[Federal Register Volume 68, Number 88 (Wednesday, May 7, 2003)]
[Notices]
[Pages 24524-24530]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11315]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26040; File No. 812-12916]


Sage Life Assurance of America Inc., et al., Notice of 
Application

May 1, 2003.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order pursuant to section 26(c) of 
the Investment Company Act of 1940 (the ``1940 Act'') approving the 
substitution of securities.

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Applicants:  Sage Life Assurance of America, Inc., the Sage Variable 
Annuity Account A and the Sage Variable Life Account A (collectively, 
the ``Applicants'').
SUMMARY: Applicants seek an order to permit, under the specific 
circumstances identified in the application, the substitution of shares 
of the portfolios (``Replaced Portfolios'') of the Sage Life Investment 
Trust (the ``Sage Trust'') with shares of certain portfolios 
(``Substituting Portfolios'') of other variable insurance products 
funds as follows: (1) Shares of the S&P 500[reg] Equity Index Fund with 
Series I shares of the AIM V.I. Premier Equity Fund; (2) shares of the 
Nasdaq-100 Index[reg] Fund with shares of the Oppenheimer Capital 
Appreciation Fund/VA; (3) shares of the All-Cap Growth Fund with shares 
of the Oppenheimer Capital Appreciation Fund/VA; and (4) shares of the 
Money Market Fund with Series I shares of the AIM V.I. Money Market 
Fund.

DATES: The Application was filed on December 26, 2002, and amended on 
March 24, 2003, and May 1, 2003.

Hearing or Notification of Hearing:  An order granting the Application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
Applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on May 22, 2003, 
and should be accompanied by proof of service on Applicants, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549. 
Applicants, c/o Lynn K. Stone, Blazzard, Grodd & Hasenauer, P.C., PO 
Box 5108, Westport, Connecticut, 06881. Copies to Mitchell R. Katcher, 
Sage Life Assurance of America, Inc., 969 High Ridge Road, Stamford, CT 
06902.

FOR FURTHER INFORMATION CONTACT: Rebecca A. Marquigny, Senior Counsel, 
or Zandra Bailes, Branch Chief, Office of Insurance Products, Division 
of Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the Application; 
the complete Application is available for a fee from the SEC's Public 
Reference Branch, 450 Fifth Street, NW., Washington, DC 20549-0102 
(telephone (202) 942-8090).

Applicants' Representations

    1. Sage Life Assurance of America, Inc. (``Sage Life'') is a stock 
life insurance company incorporated in Delaware in 1981. It is licensed 
to conduct an insurance business in 49 states and the District of 
Columbia. Sage Life is a wholly-owned subsidiary of Sage Life Holdings 
of America, Inc. (``Sage Life Holdings''). Sage Insurance Group Inc. 
(``SIGI'') owns 90.1% of the common stock of Sage Life Holdings and 
Swiss Re Life & Health America, Inc. (``Swiss Re'') owns the remaining 
9.9% of the common stock of Sage Life Holdings. SIGI is a wholly-owned 
indirect subsidiary of Sage Group Limited (``Sage Group''), a South 
African corporation quoted on the Johannesburg Stock Exchange.
    2. The Sage Variable Annuity Account A and The Sage Variable Life 
Account A (each a ``Variable Account'' and together the ``Variable 
Accounts'') are each segregated asset accounts of Sage Life. Each 
Variable Account was established by Sage Life on December 3, 1997, 
under Delaware law. The Variable Accounts are used to fund certain 
contracts issued by Sage Life. Each Variable Account is divided into 
subaccounts, each of which invests in and reflects the investment 
performance of a specific underlying registered investment company or 
portfolio thereof. The Sage Variable Annuity Account A is registered as 
a unit investment trust under the 1940 Act (File No. 811-08581). The 
Sage Variable Life Account A is registered as a unit investment trust 
under the 1940 Act (File No. 811-09339).
    3. The Variable Accounts support certain variable annuity contracts 
and variable life insurance policies (collectively ``the Contracts'') 
issued by Sage Life. The Contracts allow the contract owners 
(``Owners'') to allocate Contract values among the subaccounts 
providing variable investment options. In addition, the Contracts also 
allow Owners to allocate Contract values to registered fixed account 
options. Under the Contracts, Sage Life reserves the right to 
substitute one of the variable investment options with another variable 
investment option after appropriate notice. Moreover, Sage Life is 
entitled to limit further investment in a variable investment option if 
Sage Life deems the variable investment option inappropriate. Thus, the 
Contracts permit Sage Life to substitute the respective shares of each 
Replaced Portfolio with the corresponding shares of the Substituting 
Portfolio.
    4. The Sage Trust is a Delaware business trust established under a 
Declaration of Trust dated January 9, 1998, and currently consists of 
four separately managed portfolios (``Portfolios'' or ``Replaced 
Portfolios''). The Sage Trust is a diversified, open-end investment 
management company registered under the 1940 Act (File No. 811-08623), 
and its shares are registered as securities under the Securities Act of 
1933 (``1933 Act'') (File No. 333-45293). The shares of the Sage Trust 
are sold exclusively to the Variable Accounts of Sage Life to fund 
benefits under the Contracts. Sage Advisors, Inc. (``Sage Advisors'') 
is the investment adviser for

