File No. 33-14979
811-5200
______________________________________________________________________________
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 8 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ ]
Amendment No. 19 [X]
(Check appropriate box or boxes.)
COVA VARIABLE ANNUITY ACCOUNT ONE
_____________________________________
(Exact Name of Registrant)
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
___________________________________________________
(Name of Depositor)
One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644
______________________________________________________ ___________
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (800) 831-5433
Name and Address of Agent for Service:
Lorry J. Stensrud, President
Cova Financial Services Life Insurance Company
One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644
(800) 523-1661
Copies to:
Judith A. Hasenauer and Jeffery K. Hoelzel
Blazzard, Grodd & Hasenauer, P.C. Vice President, General Counsel
P.O. Box 5108 and Secretary
Westport, CT 06881 Cova Financial Services
(203) 226-7866 Life Insurance Company
One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644
It is proposed that this filing will become effective:
_X_ immediately upon filing pursuant to paragraph (b) of Rule 485
___ on ____________ pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
_____ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount of
securities in accordance with Rule 24f-2 under the Investment Company Act of
1940. Registrant filed its Rule 24f-2 Notice for the most recent fiscal year on
or about February 26, 1996.
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CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
________ __________________________
PART A
Item 1. Cover Page . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . Definitions
Item 3. Synopsis of Highlights . . . . . . . . Highlights
Item 4. Condensed Financial Information . . . Condensed Financial
Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies . . The Company; The
Variable Account; Cova
Series Trust; Lord Abbett
Series Fund, Inc.; General
American Capital Company
Item 6. Deductions . . . . . . . . . . . . . . Charges and Deductions
Item 7. General Description of Variable
Annuity Contracts. . . . . . . . . . . The Contracts
Item 8. Annuity Period . . . . . . . . . . . . Annuity Provisions
Item 9. Death Benefit. . . . . . . . . . . . . The Contracts; Annuity
Provisions
Item 10. Purchases and Contract Value . . . . . Purchase Payments and
Contract Value
Item 11. Redemptions. . . . . . . . . . . . . . Withdrawals
Item 12. Taxes. . . . . . . . . . . . . . . . . Tax Status
Item 13. Legal Proceedings. . . . . . . . . . . Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information . . . . . . . . Table of Contents of the
Statement of Additional
Information
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CROSS REFERENCE SHEET (CONT'D)
(required by Rule 495)
Item No. Location
________ _________________________
PART B
Item 15. Cover Page . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . Company
Item 18. Services . . . . . . . . . . . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered . Not Applicable
Item 20. Underwriters . . . . . . . . . . . . . Distributor
Item 21. Calculation of Performance Data. . . . Yield Calculation for
Money Market Sub-Account;
Performance Information
Item 22. Annuity Payments . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements . . . . . . . . . Financial Statements
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PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered in Part C to this Registration Statement.
PART A
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
Marketing and Annuity Service Office:
Executive Office: Cova Financial Services Life
One Tower Lane, Suite 3000 Insurance Company
Oakbrook Terrace, IL 60181-4644 Policy Service Office
(800) 831-LIFE P.O. Box 10366
Des Moines, IA 50306-9989
(515) 243-5834
(800) 343-8496
INDIVIDUAL SINGLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY
COVA VARIABLE ANNUITY ACCOUNT ONE
AND
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
The Individual Single Purchase Payment Deferred Variable Annuity Contracts
(the"Contracts") described in this Prospectus provide for accumulation of
Contract Values and payment of monthly annuity payments on a fixed and variable
basis. The Contracts are designed for use by individuals in retirement plans on
a Qualified or Non-Qualified basis. (See "Definitions" on Page __.)
At the Contract Owner's direction, the purchase payment for the Contract will be
allocated to a segregated investment account of Cova Financial Services Life
Insurance Company (the "Company") which account has been designated Cova
Variable Annuity Account One (the "Variable Account") or to the Company's
General Account. Prior to June 1, 1995, the Company was known as Xerox Financial
Services Life Insurance Company and the Variable Account was known as Xerox
Variable Annuity Account One. The Variable Account invests in shares of Cova
Series Trust (see "Cova Series Trust" on Page __), Lord Abbett Series Fund, Inc.
(see "Lord Abbett Series Fund, Inc." on Page __) and General American Capital
Company (see "General American Capital Company" on Page __). Cova Series Trust
is a series fund with eleven Portfolios currently available: Money Market
Portfolio, Quality Income Portfolio, High Yield Portfolio, Stock Index
Portfolio, Growth and Income Portfolio, Select Equity Portfolio, Small Cap Stock
Portfolio, Large Cap Stock Portfolio, International Equity Portfolio, Quality
Bond Portfolio, and Bond Debenture Portfolio. Lord Abbett Series Fund, Inc. is a
series fund with three Portfolios, one of which is currently available: Growth
and Income Portfolio. THE GLOBAL EQUITY PORTFOLIO IS NO LONGER AVAILABLE IN
CONNECTION WITH THE CONTRACTS OFFERED UNDER THIS PROSPECTUS. Subject to
regulatory approval, shares of the International Equity Portfolio of Cova Series
Trust will be substituted for shares of the Global Equity Portfolio of Lord
Abbett Series Fund, Inc. (see "The Variable Account Proposed Substitution
Transaction" on Page __). General American Capital Company is a series fund with
five funds, one of which is currently available under the Contracts: the
Money Market Fund.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information" which is available at no
charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
Table of Contents of the Statement of Additional Information can be found on
Page __ of this Prospectus. For the Statement of Additional Information, call
(800) 831-LIFE or write the Marketing and Executive Office address listed above.
INQUIRIES:
Any inquiries regarding purchasing a Contract can be made by telephone or in
writing to Cova Life Sales Company at (800) 831-LIFE or One Tower Lane, Suite
3000, Oakbrook Terrace, Illinois 60181-4644. All other questions should be
directed to the Annuity Service Office listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus and the Statement of Additional Information are dated
_______________________.
The Prospectus should be kept for future reference.
