Chief Trust, 7/98 present; Director,
Executive Officer, 2/98 to Sage Life Assurance Company of
present New York, 5/98 to present;
Director, President, Sage
Advisors, Inc., 1/98 to
present; Director, Sage
Distributors, Inc., 1/98 to
present; Director, 1/97 to
present, President and Chief
Executive Officer, 2/98 to
present, Sage Insurance Group,
Inc.; Investments Director,
Sage Life Holdings, Ltd.,
11/94 to 1/98;
Executive-Strategic
Developments, Sage Group Ltd.,
11/94 to 1/98; Partner and
Management Consultant Deloitte
& Touche 1/89-10/94
H. Louis Shill(2) Director, Director, Sage Life Assurance
Age 68 1/97 to present Company of New York, 5/98 to
present; Chairman, Sage Life
Assurance of America, Inc. 1/97
to 2/98; Chairman, Sage Insurance
Group, Inc., 1/97 to present;
Founder, Chairman, Sage Group
Limited, 1965 to present
Paul C. Meyer(3) Director, Director, Sage Life Assurance
Age 45 1/97 to present Company of New York 5/98 to
present; Partner, Rogers & Wells,
1986 to present
Richard D. Starr(4) Director, Director, Sage Life Assurance
Age 54 1/97 to present Company of New York, 5/98 to
present; President, First
Interstate Securities,
1/95-
</TABLE>
59
<PAGE> 80
<TABLE>
<S> <C> <C>
12/95; Chairman & Chief
Executive Officer, Financial
Institutions Group, Inc., 10/78
to present
Mitchell R. Katcher(1) Director, 12/97 to Vice President, Sage Life
Age 45 present, Senior Investment Trust, 7/98 to
Executive Vice present; Director, Sage
President, Chief Life Assurance Company of New
Financial Officer, York, 5/98 to present; Director,
Chief Actuary Treasurer, Sage Advisors, Inc.,
5/97 to present 1/98 to present; Director, Sage
Distributors, Inc., 1/98 to
present; Treasurer, 7/97 to
present, Senior Executive Vice
President, 12/97 to present, Sage
Insurance Group, Inc.; Executive
Vice President, Golden American Life
Insurance Company, 7/93-2/97.
</TABLE>
(1) The principal business address of these persons is 300 Atlantic
Street, Stamford, CT 06901.
(2) Mr. Shill's principal business address is Sage Centre, 10 Fraser
Street, Johannesburg, South Africa 2000.
(3) Mr. Meyer's principal business address is 200 Park Avenue, New York,
N.Y. 10166.
(4) Mr. Starr's principal business address is 22507 SE 47th Place,
Issaquah, WA 98029.
COMPENSATION
Executive officers of the Company also serve as officers of its parent
and of certain affiliated companies. Cost allocations to the Company have been
made as to certain individual's time devoted to their duties with the Company.
No allocation was made during 1997 nor will any be made for 1998 for the
services of Mr. Shill. No allocation was made during 1997 for the services of
Mr. Marsden.
The following table includes compensation paid by Sage Life for
services rendered in all capacities for the years indicated for the Chief
Executive Officer and the other Executive Officers compensated more than
$100,000 for the year ended December 31, 1997.
60
<PAGE> 81
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Principal Position Year Salary Bonus(1) All Other Compensation(2)
- --------------------------- ---- ------ -------- -------------------------
<S> <C> <C> <C> <C>
Ronald S. Scowby, 1997 $337,500 $100,000 $0
President and Chief Executive
Officer(3)
Mitchell R. Katcher, 1997 $114,583 $265,000 $0
Senior Executive
Vice President, Chief Financial
Officer and Chief Actuary
</TABLE>
(1) The amount shown relates to bonuses paid in 1998 for services rendered in
1997.
(2) The amount shown relates to deferred compensation earned in 1997.
(3) Mr. Scowby's salary and bonus are paid by Sage Management Services (USA),
Inc.
Outside directors of the Company are paid $12,000 and $2,000 per meeting
attended. For the year ended December 31, 1997, the outside directors each were
paid $20,000. Directors who are officers or employees of the Company or its
affiliates are not compensated for serving on the Board. Directors do not
receive retirement benefits.
61
<PAGE> 82
Report of Independent Auditors
Board of Directors
Sage Life Assurance of America, Inc.
We have audited the accompanying balance sheet of Sage Life Assurance of
America, Inc. (formerly Fidelity Standard Life Insurance Company) as of
December 31, 1997, and the related statements of operations, stockholder's
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sage Life Assurance of
America, Inc. as of December 31, 1997, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Stamford, Connecticut
April 22, 1998
/s/ Ernst & Young LLP
62
<PAGE> 83
Sage Life Assurance of America, Inc.