[[Page 24525]]

the Sage Trust. Sage Advisors is a wholly-owned subsidiary of SIGI. 
Sage Advisors has engaged sub-advisers for each of the Portfolios of 
the Sage Trust to make investment decisions and place orders.
    5. Sage Life anticipates that the Sage Trust expense reimbursement 
arrangement will be discontinued as of May 1, 2003, and will result in 
a substantial increase in Sage Trust expenses with a corresponding 
decrease in the performance of the Sage Trust Portfolios. To date, the 
cash needs of the Sage insurance operations in the United States 
(including Sage Life), have been met primarily through (i) capital 
contributions from Sage Group, (ii) the funding of Sage Life's 
commission and acquisition expenses through a modified coinsurance 
arrangement (``Modco Agreement'') with Swiss Re, (iii) issuance of 
preferred stock to Swiss Re, and (iv) through interest income on the 
invested assets of SIGI and Sage Life's general account.
    During 2001, it was determined that the cash needs of SIGI and its 
subsidiaries could not be met solely by the methods described above. 
Sage Group had been and is currently prohibited under South African 
currency controls from using funds raised in South Africa for SIGI's 
cash needs, other than with funds raised through capital issues 
denominated in currencies other than the South African rand. 
Furthermore, Sage Group's ability to issue stock outside of South 
Africa has been hindered by a severe devaluation of the South African 
rand relative to the United States dollar and a decrease in its stock 
price reflective of a general decline of financial services stocks in 
South Africa and elsewhere. Consequently, Sage Group has not issued new 
securities in the international markets to provide for the cash needs 
of SIGI and its subsidiaries.
    Effective January 1, 2003, Sage Life ceased all new sales of 
variable annuity and variable life insurance products. This action was 
taken due to the inability of Sage Life and its parents to raise the 
capital necessary to meet the ongoing needs of Sage Life. Sage Life is 
currently proceeding towards establishing the facilities necessary to 
administer an orderly disposition of the in-force business. Sage Life's 
ratings have been downgraded several times over recent months by the 
rating agencies. Further, Sage Life has substantially reduced its 
number of employees in recent months, and further layoffs are planned.
    Sage Advisors has, since its inception, been subsidized by Sage 
Group. Because of the limitations imposed on Sage Group, as described 
above, no further capital is available, and as a result, Sage Group no 
longer subsidizes the expenses of Sage Advisors. Sage Life is not able 
to assume financial responsibility for Sage Advisors. The advisory fee 
paid by the Portfolios of Sage Trust to Sage Advisors is not sufficient 
to cover the expenses incurred by Sage Advisors in managing the Trust. 
Given the above, Sage Advisors will soon be unable to continue to 
manage the Trust.
    Since Sage Trust's inception, Sage Advisors has voluntarily 
reimbursed certain operating expenses of each Portfolio of Sage Trust. 
However, given its financial condition, Sage Advisors will no longer 
reimburse expenses of Sage Trust effective May 1, 2003.
    6. Applicants request the Commission's approval to effect the 
substitutions of the shares of portfolios of other variable insurance 
products funds (``Substituting Portfolios'') for the shares of the 
Replaced Portfolios (the ``Substitution''). The Substituting Portfolios 
are series of open-end management investment companies registered under 
the 1940 Act, the shares of which are registered as securities under 
the 1933 Act. Applicants represent that the Substituting Portfolios, in 
general, have similar investment objectives to, and more assets, better 
performance and lower expense ratios than, the Replaced Portfolios. The 
Replaced Portfolios and the corresponding Substituting Portfolios are 
as follows:

------------------------------------------------------------------------
            Replaced portfolios                Substituting portfolios
------------------------------------------------------------------------
S&P 500[reg] Equity Index Fund............  AIM V.I. Premier Equity Fund
                                             (Series I Shares).\1\
Nasdaq-100 Index[reg] Fund................  Oppenheimer Capital
                                             Appreciation Fund/VA.\2\
All-Cap Growth Fund.......................  Oppenheimer Capital
                                             Appreciation Fund/VA
Money Market Fund.........................  AIM V.I. Money Market Fund
                                             (Series I Shares).\3\
------------------------------------------------------------------------