TABLE OF CONTENTS
PAGE
DEFINITIONS
HIGHLIGHTS
FEE TABLE
CONDENSED FINANCIAL INFORMATION
THE COMPANY
THE VARIABLE ACCOUNT
Cova Series Trust
Lord Abbett Series Fund, Inc.
General American Capital Company
Voting Rights
Substitution of Securities
Proposed Substitution Transaction
CHARGES AND DEDUCTIONS
Deduction for Withdrawal Charge (Sales Load)
Reduction or Elimination of the Withdrawal Charge
Deduction for Mortality and Expense Risk Premium
Deduction for Administrative Expense Charge
Deduction for Contract Maintenance Charge
Deduction for Premium Taxes
Deduction for Income Taxes
Deduction for Trust and Fund Expenses
Deduction for Transfer Fee
THE CONTRACTS
Ownership
Annuitant
Assignment
Beneficiary
Change of Beneficiary
Transfers of Contract Values During the Accumulation Period
Death of the Annuitant
Death of the Contract Owner
ANNUITY PROVISIONS
Annuity Date and Annuity Option
Change in Annuity Date and Annuity Option
Allocation of Annuity Payments
Transfers During the Annuity Period
Annuity Options
Frequency and Amount of Annuity Payments
PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments
Allocation of Purchase Payments
Dollar Cost Averaging
Distributor
Contract Value
Accumulation Unit
WITHDRAWALS
Texas Optional Retirement Program
Suspension of Payments or Transfers
PERFORMANCE INFORMATION
Money Market Portfolio
Other Portfolios
TAX STATUS
General
Diversification
Contracts Owner by Other Than Natural Persons
Multiple Contracts
Tax Treatment of Assignments
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
Tax-Sheltered Annuities - Withdrawal Limitations
FINANCIAL STATEMENTS
LEGAL PROCEEDINGS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
DEFINITIONS
ACCOUNT - General Account and/or one or more of the Sub-Accounts of the Variable
Account.
ACCUMULATION UNIT - An accounting unit of measure used to calculate the Contract
Value in a Sub-Account of the Variable Account prior to the Annuity Date.
ANNUITANT - The natural person on whose life Annuity Payments are based.
ANNUITY DATE - The date on which Annuity Payments begin.
ANNUITY PAYMENTS - The series of payments made to the Annuitant after the
Annuity Date under the Annuity Option elected.
ANNUITY PERIOD - The period starting on the Annuity Date.
ANNUITY UNIT - An accounting unit of measure used to calculate Annuity Payments
after the Annuity Date.
BENEFICIARY - The person(s) who will receive the Death Benefit.
COMPANY - Cova Financial Services Life Insurance Company at its Annuity Service
Office shown on the cover page of this Prospectus.
CONTRACT ANNIVERSARY - An anniversary of the Issue Date.
CONTRACT VALUE - The sum of the Contract Owner's interest in the General Account
and the Sub-Accounts of the Variable Account.
CONTRACT YEAR - One year from the Issue Date and from each Contract Anniversary.
DISTRIBUTOR - Cova Life Sales Company, One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644.
ELIGIBLE INVESTMENT(S) - An investment entity which can be selected by the
Contract Owner to be an underlying investment of the Contract.
FIXED ANNUITY - A series of payments made during the Annuity Period which are
guaranteed as to dollar amount by the Company and do not vary with the
investment experience of the Variable Account.
GENERAL ACCOUNT - The Company's general account which contains all the assets of
the Company with the exception of the Variable Account and other segregated
asset accounts.
GENERAL ACCOUNT VALUE - The Contract Owner's interest in the General Account.
ISSUE DATE - The date on which the first Contract Year begins.
NON-QUALIFIED CONTRACTS - Contracts issued under Non-Qualified Plans which do
not receive favorable tax treatment under Sections 401, 403(b) or 408 of the
Internal Revenue Code.
PORTFOLIO - A segment of an Eligible Investment which constitutes a separate and
distinct class of shares.
QUALIFIED CONTRACTS - Contracts issued under Qualified Plans which receive
favorable tax treatment under Sections 401, 403(b) or 408 of the Internal
Revenue Code.
SUB-ACCOUNT - A segment of the Variable Account.
SUB-ACCOUNT VALUE - The Contract Owner's interest in a Sub-Account.
VALUATION DATE - The Variable Account will be valued each day that the New York
Stock Exchange is open for trading which is Monday through Friday, except for
normal business holidays.
VALUATION PERIOD - The period beginning at the close of business of the New York
Stock Exchange on each Valuation Date and ending at the close of business for
the next succeeding Valuation Date.
VARIABLE ACCOUNT - A separate investment account of the Company, designated as
Cova Variable Annuity Account One, into which purchase payments will be
allocated.
VARIABLE ACCOUNT VALUE - The sum of the Contract Owner's interest in each of the
Sub-Accounts of the Variable Account.
VARIABLE ANNUITY - A series of payments made during the Annuity Period which
vary in amount with the investment experience of each applicable Sub-Account.
WITHDRAWAL VALUE - The Withdrawal Value is:
1) the Contract Value for the Valuation Period next following the
Valuation Period during which the written request to the Company for
withdrawal is received; less
2) any applicable taxes not previously deducted; less
3) the Withdrawal Charge, if any; less
4) the Contract Maintenance Charge, if any.
HIGHLIGHTS
At the Contract Owner's direction, the purchase payment for the Contract will be
allocated to a segregated investment account of Cova Financial Services Life
Insurance Company (the "Company") which account has been designated Cova
Variable Annuity Account One (the "Variable Account") or to the Company's
General Account. The Variable Account invests in shares of Cova Series Trust
(see "Cova Series Trust" on Page __), Lord Abbett Series Fund, Inc. (see "Lord
Abbett Series Fund, Inc." on Page __) and General American Capital Company (see
"General American Capital Company" on Page __). Contract Owners bear the
investment risk for all amounts allocated to the Variable Account.