Balance Sheets
<TABLE>
<CAPTION>
OCTOBER 31, 1998
(unaudited) DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale, at fair value $3,604,066 $ 3,595,326
Short-term investments 2,579,083 21,530,888
------------ ----------
Total investments 6,183,149 25,126,214
Cash and cash equivalents 19,422,092 228,605
Accrued investment income 130,929 58,039
Receivable from affiliates 48,769 25,941
Reinsurance recoverable - 2,728,284
Other assets 5,000 11,443
Goodwill 6,606,236 6,802,300
Development costs 3,919,711 1,310,921
Separate account assets - 396,992
------------ ------------
Total assets $36,315,886 $36,688,739
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued expenses $ 2,005 $ 180,442
Policy liabilities 2,728,284
Deferred income taxes 36,220 26,227
Amounts payable to affiliates 36,454 154,366
Separate account liabilities - 396,992
------------ ------------
Total liabilities 74,679 3,486,311
Stockholder's equity:
Common stock, $2,500 par value, 1,000 shares
Authorized, issued and outstanding 2,500,000 2,500,000
Additional paid-in capital 34,355,127 31,005,508
Unrealized gains on investment 70,308 48,706
Retained deficit (684,228) (351,786)
------------ ------------
36,241,207 33,202,428
------------ ------------
$36,315,886 $ 36,688,739
=========== ============
</TABLE>
See accompanying notes to financial statements.
63
<PAGE> 84
Sage Life Assurance of America, Inc.
Statements of Operations
<TABLE>
<CAPTION>
TEN MONTHS ENDED
OCTOBER 31, 1998 YEAR ENDED
(unaudited) DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
REVENUES
Investment income $ 1,075,251 $ 989,494
EXPENSES
Amortization expense 336,901 325,406
General and administrative expenses 1,070,792 1,015,874
--------- ---------
Total expenses 1,407,693 1,341,280
--------- ---------
Loss before taxes (332,442) (351,786)
Income tax expense - -
------------ ------------
Net loss $ (332,442) $ (351,786)
============ ===========
</TABLE>
See accompanying notes to financial statements.
64
<PAGE> 85
Sage Life Assurance of America, Inc.
Statements of Stockholder's Equity
<TABLE>
<CAPTION>
TEN MONTHS ENDED
OCTOBER 31, 1998 YEAR ENDED
(unaudited) DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
Common stock; balance at beginning and end of year: $ 2,500,000 $ 2,500,000
Additional paid-in capital:
Balance at beginning of year 31,005,508 15,505,558
Additional capital contributions 3,349,619 15,500,000
------------ ----------
Balance at end of year 34,355,127 31,005,508
Unrealized investment gains:
Balance at beginning of year 48,706 -
Change in unrealized gain 21,602 48,706
------ ------
Balance at end of year 70,308 48,706
Retained earnings:
Balance at beginning of year (351,786) -
Net loss (332,442) (351,786)
--------- ---------
Balance at end of year (684,228) (351,786)
--------- ---------
Total stockholder's equity $36,241,207 $33,202,428
=========== ===========
</TABLE>
See accompanying notes to financial statements.
65
<PAGE> 86
Sage Life Assurance of America, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER 31, 1998 YEAR ENDED
(unaudited) DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (332,442) $ (351,786)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Amortization expense 336,901 325,406
Changes in:
Accrued investment income (72,890) (29,638)
Receivable from affiliates (22,828) (25,941)
Other assets 6,443 (11,443)
Accrued expenses (178,437) 116,216
Amounts payable to affiliates (117,912) 154,366
--------- -------
Net cash (used in) provided by operating activities (381,165) 177,180
INVESTING ACTIVITIES
Proceeds from sales, maturities and repayments of - 42,941
fixed maturity securities
Net sales [purchases] of short-term investments 18,974,652 (15,507,987)
---------- ------------
Net cash provided by (used in) investing activities 18,974,652 (15,465,046)
FINANCING ACTIVITIES
Capital contribution from the parent 600,000 15,500,000
------- ----------
Net cash provided by financing activities 600,000 15,500,000
------- ----------
Increase in cash and cash equivalents 19,193,487 212,134
Cash and cash equivalents at beginning of period 228,605 16,471
------- ------
Cash and cash equivalents at end of period $ 19,422,092 $ 228,605
================= ===============
</TABLE>
See accompanying notes to financial statements.
66
<PAGE> 87
Sage Life Assurance of America, Inc.
Notes to Financial Statements
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATION
Sage Life Assurance of America, Inc. (the "Company") is a wholly-owned indirect
subsidiary of Sage Insurance Group, Inc., ("SIGI") which is a wholly-owned
indirect subsidiary of Sage Group Limited, a South African company.