    7. For the shares of each Replaced Portfolio held on behalf of the 
Variable Accounts at the close of business on the date selected for the 
Substitution, Sage Life will redeem those shares for cash. 
Simultaneously, Sage Life, on behalf of the Variable Accounts, will 
place a purchase order for shares of each Substituting Portfolio so 
that each purchase will be for the exact amount of the redemption 
proceeds. Accordingly, at all times monies attributable to Owners then 
invested in the Replaced Portfolio will remain fully invested, and the 
transaction will result in no change in the amount of any Owner's 
Contract value, death benefit or investment in the Variable Accounts.
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    \1\ SEC File Numbers 33-57340 and 811-7452.
    \2\ SEC File Numbers 002-93177 and 811-4108.
    \3\ SEC File Numbers 33-57340 and 811-7452.
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    8. Applicants represent that the full net asset value of the 
redeemed shares held by the Variable Accounts will be reflected in the 
Owners' Contract values following the Substitution. The Applicants 
represent that the Owners will not bear, directly or indirectly, any 
expenses, including brokerage expenses, for the Substitution so that 
the full net asset value of redeemed shares of the Replaced Portfolio 
held by the Variable Accounts will be reflected in the Owners' Contract 
values following the Substitution.
    9. The Sage Trust is fully advised of the terms of the 
Substitution. Applicants anticipate that until the Substitution occurs, 
the Sage Trust will conduct the trading of portfolio securities in 
accordance with the investment objectives and strategies stated in the 
Sage Trust's prospectus and in a manner that provides for the 
anticipated redemptions of shares held by the Variable Account 
Applicants.
    10. Applicants have determined that the Contracts allow the 
Substitution as described in the application, and that the transactions 
are permissible in the manner described under applicable insurance laws 
and under the Contracts. In addition, Applicants represent that, prior 
to effecting the Substitution, they will comply with any regulatory 
requirements they believe are necessary to complete the transactions in 
each jurisdiction where the Contracts are qualified for sale.
    11. Applicants represent that affected Owners will not incur any 
fees or charges, directly or indirectly, as a result of the 
Substitution, nor will the rights or obligations of Sage Life under the 
Contracts be altered in any way. Applicants represent that the proposed 
Substitution will not have any adverse tax consequences to Owners, nor 
will it cause Contract fees and charges currently being paid by 
existing Owners to be greater after the proposed Substitution than 
before the proposed Substitution. The Contracts provide that there are 
currently no restrictions on the number of transfers that an Owner can 
make. Currently, Sage Life does not assess a transfer fee. However, it 
reserves the right to impose a 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 that can be made per month or

[[Page 24526]]

year. The proposed Substitution will not be treated as a transfer for 
the purpose of assessing transfer fees. Moreover, Sage Life will allow 
the Owners, with respect to shares substituted, to transfer the 
Contract values held in the subaccount invested in the Substituting 
Portfolio for a period of 31 days without collecting transfer fees or 
imposing any additional restrictions on transfers. Moreover, such a 
transfer will not be counted as a transfer request under any 
contractual provisions of the Contracts that may limit the number of 
transfers that may be made without charge.
    12. In anticipation of the filing of the Application, the 
Applicants have supplemented the prospectuses for the Contracts to 
reflect the proposed Substitution. The supplement was mailed to Owners 
on December 27, 2002. Within five days after the Substitution, Sage 
Life will send to Owners written notice of the Substitution (the 
``Notice''), identifying the shares of the Replaced Portfolios that 
have been eliminated and the shares of the Substituting Portfolios that 
have been substituted. Sage Life will include in such mailing the 
applicable prospectus supplement for the Contracts of the Variable 
Account Applicants describing the Substitution. In addition, Sage Life 
will provide a copy of the prospectuses for the Substituting Portfolios 
with the Notice. Owners will be advised in the Notice that for a period 
of 31 days from the mailing of the Notice, Owners may transfer all 
assets, as substituted, to any other available subaccount without 
limitation or transfer charge (the ``Free Transfer Period'').