The Company will refund the Contract Value (which may be more or less than the
purchase payment) computed at the end of the Valuation Period during which the
Contract is received by the Company. Under certain circumstances, the Company
may be required to refund the purchase payment.
Within ten days of the day the Contract is received, it may be returned by
delivering or mailing it to the Company at its Annuity Service Office or to the
agent through whom it was purchased. When the Contract is received by the
Company, it will be voided as if it had never been in force.
A Withdrawal Charge (sales load) may be deducted in the event of a withdrawal of
all or a portion of the Contract Value. The Withdrawal Charge is imposed on
withdrawals of all or a portion of the Contract Value and is equal to 5% of the
withdrawn purchase payment. After the first Contract Anniversary, a Contract
Owner may, not more frequently than once annually on a non-cumulative basis,
make a withdrawal each Contract Year of up to ten percent (10%) of the purchase
payment free from Withdrawal Charges provided the Contract Value prior to the
withdrawal exceeds $5,000. Additionally, the Contract Owner may, within thirty
(30) days following the fifth Contract Anniversary and every fifth Contract
Anniversary thereafter, make a withdrawal of all or a portion of the Contract
Value free from the Withdrawal Charge. (See "Charges and Deductions - Deduction
for Withdrawal Charge" (Sales Load) on Page __.)
There is a charge for the Mortality and Expense Risk Premium which is equal, on
an annual basis, to 1.25% of the daily net asset value of the Variable Account.
This Charge compensates the Company for assuming the mortality and expense risks
under the Contracts. (See "Charges and Deductions - Deduction for Mortality and
Expense Risk Premium" on Page __.)
There is an Administrative Expense Charge which is equal, on an annual basis, to
.15% of the daily net asset value of the Variable Account. This Charge
compensates the Company for costs associated with the administration of the
Contract and the Variable Account. (See "Charges and Deductions - Deduction for
Administrative Expense Charge" on Page __.)
There is an annual Contract Maintenance Charge of $30 each Contract Year. (See
"Charges and Deductions - Deduction for Contract Maintenance Charge" on Page
__.)
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values. (See "Charges and Deductions
- -Deduction for Premium Taxes" on Page __.)
Under certain circumstances, a Transfer Fee may be assessed when a Contract
Owner transfers Contract Values from one Sub-Account to another Sub-Account or
to or from the General Account. (See "Charges and Deductions - Deduction for
Transfer Fee" on Page __.)
There is a ten percent (10%) federal income tax penalty that may be applied to
the income portion of any distribution from the Contracts. However, the penalty
is not imposed under certain circumstances.(See "Tax Status - Tax Treatment of
Withdrawals - Qualified Contracts" on Page __ and "Tax Treatment of Withdrawals
- - Non-Qualified Contracts" on Page __.) For a further discussion of the taxation
of the Contracts, see "Tax Status" on Page __.
Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (as defined in Section 403(b)(11) of the Code) are limited
to circumstances only when the Contract Owner attains age 59-1/2, separates from
service, dies, becomes disabled (within the meaning of Section 72(m)(7) of the
Code), or in the case of hardship. Withdrawals for hardship are restricted to
the portion of the Contract Owner's Contract Value which represents
contributions made by the Contract Owner and does not include any investment
results. The limitations on withdrawals became effective on January 1, 1989, and
apply only to: (1) salary reduction contributions made after December 31, 1988;
(2) income attributable to such contributions; and (3) income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or transfers between certain Qualified Plans. Tax penalties may
also apply. (See "Tax Status - Tax Treatment of Withdrawals - Qualified
Contracts" on Page __.) Contract Owners should consult their own tax counsel or
other tax adviser regarding any distributions. (See "Tax Status - Tax-Sheltered
Annuities - Withdrawal Limitations" on Page __.)
Because of certain exemptive and exclusionary provisions, interests in the
General Account are not registered under the Securities Act of 1933 and the
General Account is not registered as an investment company under the Investment
Company Act of 1940, as amended. Accordingly, neither the General Account nor
any interests therein are subject to the provisions of these Acts, and the
Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in the Prospectus relating to the
General Account. Disclosures regarding the General Account may, however, be
subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
COVA VARIABLE ANNUITY ACCOUNT ONE
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
Withdrawal Charge (see Note 2 below) 5% of purchase payment withdrawn
Transfer Fee (see Note 3 below) No charge for first 12 transfers in a
Contract Year; thereafter, the fee is
$25 per transfer or, if less, 2% of
the amount transferred.
Contract Maintenance Charge $30 per contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Premium 1.25%
Administrative Expense Charge .15%
______
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES 1.40%
COVA SERIES TRUST'S ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
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Other Expenses
(after expense Total
Management reimbursement - Annual
Portfolio Fees see Note 4 below) Expenses
____________________ ___________ __________________ ________
Growth and Income .60% .09% .69%
Money Market# .00% .11% .11%
Quality Income .50% .10% .60%
High Yield .75% .11% .86%
Stock Index .50% .11% .61%
Select Equity .75% .10% .85%
Small Cap Stock .85% .10% .95%
Large Cap Stock .65% .10% .75%
International Equity .85% .10% .95%
Quality Bond .55% .10% .65%
Bond Debenture .75% .10% .85%
<FN>
# COVA INVESTMENT ADVISORY CORPORATION ("COVA ADVISORY"), THE TRUST'S
INVESTMENT ADVISER, CURRENTLY WAIVES ITS FEES FOR THE MONEY MARKET PORTFOLIO.