DESCRIPTION OF BUSINESS
Effective December 31, 1996, SIGI purchased from Security First Life Insurance
Company (SFLIC) all of the outstanding stock of Fidelity Standard Life
Insurance Company (Fidelity Standard), a Delaware domiciled life insurance
company licensed to sell fixed and variable annuity contracts. As a result of
the purchase, Fidelity Standard was renamed Sage Life Assurance of America,
Inc. Effective October 31, 1996, Fidelity Standard entered into a modified
coinsurance arrangement to cede all of its separate account liabilities to its
then parent, SFLIC. Assets equal to the total reserves and related liabilities
were transferred to SFLIC. The remaining general account liabilities were ceded
under a 100% coinsurance arrangement with SFLIC. In connection with the
purchase of Fidelity Standard, the Company entered into a service agreement
with SFLIC to provide all necessary administrative services for all ceded
business.
The Company is in the process of developing and preparing to market variable
annuity and variable life insurance products. The marketing of these products
is expected to begin in the first quarter 1999. Sage Distributors Inc.
(formerly Finplan of America, Inc.), an affiliated broker/dealer, will
distribute the variable products as principal underwriter. (Selling agreements
will be entered into with other broker/dealers that will sell the variable
insurance products). Sage Advisors, Inc., an affiliate, will provide investment
management services to registered investment companies (mutual funds). These
mutual funds are in the process of being developed.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. The information presented herein
with respect to the period as of and for the ten months ended October 31, 1998,
is unaudited.
NEW ACCOUNTING PRONOUNCEMENT
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), which
establishes new rules for the reporting and display of comprehensive income and
its components, consisting of net income and other comprehensive income. The
accumulated balance of other comprehensive income is required to be reported
separately in stockholder's equity. The Company's only component of other
comprehensive income is net unrealized gains or losses on available-for-sale
securities, which is reported separately in stockholder's equity. The adoption
of SFAS 130 had no impact on the Company's net income or stockholder's equity.
67
<PAGE> 88
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards
for the reporting of operating segment information in both annual financial
reports and interim financial reports issued to shareholders. Operating
segments are components of an entity for which separate financial information
is available and is evaluated regularly by the entity's chief operating
management. SFAS 131 is effective for fiscal year 1998 and is not anticipated
to have a material impact on the Company.
INVESTMENTS
The Company has classified all of its fixed maturity investments as
available-for-sale. Those investments are carried at fair value and changes in
unrealized gains and losses are reported as a component of stockholder's
equity, net of applicable deferred income taxes. Fair values are determined by
quoted market prices.
Short-term investments are carried at cost, which approximates fair value.
Realized gains and losses on disposal of investments are determined by the
specific identification method and are included in revenues.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity
of three months or less from the date of purchase to be cash equivalents. Cash
and cash equivalents are carried at cost, which approximates fair value.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying
balance sheet represent funds that are separately administered, principally for
the benefit of certain policyholders who bear the investment risk. The
separate account assets and liabilities are carried at fair value. Revenues and
expenses related to the separate account assets and liabilities, to the extent
of benefits paid or provided to the separate account policyholders, are
excluded from the amounts reported in the accompanying statement of operations.
POLICY LIABILITIES
Policy liabilities consist of deposits received plus credited interest, less
accumulated policyholder charges, assessments, and withdrawals related to
annuities of a nonguaranteed return nature. Interest crediting rates ranged
from 5.5% to 7.0%.
68
<PAGE> 89
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill represents the excess of the fair value of assets exchanged over the
net assets acquired. Goodwill is being amortized on a straight-line basis over
thirty years. The carrying value of goodwill is regularly reviewed for
indications of impairment in value, which, in the view of management, is other
than temporary. Accumulated amortization at October 31, 1998 and December 31,
1997 was $427,833 and $231,769, respectively.
DEVELOPMENT COSTS
The Company has capitalized certain costs that have been incurred in the
development and registration of the Company's insurance products. These
development costs are being amortized on a straight line basis over fifteen
years. Accumulated amortization at October 31, 1998 and December 31, 1997 was
$234,474 and $93,637, respectively.
In April 1998, Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5), was issued. SOP 98-5 requires entities to charge to
expense all start-up costs as incurred. SOP 98-5 is effective for years
beginning after December 15, 1998 (i.e., January 1, 1999). In addition, SOP
98-5 requires entities upon adoption to write-off as the cumulative effect of a
change in accounting principle any previously unamortized capitalized start-up
costs. Accordingly, the Company will be required to write-off any unamortized
capitalized development costs on January 1, 1999.
ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires that management makes estimates and assumptions
that affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INCOME TAXES
Income taxes are accounted for using the liability method. Using this method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
69
<PAGE> 90
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
2. INVESTMENTS
Investments in fixed maturity securities as of October 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUE
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Obligations $ 3,497,538 $106,528 - $3,604,066
===========================================================================
</TABLE>
Investments in fixed maturity securities as of December 31, 1997 consisted of
the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Obligations $3,520,393 $79,120 $4,187 $3,595,326
=========================================================================
</TABLE>
The amortized cost and fair value of fixed maturity securities by contractual
maturity at October 31, 1998 and December 31, 1997 are summarized below.
Actual maturities will differ from contractual maturities because certain
borrowers have the right to call or prepay obligations.
<TABLE>
<CAPTION>
October 31, 1998 AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Due in one year or less $ 815,082 $ 816,019
Due after five years through ten years 2,682,456 2,788,047
----------- -----------
Total $3,497,538 $3,604,066
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997 AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Due in one year or less $ 815,495 $ 811,308
Due after five years through ten years 2,704,898 2,784,018
----------- ----------
Total $3,520,393 $3,595,326
=========== ==========
</TABLE>
70
<PAGE> 91
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
Investment income by major category of investment for October 31, 1998 and
December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED
OCTOBER 31, 1998 DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
Bonds $193,303 $255,778
Short-term investments 823,179 720,556
Cash and cash equivalents 71,892 49,035
------ ------
Total investment income 1,088,374 1,025,369
Investment expenses 13,123 35,875
------ ------
Net investment income $1,075,251 $989,494
========== ========
</TABLE>
At October 31, 1998 and December 31, 1997, investment securities with an
amortized cost value of $6,076,620 and $6,128,048 and a fair value of
$6,184,066 and $6,202,980, respectively, are held by trustees in various
amounts in accordance with the statutory requirements of certain states in
which the Company is licensed to conduct business.
3. INCOME TAXES
The Company has filed a separate life insurance company Federal income tax
return for the period January 1, 1997 through December 31, 1997. The Company
will continue to file a separate life insurance company Federal income tax
return through the year 2001. Beginning in the year 2002, the Company will be
included in the consolidated Federal income tax return of Sage Holdings (USA),
Inc. and its subsidiaries.
The provision for income taxes varies from the amount that would be computed
using the federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
OCTOBER 31, 1998 DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
Pre-tax loss $ (332,442) $ (351,786)
Application of the federal statutory tax rate - 34% (113,030) (119,607)
Tax effect of:
State income taxes - (75)
Change in valuation allowance 113,030 119,532
------- -------
Total income tax provision $ - $ -
=========== ===========
</TABLE>
71
<PAGE> 92
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
Significant components of the Company's deferred tax assets and
liabilities as of October 31, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, 1998 DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,844,098 $ 756,521
--------------------- --------------------
Total deferred tax assets $ 1,844,098 $ 756,521
Deferred tax liabilities:
Unrealized gain on appreciation of investments (36,220) (26,227)
Amortization of goodwill and development costs (1,611,536) (636,989)
-------------------- -------------------
Total deferred tax liabilities (1,647,756) (663,216)
Valuation allowance for deferred tax assets (232,562) (119,532)
-------------------- -------------------
Net deferred tax liability $ (36,220) $ (26,227)
==================== ===================
</TABLE>
Based upon the lack of historical operating results and the uncertainty of
operating earnings in the future, management has determined that it is not more
likely than not that the deferred tax assets will be fully recognized.
Accordingly, a valuation allowance has been recorded.
At October 31, 1998, the Company has net operating loss carryforwards of $3.2
million for federal income tax purposes that expire in 2013 and $2.2 million
that expire in the year 2012.
4. REINSURANCE AND OTHER AGREEMENTS
Effective September 1, 1998, all of the in-force business of the Company was
novated to SFLIC, a subsidiary of the Metropolitan Life Insurance Company.
5. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory-basis capital and surplus and net income are $25,017,752 and $51,133
at and for the year ended December 31, 1997, respectively. The required
statutory capital and surplus at December 31, 1997 is $17,257,518.
The Company is subject to state regulatory restrictions that limit the maximum
amount of dividends payable. Subject to certain net income carryforward
provisions as described below, the Company must obtain approval of the
Insurance Commissioner of the State of Delaware in order to pay, in any
12-month period, "extraordinary" dividends which are defined as those in excess
of the greater of 10% of surplus as regards policyholders as of the prior
year-end and statutory net income less realized capital gains for such prior
year. Dividends may be paid by the Company only out of earned surplus. In
addition, the Company must provide notice to the Insurance Commissioner of the
State of Delaware of all dividends and other distributions to shareholders
within five business days after declaration and at least ten days prior to
payment. At December 31, 1997, the maximum amount of dividends the Company
could pay SIGI without prior approval from state regulatory authorities is
$2,501,775.