Applicants' Legal Analysis

    1. Section 26(c) (formerly, section 26 (b)) of the 1940 Act 
provides that ``[i]t shall be unlawful for any depositor or trustee of 
a registered unit investment trust holding the security of a single 
issuer to substitute another security for such security unless the 
[Commission] shall have approved such substitution.'' Section 26(b) of 
the 1940 Act (now section 26 (c)) was enacted as part of the Investment 
Company Act Amendments of 1970. Prior to the enactment of these 
amendments, a depositor of a unit investment trust could substitute new 
securities for those held by the trust by notifying the trust's 
security holders of the substitution within five (5) days after the 
substitution. In 1966, the Commission, concerned with the high sales 
charges then common to most unit investment trusts and the 
disadvantageous position in which such charges placed investors who did 
not want to remain invested in the substituted security, recommended 
that section 26 be amended to require that a proposed substitution of 
the underlying investments of a trust receive prior Commission 
approval. The Commission will issue an order approving such 
substitution if the evidence establishes that it is consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of this title.
    2. Applicants assert that the purposes, terms and conditions of the 
substitution are consistent with the principles and purposes of section 
26(c) and do not entail any of the abuses that section 26(c) is 
designed to prevent. Applicants represent that the Substitution will 
generally result in lower expense ratios for the Owners that have 
allocated their Contract values to the Substituting Portfolios or, in 
the case of the S&P 500[reg] Equity Index Fund substitution, Applicants 
will provide the dollar value necessary to offset any differential in 
the expense ratios of the substituting and replaced funds. In addition, 
to the extent an Owner does not wish to participate in the 
Substitution, he or she is free to transfer to any other option 
available under the relevant Contract prior to the Substitution and 
within 31 days after the date of the Notice for the Substitution 
without any transfer fee. As discussed below, Owners will be 
substituted into a Substituting Portfolio whose investment objectives 
are substantially similar to those of the Replaced Portfolio.
    3. Applicants submit that the Substitution does not present the 
type of costly forced redemption or other harms that section 26(c) was 
intended to guard against and is consistent with the protection of 
investors and the purposes fairly intended by the 1940 Act for the 
following reasons:
    (a) The Substitution will continue to fulfill Owners' objectives 
and risk expectations, because the investment objectives of each 
Substituting Portfolio are similar to those of each Replaced Portfolio;
    (b) After receipt of the Notice informing an Owner of the 
Substitution, an Owner may request that his or her assets be 
reallocated to another subaccount at any time during the Free Transfer 
Period. The Free Transfer Period provides sufficient time for Owners to 
consider their reinvestment options;
    (c) The Substitution will be at net asset value of the respective 
shares, without the imposition of any transfer or similar charge;
    (d) Neither the Owners, the Replaced Portfolios nor the 
Substituting Portfolios will bear any costs of the Substitution, 
including any brokerage fees relating to the Substitution, whether 
incurred on the date of the Substitution or on any prior date, and 
accordingly, the Substitution will have no impact on the Owners' 
Contract values;
    (e) The Substitution will in no way alter the contractual 
obligations of Sage Life or the rights and privileges of Owners under 
the Contracts;
    (f) The Substitution will in no way alter the tax benefits to 
Owners; and
    (g) The Substitution is expected to confer certain economic 
benefits on Owners by virtue of enhanced asset size and lower expenses, 
as described below.
    4. The prospectuses by which the Contracts are offered state that 
Sage Life has, subject to the requirements of the 1940 Act, the right 
to substitute the shares of any underlying registered investment 
company held by the Variable Account Applicants with shares of another 
registered investment company. The Applicants represent that each 
Substituting Portfolio is an appropriate replacement for each Replaced 
Portfolio and an appropriate investment vehicle for the Owners because 
they share similar investment objectives. The investment objectives, 
strategies and risks of each Replaced Portfolio and of each 
Substituting Portfolio are below.

[[Page 24527]]



------------------------------------------------------------------------
           Replaced portfolio                 Substituting portfolio
------------------------------------------------------------------------
     S&P 500[reg] Equity Index Fund        AIM V.I. Premier Equity Fund
The investment objective of the S&P              (Series I Shares)
 500[reg] Equity Index Fund (the ``S&P   The investment objective of the
 500 Fund'') is to match as closely as    AIM V.I. Premier Equity Fund
 possible, the performance of the         is to achieve long-term growth
 Standard & Poor's 500 Composite Stock    of capital. Income is a
 Price Index (``S&P 500'') before         secondary objective.
 deduction of Fund expenses. The S&P     The Fund seeks to meet its
 500 emphasizes stocks of large U.S.      objectives by investing,
 companies.                               normally, at least 80% of its
The S&P 500 Fund will invest at least     net assets, plus the amount of
 80% of its assets in the stocks of       any borrowings for investment
 companies included in the S&P 500,       purposes, in equity
 selected on the basis of computer-       securities, including
 generated statistical data. The Fund     convertible securities. The
 generally intends to allocate its        Fund also may invest up to 25%
 investments among common stock in        of its total assets in foreign
 approximately the same proportions as    securities.
 they are represented in the S&P 500.    The benchmark for the AIM V.I.
                                          Premier Equity Fund is the S&P
                                          500 Index.
Market Risk: Because the S&P 500 Fund    Market Risk: In that 80% of its
 invests primarily in stocks, it is       assets are normally invested
 subject to stock market risk.            in equity securities, the Fund
                                          is subject to stock market
                                          risk.
Cash Flow Risk: The S&P 500 Fund's       Cash Flow Risk: N/A.
 ability to meet its goal depends to
 some extent on the cash flow in and
 out of the Fund in that when a
 shareholder buys into the Fund, the
 Fund generally has to buy or sell
 stocks in the portfolio.
Modeling Risk: When the Fund cannot      Modeling Risk: N/A.
 purchase all stocks in the S&P 500
 Index, it purchases a representative
 sample of the stocks listed in the
 Index. If the stocks that the Fund
 does not own outperform those that it
 does, the Fund's results will trail
 the Index.
Foreign Securities Risk: Not a           Foreign Securities Risk: In
 principal risk factor.                   that the Fund may invest up to
                                          25% of its assets in foreign
                                          securities, the Fund has, as a
                                          principal investment risk,
                                          foreign securities risk.
 