ALTHOUGH NOT OBLIGATED TO, COVA ADVISORY EXPECTS TO CONTINUE TO WAIVE ITS FEES
FOR THE MONEY MARKET PORTFOLIO. IN THE FUTURE, COVA ADVISORY MAY CHARGE ITS FEES
ON A PARTIAL OR COMPLETE BASIS. ABSENT THE MANAGEMENT FEE WAIVER, THE TOTAL
MANAGEMENT FEE ON AN ANNUAL BASIS FOR THE MONEY MARKET PORTFOLIO IS .50%. THE
EXAMPLES SHOWN BELOW FOR THE MONEY MARKET PORTFOLIO ARE CALCULATED BASED UPON A
WAIVER OF THE MANAGEMENT FEE.
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LORD ABBETT SERIES FUND, INC.'S ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
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Management 12b-1 Other Total Annual
Portfolio Fees Fees Expenses Expenses
___________________ ___________ _______ _________ ____________
Growth and Income## .50% .07% .02% .59%
Global Equity### .00% --- .11% .11%
<FN>
## THE EXPENSES FOR THE GROWTH AND INCOME PORTFOLIO OF LORD ABBETT SERIES
FUND, INC. HAVE BEEN RESTATED TO REFLECT A 12b-1 PLAN WHICH PROVIDES FOR
PAYMENTS TO LORD, ABBETT & CO. FOR REMITTANCE TO A LIFE INSURANCE COMPANY FOR
CERTAIN DISTRIBUTION EXPENSES (SEE THE FUND PROSPECTUS). THE 12b-1 PLAN PROVIDES
THAT SUCH REMITTANCES, IN THE AGGREGATE, WILL NOT EXCEED .15%, ON AN ANNUAL
BASIS, OF THE DAILY NET ASSET VALUE OF SHARES OF THE GROWTH AND INCOME
PORTFOLIO. THE 12b-1 PLAN WAS IMPLEMENTED ON OR ABOUT JUNE 28, 1996. THE 12b-1
FEES SHOWN ABOVE HAVE BEEN ESTIMATED FOR THE YEAR ENDING DECEMBER 31, 1996. THE
EXAMPLES BELOW FOR THIS PORTFOLIO REFLECT THE IMPOSITION OF THE ESTIMATED 12b-1
FEES.
### LORD, ABBETT & CO. ("LORD ABBETT"), THE FUND'S INVESTMENT MANAGER,
CURRENTLY WAIVES ITS MANAGEMENT FEE AND REIMBURSES A PORTION OF THE EXPENSES OF
THE GLOBAL EQUITY PORTFOLIO. ALTHOUGH NOT OBLIGATED TO, LORD ABBETT EXPECTS TO
CONTINUE TO WAIVE THE MANAGEMENT FEE FOR THE GLOBAL EQUITY PORTFOLIO. IN THE
FUTURE, LORD ABBETT MAY CHARGE THIS FEE ON A PARTIAL OR COMPLETE BASIS. ABSENT
THE MANAGEMENT FEE WAIVER, THE MANAGEMENT FEE ON AN ANNUAL BASIS FOR THE GLOBAL
EQUITY PORTFOLIO IS .75%. THE EXAMPLES SHOWN BELOW FOR THE GLOBAL EQUITY
PORTFOLIO ARE CALCULATED BASED UPON A WAIVER OF THE MANAGEMENT FEE AND A
REIMBURSEMENT OF EXPENSES.
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GENERAL AMERICAN CAPITAL COMPANY'S ANNUAL EXPENSES
(as a percentage of the average daily net assets of the Fund)
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Fund Management Fees Other Expenses Total Annual Expenses
____________ ________________ _______________ _____________________
Money Market .205% .00% .205%
</TABLE>
EXAMPLES
A Contract Owner would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
a) upon surrender at the end of each time period;
b) if the Contract is not surrendered or is annuitized.
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TIME PERIODS
1 year 3 years 5 years 10 years
_______ _________ _________ __________
COVA SERIES TRUST
Money Market Portfolio a) $ 66.36 $ 95.62 $ 132.07 $ 188.79
b) $ 16.36 $ 50.62 $ 87.07 $ 188.79
Quality Income Portfolio a) $ 71.29 $ 110.60 $ 157.34 $ 240.77
b) $ 21.29 $ 65.60 $ 112.34 $ 240.77
High Yield Portfolio a) $ 73.90 $ 118.46 $ 170.49 $ 267.24
b) $ 23.90 $ 73.46 $ 125.49 $ 267.24
Growth and Income Portfolio a) $ 72.19 $ 113.33 $ 161.92 $ 250.02
b) $ 22.19 $ 68.33 $ 116.92 $ 250.02
Stock Index Portfolio a) $ 71.39 $ 110.91 $ 157.85 $ 241.80
b) $ 21.39 $ 65.91 $ 112.85 $ 241.80
Select Equity Portfolio a) $ 73.80 $ 118.16
b) $ 23.80 $ 73.16
Small Cap Stock Portfolio a) $ 74.80 $ 121.17
b) $ 24.80 $ 76.17
Large Cap Stock Portfolio a) $ 72.80 $ 115.15
b) $ 22.80 $ 70.15
International Equity Portfolio a) $ 74.80 $ 121.17
b) $ 24.80 $ 76.17
Quality Bond Portfolio a) $ 71.79 $ 112.12
b) $ 21.79 $ 67.12
Bond Debenture Portfolio a) $ 73.80 $ 118.16
b) $ 23.80 $ 73.16
LORD ABBETT SERIES FUND, INC.
Growth and Income Portfolio a) $ 70.49 $ 108.17 $ 153.26 $ 232.47
b) $ 20.49 $ 63.17 $ 108.26 $ 232.47
Global Equity Portfolio a) $ 66.36 $ 95.62 $ 132.07 $ 188.79
b) $ 16.36 $ 50.62 $ 87.07 $ 188.79
GENERAL AMERICAN CAPITAL COMPANY
Money Market Fund a) $ 67.31 $ 98.54
b) $ 17.31 $ 53.54
</TABLE>
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the above Table is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will incur,
directly or indirectly. The Table reflects expenses of the Variable Account as
well as of the Eligible Investments. For additional information, see "Charges
and Deductions" in this Prospectus and the Prospectuses for Cova Series Trust,
Lord Abbett Series Fund, Inc. and General American Capital Company.