72
<PAGE> 93
Sage Life Assurance of America, Inc.
Notes to Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS
In 1997, the Company entered into a Cost Sharing Agreement with SIGI to share
the personnel costs, office rent and equipment costs. These costs are
allocated between the companies based upon the estimated time worked, square
footage of space utilized and upon monitored usage of the equipment,
respectively. Pursuant to this agreement, the Company has recorded income of
$109,923 from SIGI for the ten months ended October 31, 1998 and expenses of
$76,048 for the year ended December 31, 1997. In addition, SIGI provides funds
to the Company to meet various operating expenses. These amounts are paid back
to SIGI at the end of each quarter. At October 31, 1998 and December 31, 1997,
$12,315 and $100,000 of the amounts transferred to the Company remained payable
to SIGI, respectively.
All non-recurring development costs of the Company are paid by SIGI or its
parent, Sage Group Limited, and treated as capital contributions. The amount
of development costs paid for by affiliated companies at October 31, 1998 and
December 31, 1997 were $2,749,628 and $1,504,558, respectively.
73
<PAGE> 94
Table of Contents of the
Statement of Additional Information
Additional information about the Contracts and The Sage Variable Annuity
Account A is contained in the Statement of Additional Information. You can
obtain a free copy of the Statement of Additional Information by writing to us
at the address shown on the front cover or by calling (877) 835-7243 (Toll
Free). The following is the Table of Contents for the Statement of Additional
Information.
Statement of Additional Information
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Historical Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money Market Sub-Account Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Sub-Account Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average Annual Total Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Total Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of the Annual Administration Charge on Performance Data . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Indexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Payment Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of Fixed Income Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of Variable Income Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Unit Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange of Income Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Safekeeping of Account Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
74
<PAGE> 95
APPENDIX A
Market Value Adjustment
We will apply a Market Value Adjustment to amounts surrendered, withdrawn,
transferred or applied to an income plan when taken from a Fixed Sub-Account
more than 30 days before its Expiration Date. We apply a Market Value
Adjustment separately to each Fixed Sub-Account. Surrender charges also may
apply.
For a surrender, withdrawal, transfer or amount applied to an income plan,
we will calculate the Market Value Adjustment by applying the factor below to
the total amount (including any applicable surrender charge) that must be
surrendered, withdrawn, transferred or applied to an income plan in order to
provide the amount requested.
(N/365)
[(1+I)/(1+J+.0025)] - 1
Where
- I is the Index Rate for a maturity equal to the Fixed
Sub-Account's Guarantee Period, at the time that we established
the Sub-Account;
- J is the Index Rate for a maturity equal to the time remaining
(rounded up to the next full year) in the Fixed Sub-Account's
Guarantee Period, at the time of surrender, withdrawal, transfer,
or application to an income plan; and
- N is the remaining number of days in the Guarantee Period at the
time of calculation.
We will apply Market Value Adjustments as follows:
If the Market Value Adjustment is negative, we first deduct it from any
remaining value in the Fixed Sub-Account. We then deduct any remaining
negative Market Value Adjustment from the amount you surrender, withdraw,
transfer, or apply to an income plan.
If the Market Value Adjustment is positive, we add it to any remaining
value in the Fixed Sub-Account or the amount you surrender. If you
withdraw, transfer or apply to an income plan the full amount of the Fixed
Sub-Account, we add the Market Value Adjustment to the amount you
withdraw, transfer, or apply to an income plan.
MVA EXAMPLES
Example #1: Surrender -- Example of a Negative Market Value Adjustment
Assume you invest $100,000 in a Fixed Sub-Account with a Guarantee Period of
ten years, with a Guaranteed Interest Rate of 7.5% and an Index Rate ("I") of
7.0% based on the U.S. Treasury Constant Maturity Series at the time we
established the Sub-Account. You request a surrender three years into the
Guarantee Period, the Index Rate based on the U.S. Treasury Constant Maturity
Series for a seven-year Guarantee Period ("J") is 8.0% at the time of the
surrender, no prior transfers or withdrawals affecting this Fixed Sub-Account
have been made, and no
A-1
<PAGE> 96
surrender charge is applicable.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The Account Value of the Fixed Sub-Account on the date of
surrender is $124,230 ($100,000 x 1.075(3))
2. N = 2,555 (365 x 7)
2555/365
3. Market Value Adjustment = $124,230 x {[(1.07)/(1.0825)] -1}
= - $9,700
Therefore, the amount paid on full surrender is $114,530 ($124,230 - $9,700).