       Nasdaq-100 Index[reg] Fund              Oppenheimer Capital
The investment objective of the Nasdaq-        Appreciation Fund/VA
 100 Index[reg] Fund (the ``Nasdaq-100   The investment objective of the
 Fund'') is to provide investment         Oppenheimer Capital
 returns that correspond to the           Appreciation Fund/VA is
 performance of the Nasdaq-100 before     capital appreciation. It
 the deduction of Fund expenses.          invests in securities of well-
The Nasdaq-100 Fund will invest at        known, established companies.
 least 80% of its assets in stocks of    The Fund invests mainly in
 companies included in the Nasdaq-100,    common stocks, of ``growth
 selected on the basis of computer-       companies.'' These may be
 generated statistical data. The Nasdaq-  newer companies or established
 100 is a modified capitalization         companies of any
 weighted index composed of 100 of the    capitalization range that the
 largest non-financial domestic and       portfolio manager believes may
 international companies listed on the    appreciate in value over the
 National Market tier of The Nasdaq       long term. The Fund currently
 Stock MarketK (the ``Nasdaq''). All      focuses mainly on mid-cap and
 companies listed on the Nasdaq-100       large-cap domestic companies,
 have a minimum market capitalization     but buys foreign stocks as
 of $500 million and an average daily     well.
 trading volume of at least 100,000      The benchmark for the Fund is
 shares.                                  the S&P 5000 Index.
 
Market Risk: Because the Nasdaq-100      Market Risk: Since the Fund
 Fund invests primarily in stocks, it     invests primarily in equity
 is subject to stock market risk.         securities, it is subject to
                                          stock market risk.
Cash Flow Risk: The Nasdaq-100 Fund's    Cash Flow Risk: N/A.
 ability to meet its goal depends to
 some extent on the cash flow in and
 out of the Fund in that when a
 shareholder buys into the Fund, the
 Fund generally has to buy or sell
 stocks in the portfolio. Changes in
 the Fund's cash flow affect how
 closely its portfolio mirrors the
 index.
Modeling Risk: When the Fund cannot      Modeling Risk: N/A.
 purchase all stocks in the Nasdaq-100
 Index, it purchases a representative
 sample of the stocks listed in the
 index. If the stocks that the Fund
 does not own outperform those that it
 does, the Fund's results will trail
 its index.
Foreign Securities Risk: Because the     Foreign Securities Risk: In
 Nasdaq-100 Fund invests in non-U.S.      that the Fund may invest in
 dollar-denominated equity securities,    foreign securities, it is
 it is subject to the risks of            subject to foreign securities
 international investing.                 risk.
Industry and Sector Focus Risk: Not a    Industry and Sector Focus Risk:
 principal risk factor.                   The prices of stocks of
                                          issuers in a particular
                                          industry or sector my go up
                                          and down in response to
                                          changes in economic condition,
                                          government regulations,
                                          availability of basic
                                          resources or supplies, or
                                          other events that affect that
                                          industry or sector more than
                                          others.
Growth Stock Risk: In that the Nasdaq-   Growth Stock Risk: Stocks of
 100 Fund may invest in stocks of         growth companies, particularly
 growth companies which may be more       newer companies, may be more
 volatile than stocks of larger, more     volatile than stocks of
 established companies, the Fund does     larger, more established
 have this risk.                          companies.
 
          All-Cap Growth Fund                  Oppenheimer Capital
The investment objective of the All-Cap        Appreciation Fund/VA
 Growth Fund is long-term capital        The investment objective of the
 appreciation..                           Oppenheimer Capital
The All-Cap Growth Fund seeks to          Appreciation Fund/VA is
 achieve its objective by investing,      capital appreciation. It
 under normal conditions, at least 80%    invests in securities of well-
 of its assets in a diversified           known, established companies.
 portfolio of common stocks of           The Fund invests mainly in
 companies which have one or more of      common stocks of ``growth
 the following characteristics:           companies.'' These may be
 Projected earnings growth and return     newer companies or established
 on equity greater than those of the      companies of any
 S&P 500 average; dominance in their      capitalization range that the
 industries or market niches; the         portfolio manager believes may
 ability to create and sustain a          appreciate in value over the
 competitive advantage; superior          long term. The Fund currently
 management teams; and high profit        focuses mainly on mid-cap and
 margins.                                 large-cap domestic companies,
                                          but buys foreign stocks as
                                          well.
                                         The benchmark for the Fund is
                                          the S&P 500 Index.