2. After the first Contract Anniversary, a Contract Owner may, not more
frequently than once annually on a non-cumulative basis, make a withdrawal each
Contract Year of up to ten percent (10%) of the purchase payment free from
Withdrawal Charges provided the Contract Value prior to the withdrawal exceeds
$5,000. The 10% free withdrawal has been factored into the Examples above. In
addition, the Contract Owner may, within thirty (30) days following the fifth
Contract Anniversary and every fifth Contract Anniversary thereafter, make a
withdrawal of all or a portion of the Contract Value free from the Withdrawal
Charge. (See "Charges and Deductions - Deduction for Withdrawal Charge" (Sales
Load) on Page __.)
3. No Transfer Fee will be assessed for a transfer made in connection with
the Dollar Cost Averaging program providing for the automatic transfer of funds
from the Money Market Sub-Account or the General Account to any other
Sub-Account(s). (See "Charges and Deductions - Deduction for Transfer Fee" on
Page __ and "Purchase Payments and Contract Value - Dollar Cost Averaging" on
Page __.)
4. Since August 20, 1990, the Company has been reimbursing Cova Series
Trust for all operating expenses (exclusive of the management fees) in excess of
approximately .10%. For the year ended December 31, 1995, Lord Abbett reimbursed
a portion of the expenses for the Global Equity Portfolio. The actual expense
percentages for all operating expenses (exclusive of the management fees) for
the Trust and the Fund for the year ended December 31, 1995 were: (i) .25% for
the Quality Income Portfolio, .34% for the High Yield Portfolio, .28% for the
Stock Index Portfolio, .14% for the Money Market Portfolio, .59% for the Cova
Series Trust Growth and Income Portfolio and .83% for the Global Equity
Portfolio.
Absent the expense reimbursement and management fee waiver, the percentages
shown for total expenses for the Trust and the Fund (on an annualized basis) for
the year or period ended December 31, 1995 would have been .75% for the Quality
Income Portfolio, 1.09% for the High Yield Portfolio, .64% for the Money Market
Portfolio, .78% for the Stock Index Portfolio, 1.58% for the Global Equity
Portfolio and 1.19% for the Trust's Growth and Income Portfolio.
The Select Equity, Small Cap Stock, Large Cap Stock, International Equity,
Quality Bond and Bond Debenture Portfolios commenced operations on April 1,
1996. Absent the expense reimbursement, the expenses (exclusive of management
fees) for the period from April 1, 1996 to December 31, 1996 are estimated to:
.64% for the Select Equity Portfolio; .59% for the Large Cap Stock Portfolio;
.69% for the Small Cap Stock Portfolio; .66% for the International Equity
Portfolio; .55% for the Quality Bond Portfolio; and .53% for the Bond Debenture
Portfolio.
5. Premium taxes are not reflected. Premium taxes may apply. See
"Charges and Deductions - Deduction for Premium Taxes" on Page __.
6. The assumed single purchase payment is $30,000.
7. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
Accumulation Unit Values
The following schedule includes Accumulation Unit Values for the periods
indicated. This data has been extracted from the Variable Account's Financial
Statements. Except for the Financial Statements for the period ended September
30, 1996, the Variable Account's Financial Statements have been audited by
KPMG Peat Marwick LLP, independent certified public accountants, whose report
thereon is included in the Statement of Additional Information. This information
should be read in conjunction with the Variable Account's Financial Statements
and related notes thereto which are included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For the Year or Year or Year or Year or Year or Year or
Period Period Period Period Period Period Period
Ended Ended Ended Ended Ended Ended Ended
9/30/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
_______ _________ _________ __________ __________ ________ ________
COVA SERIES TRUST
Quality Income Sub-Account
Beginning of Period $ 15.33 $ 13.17 $ 13.97 $ 12.75 $ 12.02 $ 10.62 $ 9.97
End of Period $ 15.13 $ 15.33 $ 13.17 $ 13.97 $ 12.75 $ 12.02 $ 10.62
Number of Accum.
Units Outstanding 3,485,260 2,690,633 2,576,412 3,659,656 1,891,499 563,960 564,940
High Yield Sub-Account
Beginning of Period $ 19.52 $ 16.98 $ 18.02 $ 14.99 $ 12.75 $ 10.06 $ 10.02
End of Period $ 20.73 $ 19.52 $ 16.98 $ 18.02 $ 14.99 $ 12.75 $ 10.06
Number of Accum.
Units Outstanding 2,015,197 1,870,232 1,157,642 1,045,815 361,296 298,202 280,854
Money Market Sub-Account
Beginning of Period $ 11.43 $ 10.90 $ 10.61 $ 10.46 $ 10.21 $ 10.00 *
End of Period $ 11.76 $ 11.43 $ 10.90 $ 10.61 $ 10.46 $ 10.21
Number of Accum.
Units Outstanding 2,802,025 2,987,132 6,963,421 617,575 385,448 527,571
Growth and Income Sub-Account
Beginning of Period (5/1/92 - $ 14.61 $ 11.20 $ 11.92 $ 10.47 ` `
commencement of operations) $ 15.81 $ 10.00 * *
End of Period $ 14.61 $ 11.20 $ 11.92 $ 10.47
Number of Accum.
Units Outstanding 1,799,637 1,342,833 977,209 547,643 250,919
Stock Index Sub-Account
Beginning of Period $ 15.77 $ 11.68 $ 11.87 $ 11.05 $ 10.55 $ 10.00 *
End of Period $ 17.67 $ 15.77 $ 11.68 % 11.87 $ 11.05 $ 10.55
Number of Accum.
Units Outstanding 4,732,539 5,436,980 3,151,443 7,691,151 3,164,251 639,923
Select Equity Sub-Account
Beginning of Period (4/1/96) $ 10.00 ** ** ** ** ** **
End of Period $ 10.10 ** ** ** ** ** **
Number of Accum.