Example #2: Surrender -- Example of a Positive Market Value Adjustment
Assume you invest $100,000 in a Fixed Sub-Account with a Guarantee Period of
ten years, with a Guaranteed Interest Rate of 7.5% and an Index Rate ("I") of
7.0% based on the U.S. Treasury Constant Maturity Series at the time we
established the Sub-Account. You request a surrender three years into the
Guarantee Period, the Index Rate based on the U.S. Treasury Constant Maturity
Series for a seven-year Guarantee Period ("J") is 6.0% at the time of the
surrender, no prior transfers or withdrawals affecting this Fixed Sub-Account
have been made, and no surrender charge is applicable.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The Account Value of the Fixed Sub-Account on the date of
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 (365 x 7)
2555/365
3. Market Value Adjustment = $124,230 x {[(1.07)/(1.0625)] -1}
= + $6,270
Therefore, the amount paid on full surrender is $130,500 ($124,230 + $6,270).
Example #3: Withdrawal -- Example of a Negative Market Value Adjustment
Assume you invest $200,000 in a Fixed Sub-Account with a Guarantee Period of
ten years, with a Guaranteed Interest Rate of 7.5% and an Index Rate ("I") of
7.0% based on the U.S. Treasury Constant Maturity Series at the time we
established the Sub-Account. You request a withdrawal of $100,000 three years
into the Guarantee Period, the Index Rate based on the U.S. Treasury Constant
Maturity Series for a seven-year Guarantee Period ("J") is 8.0% at the time of
withdrawal, no prior transfers or withdrawals affecting this Fixed Sub-Account
have been made, and no surrender charge is applicable.
A-2
<PAGE> 97
1. The Account Value of the Fixed Sub-Account on the date of
withdrawal is $248,459 ($200,000 x 1.075(3)).
2. N = 2,555 (365 x 7)
2555/365
3. Market Value Adjustment = $100,000 x {[(1.07)/(1.0825)]
-1} = - $7,808
Therefore, the amount of the withdrawal paid is $100,000, as requested. The
Fixed Sub-Account will be reduced by the amount of the withdrawal paid,
($100,000) and by the Market Value Adjustment ($7,808), for a total reduction
in the Fixed Sub-Account of $107,808.
Example #4: Withdrawal -- Example of a Positive Market Value Adjustment
Assume you invest $200,000 in a Fixed Sub-Account with a Guarantee Period of
ten years, with a Guaranteed Interest Rate of 7.5% and an initial Index Rate
("I") of 7.0% based on the U.S. Treasury Constant Maturity Series at the time
we established the Sub-Account. You request a withdrawal of $100,000 three
years into the Guarantee Period, the Index Rate based on the U.S. Treasury
Constant Maturity Series for a seven-year Guarantee Period ("J") is 6.0% at the
time of the withdrawal, no prior transfers or withdrawals affecting this Fixed
Sub-Account have been made, and no surrender charge is applicable.
1. The Account Value of the Fixed Sub-Account on the date of
withdrawal is $248,459 ($200,000 x 1.075(3))
2. N = 2,555 (365 x 7)
2555/365
3. Market Value Adjustment = $100,000 x {[(1.07)/(1.0625)]
- 1} = + $5,047
Therefore, the amount of the withdrawal paid is $100,000, as requested. The
Fixed Sub-Account will be reduced by the amount of the withdrawal paid
($100,000) and increased by the amount of the Market Value Adjustment
($5,047), for a total reduction of $94,953.
A-3
<PAGE> 98
APPENDIX B
Below is an example of how the Dollar Cost Averaging Program works.
Assume that the Dollar Cost Averaging Program has been elected and that
$24,000 is invested in a DCA Fixed Sub-Account with a Guarantee Period of two
years and an annual Guaranteed Interest Rate of 6.0%.
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Beginning Beginning of Month Dollar Cost Amount Dollar Interest End of Month
of Month Account Value Averaging Cost Averaged Credited Account Value
- ---------- ------------- Monthly Factor ------------- For Month -------------
-------------- ---------
<S> <C> <C> <C> <C> <C>
24,117
1 24,000 - - 117 23,224
2 24,117 1 / 24 1,005 112 22,323
3 23,224 1 / 23 1,010 108 21,412
4 22,323 1 / 22 1,015 104 20,492
5 21,412 1 / 21 1,020 99 19,562
6 20,492 1 / 20 1,025 95 18,622
7 19,562 1 / 19 1,030 90 17,673
8 18,622 1 / 18 1,035 86 16,715
9 17,673 1 / 17 1,040 81 15,746
10 16,715 1 / 16 1,045 76 14,768
11 15,746 1 / 15 1,050 72 13,780
12 14,768 1 / 14 1,055 67 12,782
13 13,780 1 / 13 1,060 62 11,774
14 12,782 1 / 12 1,065 57 10,756
15 11,774 1 / 11 1,070 52 9,727
16 10,756 1 / 10 1,076 47 8,688
17 9,727 1 / 9 1,081 42 7,639
18 8,688 1 / 8 1,086 37 6,580
19 7,639 1 / 7 1,091 32 5,510
20 6,580 1 / 6 1,097 27 4,429
21 5,510 1 / 5 1,102 21 3,338
22 4,429 1 / 4 1,107 16 2,236
23 3,338 1 / 3 1,113 11 1,124
24 2,236 1 / 2 1,118 5 -
25 1,124 1 / 1 1,124 -
</TABLE>
Note:
Column (3) = Column (1) x Column (2)
Column (5) = Column (1) - Column (3) + Column(4)
B-1
<PAGE> 99
To obtain a Statement of Additional Information for this Prospectus, please
complete the form below and mail to:
Sage Life Assurance of America, Inc.