[[Page 24528]]

 
Market Risk: Because the All-Cap Growth  Market Risk: Because the Fund
 Fund invests primarily in stocks, it     invests primarily in stocks of
 is subject to stock market risk.         U.S. companies, the value of
                                          the Fund's portfolio will be
                                          affected by changes in the
                                          stock markets.
Mid-Cap and Small-Cap Company Risk: Mid- Company Risk: Because the Fund
 cap and small-cap companies often have   invests in mid-cap companies,
 narrower markets and more limited        the risks attendant thereto
 managerial and financial resources       are applicable.
 than larger, more established
 companies.
Foreign Issuer Risk: Because the Fund    Foreign Issuer Risk: The change
 may invest in non-U.S. dollar-           in value of a foreign currency
 denominated equity securities, the       against the U.S. dollar will
 Fund is subject to the risks of          result in a change in the U.S.
 international investing.                 dollar value of securities
                                          denominated in the foreign
                                          currency.
Growth Stock Risk: Stocks of growth      Growth Stock Risk: Stocks of
 companies, particularly newer            growth companies, particularly
 companies, may be more volatile than     newer companies, may be more
 stocks of larger, more established       volatile than stocks of
 companies.                               larger, more established
                                          companies.
Industry and Sector Focus Risk: Not a    Industry and Sector Focus Risk:
 principal risk factor.                   The prices of stocks of
                                          issuers in a particular
                                          industry or sector may go up
                                          and down in response to
                                          changes in economic condition,
                                          government regulations,
                                          availability of basic
                                          resources or supplies, or
                                          other events that affect that
                                          industry or sector more than
                                          others.
 
           Money Market Fund                AIM V.I. Money Market Fund
The investment objective of the Money            (Series I Shares)
 Market Fund is high current income      The investment objective of the
 consistent with the preservation of      AIM V.I. Money Market Fund is
 capital and liquidity.                   to provide as high a level of
The Money Market Fund seeks to achieve    current income as is
 its objective by investing in high-      consistent with the
 quality short-term money market          preservation of capital and
 instruments. The Fund maintains an       liquidity.
 average dollar-weighted portfolio       The Fund seeks to meet its
 maturity of 90 days or less.             objectives by investing only
The Money Market Fund may invest in       in high-quality U.S. dollar-
 dollar-denoted foreign securities        denominated short-term
 issued by foreign banks and companies..  obligations.
                                         The Fund may invest up to 50%
                                          of its total assets in U.S.
                                          dollar-denominated securities
                                          of foreign issuers. The Fund
                                          may invest up to 100% of its
                                          total assets in obligations
                                          issued by banks.
Money Market Risks: Although the Fund    Money Market Risks: Although
 seeks to preserve the value of an        the Fund seeks to preserve the
 owner's investment at $1.00 per share,   value of an owner's investment
 that value is not guaranteed and it is   at $1.00 per share, that value
 still possible to lose money by          is not guaranteed and it is
 investing in the Fund. The Fund          still possible to lose money
 invests mostly in short-term debt        by investing in the Fund. The
 securities and rising interest rates     Fund invests mostly in short-
 cause the prices of debt securities to   term debt securities and
 decrease. If the Fund invests a          rising interest rates cause
 significant portion of its assets in     the prices of debt securities
 debt securities and interests rates      to decrease. If the Fund
 rise, then the value of the Fund's       invests a significant portion
 portfolio may decline. The value of      of its assets in debt
 the debt securities in which the Fund    securities and interest rates
 invests is affected by the issuer's      rise, then the value of the
 ability to pay principal and interest    Fund's portfolio may decline.
 on time. The failure of an issuer to     The value of the debt
 pay an obligation in a timely manner     securities in which the Fund
 may adversely affect the value of an     invests is affected by the
 investment in the Fund. An investment    issuer's ability to pay
 in the Fund is not insured or            principal and interest on
 guaranteed by the Federal Deposit        time. The failure of an issuer
 Insurance Corporation or any other       to pay an obligation in a
 government agency.                       timely manner may adversely
                                          affect the value of an
                                          investment in the Fund. An
                                          investment in the Fund is not
                                          insured or guaranteed by the
                                          Federal Deposit Insurance
                                          Corporation or any other
                                          government agency.
------------------------------------------------------------------------

    5. The annual operating expenses of each Replaced Portfolio and 
each Substituting Portfolio as a percentage of average daily net assets 
are as follows: \4\
---------------------------------------------------------------------------

    \4\ The expenses shown above are for the year ended December 31, 
2002.