Units Outstanding 1,199,716 ** ** ** ** ** **
Small Cap Stock Sub-Account
Beginning of Period (4/1/96) $ 10.00 ** ** ** ** ** **
End of Period $ 10.60 ** ** ** ** ** **
Number of Accum.
Units Outstanding 759,505 ** ** ** ** ** **
Large Cap Stock Sub-Account
Beginning of Period (4/1/96) $ 10.00 ** ** ** ** ** **
End of Period $ 10.43 ** ** ** ** ** **
Number of Accum.
Units Outstanding 1,452,773 ** ** ** ** ** **
International Equity Sub-Account
Beginning of Period (4/1/96) $ 10.00 ** ** ** ** ** **
End of Period $ 10.36 ** ** ** ** ** **
Number of Accum.
Units Outstanding 838,318 ** ** ** ** ** **
Quality Bond Sub-Account
Beginning of Period (4/1/96) $ 10.00 ** ** ** ** ** **
End of Period $ 10.11 ** ** ** ** ** **
Number of Accum.
Units Outstanding 600,904 ** ** ** ** ** **
Bond Debenture Sub-Account
Beginning of Period (4/1/96) $ 10.00 ** ** ** ** ** **
End of Period $ 10.84 ** ** ** ** ** **
Number of Accum.
Units Outstanding 459,511 ** ** ** ** ** **
LORD ABBETT
SERIES FUND, Inc.
Growth and Income Sub-Account
Beginning of Period $ 21.31 $ 16.64 $ 16.42 $ 14.50 $ 12.73 $ 10.15 $ 10.06
End of Period $ 23.42 $ 21.31 $ 16.64 $ 16.42 $ 14.50 $ 12.73 10.15
Number of Accum.
Units Outstanding 11,249,326 8,947,108 6,875,139 4,994,582 2,560,999 1,426,577 1,041,342
Global Equity Sub-Account
Beginning of Period $ 14.52 $ 13.33 $ 13.29 $ 10.64 $ 10.97 $ 9.79 $ 10.00
End of Period $ 15.37 $ 14.52 $ 13.33 $ 13.29 $ 10.64 $ 10.97 9.79
Number of Accum.
Units Outstanding 167,133 172,206 233,186 273,399 305,314 391,234 262,309
GENERAL AMERICAN CAPITAL COMPANY
Money Market Sub-Account
Beginning of Period (6/3/96) $ 10.00 ** ** ** ** ** **
End of Period $ 10.13 ** ** ** ** ** **
Number of Accum.
Units Outstanding 23,703 *** *** *** *** *** ***
<S> <C>
For the period from
December 11, 1989
(Commencement of
Operations)through
December 31, 1989
____________________
COVA SERIES TRUST
Quality Income Sub-Account
Beginning of Period $ 10.00
End of Period $ 9.97
Number of Accum.
Units Outstanding 253,695
High Yield Sub-Account
Beginning of Period $ 10.00
End of Period $ 10.02
Number of Accum.
Units Outstanding 250,000
Money Market Sub-Account
Beginning of Period *
End of Period
Number of Accum.
Units Outstanding
Growth and Income Sub-Account
Beginning of Period (5/1/92 -
commencement of operations) *
End of Period
Number of Accum.
Units Outstanding
Stock Index Sub-Account
Beginning of Period *
End of Period
Number of Accum.
Units Outstanding
Select Equity Sub-Account
Beginning of Period (4/1/96) **
End of Period **
Number of Accum.
Units Outstanding **
Small Cap Stock Sub-Account
Beginning of Period (4/1/96) **
End of Period **
Number of Accum.
Units Outstanding **
Large Cap Stock Sub-Account
Beginning of Period (4/1/96) **
End of Period **
Number of Accum.
Units Outstanding **
International Equity Sub-Account
Beginning of Period (4/1/96) **
End of Period **
Number of Accum.
Units Outstanding **
Quality Bond Sub-Account
Beginning of Period (4/1/96) **
End of Period **
Number of Accum.
Units Outstanding **
Bond Debenture Sub-Account
Beginning of Period (4/1/96) **
End of Period **
Number of Accum.
Units Outstanding **
LORD ABBETT
SERIES FUND, Inc.
Growth and Income Sub-Account
Beginning of Period $ 10.00
End of Period 10.06
Number of Accum.
Units Outstanding 14,482
Global Equity Sub-Account
Beginning of Period *
End of Period
Number of Accum.
Units Outstanding
GENERAL AMERICAN CAPITAL COMPANY
Money Market Sub-Account
Beginning of Period (6/3/96) **
End of Period **
Number of Accum.
Units Outstanding ***
<FN>
* The Global Equity Portfolio commenced regular investment operations on
April 9, 1990. The Cova Series Money Market Portfolio commenced regular
investment operations on July 1, 1991. The Stock Index Portfolio commenced
regular investment operations on November 1, 1991, and the Cova Series Trust
Growth and Income Portfolio commenced regular investment operations on May 1,
1992.
** The Select Equity, Small Cap Stock, Large Cap Stock, International
Equity, Quality Bond and Bond Debenture Sub-Accounts commenced regular
investment operations on April 1, 1996.
*** The General American Capital Company Money Market Sub-Account commenced
regular investment operations on June 3, 1996.
</TABLE>
THE COMPANY
Cova Financial Services Life Insurance Company (the "Company") was originally
incorporated on August 17, 1981 as Assurance Life Company, a Missouri
Corporation and changed its name to Xerox Financial Services Life Insurance
Company in 1985.On June 1, 1995 a wholly-owned subsidiary of General American
Life Insurance Company ("General American") purchased the Company from Xerox
Financial Services, Inc. ("XFS"). The acquisition of the Company included
related companies ("Acquisition"). On June 1, 1995, the Company changed its name
to Cova Financial Services Life Insurance Company. The Company presently is
licensed to do business in the District of Columbia and all states except
California, Maine, New Hampshire, New York and Vermont.