Customer Service Center
1290 Silas Deane Highway
Wethersfield, CT 06109
Please send a Statement of Additional Information to me at the following
address:
- --------------------------------------------
Name
- --------------------------------------------
Address
- --------------------------------------------
City/State Zip Code
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission
Registration Fees (Approximate) $ 5,000
Printing and engraving $ 50,000
Accounting fees and expenses $ 20,000
Legal fees and expenses $ 275,000
Miscellaneous $ 25,000
--------
Total Expenses (Approximate) $ 380,000
</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
-2-
<PAGE> 101
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had a reasonable cause to believe that his conduct was not
unlawful.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 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)(i)(B) Amended Form of Individual Contract.3/
(ii)(B) Amended Form of Individual Contract with Interest Account.4/
(iii)(B) Amended Form of Group Contract.3/
(iv)(B) Amended Form of Group Certificate.3/
- 3 -
<PAGE> 102
(b)(i)(B) Amended Form of Individual IRA Rider.3/
(ii)(B) Amended Form of Group IRA Rider.3/
(iii)(B) Amended Form of Individual SIMPLE IRA Rider.3/
(iv)(B) Amended Form of Group SIMPLE IRA Rider.3/
(v)(A) Form of Individual Roth IRA Rider.5/
(vi)(A) Form of Group Roth IRA Rider.5/
(vii) Form of Individual Waiver of Surrender Charge Rider.5/
(viii) Form of Group Waiver of Surrender Charge Rider.5/
(ix) Form of Individual Accidental Death Benefit Rider.5/
(x) Form of Group Accidental Death Benefit Rider.5/
(xi) Form of Individual Contract Application.6/
(xii) Form of Group Certificate Application.7/
5. Opinion and Consent of James F. Bronsdon*
10. (a) Form of Participation Agreement with AIM Variable Insurance
Funds, Inc.8/
(b) Form of Participation Agreement with The Alger American Fund.8/
(c) Form of Participation Agreement with Liberty Variable Investment
Trust.9/
(d) Form of Participation Agreement with MFS(R) Variable Insurance
Trust.(TM)8/
(e) Form of Participation Agreement with Morgan Stanley Universal
Funds, Inc.9/
(f) Form of Participation Agreement with Oppenheimer Variable Account
Funds.9/
(g) Form of Participation Agreement with Sage Life Investment Trust.8/
(h) Form of Participation Agreement with SteinRoe Variable Investment
Trust.9/
(i) Form of Participation Agreement with T. Rowe Price Equity Series,
Inc.9/
- 4 -
<PAGE> 103
(j) Form of Services Agreement with Financial Administration
Services, Inc.9/
23. (a) Consent of Sutherland Asbill & Brennan LLP.*
(b) Consent of Ernst & Young LLP.*
27. Not Applicable.
B. Financial Statement Schedules - Not applicable.
99. (14)(a) Power of Attorney for Paul C. Meyer.10/
(14)(b) Power of Attorney for Ronald S. Scowby.11/
(14)(c) Power of Attorney for Richard D. Starr.11/
- ------------------------------
* Filed herewith.
1/ Incorporated herein by reference to Exhibit No. 3 to Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-4 (File No. 333-43329) filed on
December 31, 1998.
2/ Incorporated herein by reference to Exhibit No. 6 to the Registration
Statement filed on Form N-4 (File No. 33-43329) filed on December 24, 1997.
3/ Incorporated herein by reference to Exhibit No. 4 to Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-4 (File No. 333-43329) filed on
December 31, 1998.
4/ Incorporated herein by reference to Exhibit No. 4 to Pre-Effective Amendment
No. 2 to the Registration Statement on Form N-4 (File No. 333-43329) filed on
January 26, 1999.
5/ Incorporated herein by reference to Exhibit No. 4 to the Registration
Statement on Form N-4 (File No. 333-43329) filed on December 24, 1997.