                                                 [In percentages]
----------------------------------------------------------------------------------------------------------------
                                                                                  Total expenses
                                                                                      (before     Total expenses
                                                Distribution and                   reimbursement    (after fee
                               Management fee  service fee (12b-  Other expenses    and/or fee    waivers and/or
                                                       1)                           waivers if     reimbursement
                                                                                    applicable)   if applicable)
----------------------------------------------------------------------------------------------------------------
Replaced Portfolio: S&P                  0.38  0                            0.17            1.23            0.55
 500[hairsp][hairsp][reg]
 Equity Index Fund.
Substituting Portfolio: AIM              0.61  0                            0.24            0.85            0.85
 V.I. Premier Equity Fund
 (Series I Shares).
Replaced Portfolio: Nasdaq-              0.80  0                            0.05            1.53            0.85
 100
 Index[hairsp][hairsp][reg]
 Fund.
Substituting Portfolio:                  0.64  N/A                          0.02            0.66            0.66
 Oppenheimer Capital
 Appreciation Fund/VA.
Replaced Portfolio: All-Cap              0.94  0.0                          0.11            1.77            1.10
 Growth Fund.
Substituting Portfolio:                  0.64  N/A                          0.02            0.66            0.66
 Oppenheimer Capital
 Appreciation Fund/VA.
Replaced Portfolio: Money                0.48  N/A                          0.17            1.03            0.65
 Market Fund.
Substituting Portfolio: AIM              0.40  N/A                         I0.27            0.67            0.67
 Money Market Fund.                            (Series I
                                               Shares)
----------------------------------------------------------------------------------------------------------------


[[Page 24529]]