General American is a St. Louis-based mutual company with more than $250 billion
of life insurance in force and approximately $15 billion in assets. It provides
life and health insurance, retirement plans, and related financial services to
individuals and groups.
In conjunction with the Acquisition, the Company entered into a financing
reinsurance transaction that caused OakRe Life Insurance Company ("OakRe"), a
Missouri licensed insurer and a wholly-owned XFS subsidiary, to assume the
benefits and risks of existing single premium deferred annuity deposits (SPDAs)
which aggregated to $3,059 million at December 31, 1994. In exchange, the
Company transferred specifically identified assets to OakRe which had a carrying
value of $3,150.4 million at December 31, 1994. Ownership of OakRe was retained
by XFS subsequent to the Acquisition. The receivable from OakRe to the Company
that was created by this transaction will be liquidated over the remaining
crediting rate guaranty periods (which will be substantially all expired in five
years) by the transfer of cash in the amount of the then current account value,
less a recapture fee to OakRe on policies retained beyond their 30-day no-fee
surrender window by the Company, upon the next crediting reset date of each
annuity policy. The Company may then retain and assume the benefits and risks of
those deposits thereafter.
All of the Company's deposit obligations are fully guaranteed by General
American and the receivable from OakRe equal to the SPDA obligations is
guaranteed by OakRe's parent, XFS. In the event that both OakRe and XFS default
on the receivable, the Company may draw funds from a standby bank irrevocable
letter of credit established by XFS in the amount of $500 million.
In substance, the structure of the Acquisition allowed the seller, XFS, to
retain substantially all of the existing financial benefits and risks of the
existing business, while General American obtained the corporate licenses,
marketing and administrative capabilities of the Company, and access to the
retention of the policyholder deposit base that persists beyond the next
crediting rate reset date.
THE VARIABLE ACCOUNT
The Board of Directors of the Company adopted a resolution to establish a
segregated asset account pursuant to Missouri insurance law on February 24,
1987. This segregated asset account has been designated Cova Variable Annuity
Account One (the "Variable Account"). The Company has caused the Variable
Account to be registered with the Securities and Exchange Commission as a unit
investment trust pursuant to the provisions of the Investment Company Act of
1940.
The assets of the Variable Account are the property of the Company. However, the
assets of the Variable Account, 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 the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. The Company's obligations arising
under the Contracts are general obligations.
The Variable Account meets the definition of a "separate account" under the
federal securities laws.
The Variable Account is divided into Sub-Accounts, with the assets of each
Sub-Account invested in one Portfolio of Cova Series Trust, Lord Abbett Series
Fund, Inc. or General American Capital Company. There is no assurance that the
investment objective of any of the Portfolios will be met. Contract Owners bear
the complete investment risk for purchase payments allocated to a Sub-Account.
Contract Values will fluctuate in accordance with the investment performance of
the Sub-Account(s) to which purchase payments are allocated, and in accordance
with the imposition of the fees and charges assessed under the Contracts.
COVA SERIES TRUST
Cova Series Trust ("Trust") has been established to act as one of the funding
vehicles for the Contracts offered. Prior to May 1, 1996, the Trust was known as
Van Kampen Merritt Series Trust. The Trust is managed by Cova Investment
Advisory Corporation ("Investment Adviser"), which is an affiliate of the
Company. The Investment Adviser has retained Sub-Advisers to make investment
decisions and to place orders for the Portfolios. Prior to May 1, 1996, Van
Kampen American Capital Investment Advisory Corp. served as the investment
adviser to the Trust. The Trust is an open-end management investment company.
See the Trust prospectus for a discussion of the investment objectives and the
potential risks involved in investing in the Trust portfolios. Additional
Prospectuses and the Statement of Additional Information can be obtained by
calling or writing the Company's Marketing and Executive Office. Purchasers
should read the Trust prospectus carefully before investing.
The following is a list of the available Portfolios and the Sub-Adviser for each
Portfolio:
Van Kampen American Capital Investment Advisory Corp. is the Sub-Adviser for
the following Portfolios:
Growth and Income
Money Market
Quality Income
High Yield
Stock Index
J.P. Morgan Investment Management Inc. is the Sub-Adviser for the following
Portfolios:
Select Equity
Small Cap Stock
Large Cap Stock
International Equity
Quality Bond
Lord, Abbett & Co. is the Sub-Adviser for the following Portfolio:
Bond Debenture
LORD ABBETT SERIES FUND, INC.
Lord Abbett Series Fund, Inc. ("Fund") has been established to act as one of
the funding vehicles for the Contracts offered. The Fund is managed by Lord,
Abbett & Co. ("Investment Manager"). The Fund is a diversified open-end
management investment company. See the Fund prospectus for a discussion of the
investment objectives and the potential risks involved in investing in the
Fund portfolios. Additional Prospectuses and the Statement of Additional
Information can be obtained by calling or writing the Company's Marketing and
Executive Office. Purchasers should read the Fund prospectus carefully before
investing.
The following Portfolios are available:
Growth and Income
Global Equity (not available for new purchases)
GENERAL AMERICAN CAPITAL COMPANY
General American Capital Company ("Capital Company") is an open-end diversified
management investment company. Conning Asset Management Company (formerly known
as General American Investment Management Company) is the investment adviser to
the Capital Company. See the Capital Company prospectus for a discussion of the
investment objective of the available Fund and the potential risks involved in
investing in it. Purchasers should read the Capital Company prospectus carefully
before investing.
The following Fund is available:
Money Market
Additional Portfolios and/or Eligible Investments may be made available to
Contract Owners.