6/ Incorporated herein by reference to Exhibit No. 5 to Pre-Effective Amendment
No. 1 to the Registration Statement filed on Form N-4 (File No. 333-43329) on
December 31, 1998.
- 5 -
<PAGE> 104
7/ Incorporated herein by reference to Exhibit No. 5 to the Registration
Statement filed on Form N-4 (File No. 33-43329) filed on December 24, 1997.
8/ Incorporated herein by reference to Exhibit No. 8 to Pre-Effective Amendment
No. 1 to the Registration Statement filed on Form N-4 (File No. 333-43329) on
December 31, 1998.
9/ Incorporated herein by reference to Exhibit No. 8 to Pre-Effective Amendment
No. 2 to the Registration Statement on Form N-4 (File No. 333-43329) filed on
January 28, 1999.
10/Incorporated herein by reference to Exhibit 14 to Pre-Effective Amendment
No. 1 to the Registration Statement filed on Form N-4 (File No. 333-44751) on
January 12, 1999.
11/ Incorporated herein by reference to Exhibit No.14 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-4 (File No. 333-43329)
filed on January 28, 1999.
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.
- 6 -
<PAGE> 105
SIGNATURES
As required by the Securities Act of 1933, and the Investment Company Act
of 1940, the registrant has caused this Amendment No. 2 to be signed on its
behalf, in the City of Stamford, and the State of Connecticut, on this 27th day
of January, 1999.
Sage Life Assurance of America, Inc.
(Registrant)
Attest:
/s/ James F. Bronsdon By: /s/ Robin I. Marsden
- --------------------- ------------------------
Robin I. Marsden
Director, President, Chief Executive
Officer
As required by the Securities Act of 1933, this Amendment No. 2 has been
signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Ronald S. Scowby* Chairman January 27, 1999
--------------------- ----------------
Ronald S. Scowby
/s/ H. Louis Shill Director January 25, 1999
-------------------- ----------------
H. Louis Shill
<PAGE> 106
<TABLE>
<CAPTION>
Date
----
<S> <C> <C>
/s/ Paul C. Meyer* Director January 27, 1999
--------------------------------- ----------------
Paul C. Meyer
/s/ Richard D. Starr* Director January 27, 1999
--------------------------------- ----------------
Richard D. Starr
/s/ Mitchell R. Katcher Director, January 26, 1999
--------------------------------- Senior Executive Vice ----------------
Mitchell R. Katcher President, Chief Financial
Officer, Chief Actuary
*By: /s/ James F. Bronsdon
----------------------
James F. Bronsdon
As Attorney-In-Fact pursuant
to a Power of Attorney as dated below.
Director Date
-------- ----
Ronald S. Scowby January 26, 1999
Paul C. Meyer December 23, 1998
Richard D. Starr January 7, 1999
</TABLE>
<PAGE> 1
EXHIBIT 5
[SAGE LIFE ASSURANCE OF AMERICA, INC.]
January 27, 1999
Board of Directors
Sage Life Assurance of America, Inc.
300 Atlantic Street
Stamford, CT 06901
To The Board Of Directors:
In my capacity as Vice President, Legal and Compliance of Sage Life
Assurance of America, Inc. (the "Company"), a Delaware corporation, I have
supervised the preparation of Amendment No. 2 to the registration statement for
certain flexible payment deferred combination fixed and variable annuity
contracts ("Contracts") to be filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933.
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> 2
[SAGE LIFE ASSURANCE OF AMERICA, INC.]
January 27, 1999
Page 2
I hereby consent to the filing of this opinion as an exhibit to the
aforesaid registration statement and to the reference to me under the caption
"Legal Matters" in the Statement of Additional Information contained in said
registration statement.
Very truly yours,
/s/ James F. Bronsdon
---------------------
James F. Bronsdon
Vice President, Legal and Compliance
<PAGE> 1
EXHIBIT 23(a)
[SUTHERLAND ASBILL & BRENNAN LLP]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Legal Matters" in the
Statement of Additional Information included in Amendment No. 2 to the
Registration Statement on Form S-1 for flexible payment deferred combination
fixed and variable annuity insurance contracts issued by Sage Life Assurance of
America, Inc. (File No. 333-46059). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
SUTHERLAND ASBILL & BRENNAN LLP
/s/ Stephen E. Roth, Esq.
--------------------------------------
Stephen E. Roth, Esq.
Washington, D.C.
January 27, 1999
<PAGE> 1
Exhibit 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 April 22, 1998, with respect to
the financial statements of Sage Life Assurance of America, Inc. included in the
Amendment No. 2 to the Registration Statement (Form S-1, File No. 333-46059) and
related Prospectus for the registration of its variable annuity contracts.
Stamford, Connecticut /s/ Ernst & Young LLP
January 28, 1999 ---------------------
Ernst & Young LLP