    6. Management fees before waivers for the Sage Life Portfolios are: 
.55% for the S&P 500[reg] Index Fund; .85% for the Nasdaq--100 
Index[reg] Fund; 1.10% for the All-Cap Growth Fund; and .65% for the 
Money Market Fund. Sage Advisors, with respect to the Sage Trust, has 
entered into an expense limitation contract with the Portfolios, under 
which it will limit expenses of the Portfolios, excluding interest, 
taxes, brokerage and extraordinary expenses through May 1, 2003. Fees 
waived and/or reimbursed by Sage Advisors may vary in order to achieve 
such contractually obligated net fund operating expenses. Any waiver or 
reimbursement by Sage Advisors is subject to reimbursement within the 
first three (3) years of a Portfolio's operation, to the extent such 
reimbursements by the Portfolio would not cause total operating 
expenses to exceed any current net fund operating expenses. Rule 12b-1 
fees, if any, waived by the distributor are not subject to 
reimbursement. A rule 12b-1 Plan (the ``Plan'') has been adopted by 
each Sage Trust Fund (except the Money Market Fund), pursuant to which 
up to 0.25% may be deducted from Fund assets. No Plan payments have 
been made to date, and none are anticipated to be made in the future.
    7. Accordingly, Applicants represent that the Substituting 
Portfolios are appropriate investment vehicles for Owners who have 
allocated values to the Replaced Portfolios and that the Substitution 
will be consistent with Owners' investment objectives.
    8. Since the Sage Trust's inception, Sage Advisors has voluntarily 
reimbursed certain operating expenses of each Portfolio of the Sage 
Trust. However, Sage Advisors has determined that it will no longer 
reimburse expenses of the Sage Trust effective May 1, 2003.
    9. Applicants represent that the Oppenheimer Capital Appreciation 
Fund/VA, the Substituting Portfolio for the Nasdaq--100 Index Fund and 
the All-Cap Growth Fund, is expected to have substantially lower annual 
expense ratios than either of these two Replaced Portfolios. Applicants 
also represent that AIM V.I. Money Market Fund, the Substituting 
Portfolio for the Money Market Fund, is expected to have approximately 
the same annual expense ratio as the Money Market Fund. In addition, 
Applicants represent that the AIM V.I. Premier Equity Fund, the 
Substituting Portfolio for the S&P 500 Equity Index Fund, also is 
expected to have a higher annual expense ratio than the S&P 500 Equity 
Index Fund. However, Applicants represent that the anticipated expense 
differential will be offset for the first year after the Substitution 
by the monies that will be contributed to Owners' accounts by Sage 
Life.
    10. In addition, Applicants represent that, to the extent an Owner 
does not wish to participate in the Substitution, he or she is free 
(and has been since December 26, 2002) to transfer to any other option 
available under the relevant Contract for the period prior to the 
Substitution and through 31 days after the date of the Notice for the 
Substitution without any transfer fee. Applicants assert that Owners 
will be substituted into a Substituting Portfolio whose investment 
objectives are similar to those of the Replaced Portfolio.
    11. Sage Life represents that it will not receive, for 3 years from 
the date of the substitutions, any direct or indirect benefits from the 
Substituting Portfolios, their advisors or underwriters (or their 
affiliates), in connection with assets representing Contract values of 
Contracts affected by the substitutions, at a higher rate than it had 
received from the Replaced Portfolios, their advisors or underwriter 
(or their affiliates), including without limitation 12b-1 shareholder 
service, administration or other service fees, revenue sharing or other 
arrangements in connection with such assets. Applicants represent that 
the substitutions and the selection of the Replacement Portfolios were 
not motivated by any financial consideration paid or to be paid to Sage 
Life or its affiliates by the Replacement Portfolios, their advisors or 
underwriters, or their respective affiliates.
    12. Applicants represent that there will be no increase in the 
Contract or Variable Account charges from their current levels for a 
period of at least two years from the date of the Substitution.
    13. For the year ended December 31, 2002, the total net expense 
ratio of the AIM V.I. Premier Equity Fund was .30% higher than that of 
the S&P 500[hairsp][hairsp][reg] Equity Index Fund. In similar 
circumstances, other applicants seeking substitution orders have 
undertaken to cap expenses of the substituting funds for a period of 
one year at the then current expense levels of the replaced funds or, 
in cases of unaffiliated substituting funds, to reduce separate account 
charges for a period of one year to the extent necessary to offset the 
difference in expense ratios between the substituting and replaced 
funds. Sage Life, however, because of its financial condition as 
described above, represents that it is unable to follow this approach 
in that it has neither the administrative systems capabilities nor the 
necessary personnel available to it to implement the expense cap. 
However, Sage Life has undertaken to give all contract owners in the 
S&P 500[hairsp][hairsp][reg] Equity Index Fund, as of the date of 
Substitution, a sum of money that would be contributed to their 
accounts that is expected to make up for the 0.30% expense differential 
that exists between the S&P 500[hairsp][hairsp][reg] Equity Index Fund 
and the AIM Premier Equity Fund.
    14. Applicants will assume a 50% return on investment for the S&P 
500[hairsp][hairsp][reg] Equity Fund subaccount for the 12 month period 
commencing with the date of the substitution. On the date of the 
substitution, Sage Life will contribute to the subaccount an amount 
equal to 0.30% of the resulting subaccount value. For example, as of 
the date of the Substitution, Applicants anticipate that there will be 
approximately 190 contract owners involving approximately $3 million in 
assets in the S&P 500[hairsp][hairsp][reg] Equity Index Fund. The 
assumed 50% return would mean that the $3 million sub-account would be 
worth $4.5 million at the end of the 12 month period following the date 
of the Substitution. Under this example, for purposes of adding funds 
to the sub-accounts of the Variable Accounts and, therefore by 
definition, to each owner's account, Sage Life would make the following 
calculation: $4.5 million x .30% = $13,500.
    Thus, on the date of the Substitution, based on current projected 
assets, $13,500 would be added on a pro-rata basis to the contract 
owners' accounts. Applicants represent that the calculation of the 50% 
return will be based on whatever the actual assets are of the sub-
account on the date of the Substitution.
    15. The benchmark for the AIM Premier Equity Fund is the S&P 500 
Index. Given the historical market return averages, Applicant believes 
that using the 50% return is more than fair, and, in fact, should 
result in a windfall to contract owners. Further, those owners that 
transfer out of the AIM Premier Equity Fund prior to one full year from 
the date of Substitution will have received more than they would 
otherwise have been entitled.
    16. Therefore, with respect to the S&P 500[reg] Equity Index Fund 
substitution, Sage Life represents that it will add monies to the S&P 
500 sub-accounts of the Variable Accounts in the manner described in 
the Application which will offset the 0.30% expense differential 
between the S&P 500 Equity Index Fund and the AIM Premier Equity Fund.
    17. Based on the foregoing, Applicants represent that the 
Substitution will generally result in

[[Page 24530]]

lower expense ratios for the Owners that have allocated their Contract 
values to the Substituting Portfolios or, in the case of the S&P 
500[reg] Equity Index Fund substitution, Sage Life will provide the 
dollar value necessary to offset any differential in the expense ratios 
of the substituting and replaced funds.

Conclusion

    Section 26(c) of the 1940 Act, in pertinent part, provides that the 
Commission may issue an order approving the substitution requested by 
the Applicants provided the evidence establishes that it is consistent 
with the protection of investors and the purposes fairly intended by 
the policy and provisions of the 1940 Act. Applicants submit that, for 
the reasons stated in the Application, their exemptive requests meet 
the standards set out in section 26(c) and that an order should, 
therefore, be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-11315 Filed 5-6-03; 8:45 am]
BILLING CODE 8010-01-P