VOTING RIGHTS
In accordance with its view of present applicable law, the Company will vote the
shares of the Trust and the Fund held in the Variable Account at special
meetings of the shareholders in accordance with instructions received from
persons having the voting interest in the Variable Account. The Company will
vote shares for which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes shares for which it has
received instructions. Neither the Trust nor the Fund holds regular meetings of
shareholders.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by the Company not more than sixty (60) days prior to a
shareholder meeting of the Trust and not more than ninety (90) days prior to a
shareholder meeting of the Fund. Voting instructions will be solicited by
written communication at least ten (10) days prior to the meeting.
SUBSTITUTION OF SECURITIES
If the shares of the Trust, Fund or Capital Company (or any Portfolio within the
Trust, Fund or Capital Company or any other Eligible Investment), are no longer
available for investment by the Variable Account or, if in the judgment of the
Company, further investment in the shares should become inappropriate in view of
the purpose of the Contracts, the Company may substitute shares of another
Eligible Investment (or Portfolio) for shares already purchased or to be
purchased in the future by purchase payments under the Contracts. No
substitution of securities may take place without prior approval of the
Securities and Exchange Commission and under the requirements it may impose.
PROPOSED SUBSTITUTION TRANSACTION
Subject to its authority described above, the Company has filed an application
with the Securities and Exchange Commission requesting an order approving the
substitution of shares of the International Equity Portfolio of Cova Series
Trust for shares of the Global Equity Portfolio of Lord Abbett Series Fund, Inc.
(the "Substitution"). Within five days after the Substitution, the Company will
send to Contract Owners a written notice ("Notice") informing them that the
Substitution was carried out. The Notice will also provide that Contract Owners
have the right to make transfers from the International Equity Sub-Account to
any other Sub-Account for a period of 30 days from the date of the Notice
without the transfers counting toward the limit on the annual number of free
transfers. The Company will effect the Substitution by simultaneously placing
orders to redeem all shares of the Global Equity Portfolio and to purchase
shares of the International Equity Portfolio equal in value to the shares
redeemed. The net asset values of all affected shares will be determined as of
the close of the business day immediately before the date of these orders. The
Company will bear the expenses of the Substitution. The Company believes, based
on its review of existing federal income tax laws and regulations, that the
Substitution will not have any tax consequences to Contract Owners. Fur further
information regarding the Substitution, please contact the Company at (800)
XXX-XXXX.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Values and the Variable
Account. These charges and deductions are:
DEDUCTION FOR WITHDRAWAL CHARGE (SALES LOAD)
If all or a portion of the Contract Value (see "Withdrawals" on Page __) is
withdrawn, a Withdrawal Charge (sales load) will be calculated at the time of
each withdrawal and will be deducted from the Contract Value. This Charge
reimburses the Company for expenses incurred in connection with the promotion,
sale and distribution of the Contracts. The Withdrawal Charge is 5% of the
purchase payment withdrawn.
After the first Contract Anniversary, a Contract Owner may, not more frequently
than once annually on a non-cumulative basis, make a withdrawal each Contract
Year of up to ten percent (10%) of the purchase payment free from the Withdrawal
Charge provided the Contract Value prior to the withdrawal exceeds $5,000.
Additionally, the Contract Owner may, within thirty (30) days following the
fifth Contract Anniversary and every fifth Contract Anniversary thereafter, make
a withdrawal of all or a portion of the Contract Value free from the Withdrawal
Charge.
For a partial withdrawal, the Withdrawal Charge will be deducted from the
remaining Withdrawal Value, if sufficient; otherwise it will be deducted from
the amount withdrawn. The amount deducted from the Contract Value will be
determined by subtracting values from the General Account and/or cancelling
Accumulation Units from each applicable Sub-Account in the ratio that the value
of each Account bears to the total Contract Value. The Contract Owner must
specify in writing in advance which Accumulation Units are to be cancelled from
each Sub-Account and/or whether values are to be deducted from the General
Account if other than the above method of cancellation is desired.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions up to an amount equal to 5.5% of
purchase payments. During the initial period in which the Contracts are offered,
the Company may pay an additional .5% commission. In addition, under certain
circumstances, the Company may pay certain broker-dealers a persistency bonus
which will take into account, among other factors, the length of time purchase
payments have been held under the Contract and Contract Values. To the extent
that the Withdrawal Charge is insufficient to cover the actual cost of
distribution, the Company may use any of its corporate assets, including
potential profit which may arise from the Mortality and Expense Risk Premium
(see below), to provide for any difference.
REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE
The amount of the Withdrawal Charge on the Contracts may be reduced or
eliminated when sales of the Contracts are made to individuals or to a group of
individuals in a manner that results in savings of sales expenses. The
entitlement to reduction of the Withdrawal Charge will be determined by the
Company after examination of all the relevant factors such as:
(1) The size and type of group to which sales are to be made will be
considered. Generally, the sales expenses for a larger group are less than for a
smaller group because of the ability to implement large numbers of Contracts
with fewer sales contacts.
(2) The total amount of purchase payments to be received will be
considered. Per Contract sales expenses are likely to be less on larger purchase
payments than on smaller ones.
(3) Any prior or existing relationship with the Company will be considered.
Per Contract sales expenses are likely to be less when there is a prior existing
relationship because of the likelihood of implementing the Contract with fewer
sales contacts.
(4) There may be other circumstances, of which the Company is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines that
there will be a reduction in sales expenses, the Company may provide for a
reduction or elimination of the Withdrawal Charge.
The Withdrawal Charge may be eliminated when the Contracts are issued to an
officer, director or employee of the Company or any of its affiliates. In no
event will reductions or elimination of the Withdrawal Charge be permitted where
reductions or elimination will be unfairly discriminatory to any person.
DEDUCTION FOR MORTALITY AND EXPENSE RISK PREMIUM
The Company deducts on each Valuation Date, both prior to the Annuity Date and
during the Annuity Period, a Mortality and Expense Risk Premium which is equal,
on an annual basis, to 1.25% of the daily net asset value of the Variable
Account. The mortality risks assumed by the Company arise from its contractual
obligation to make annuity payments after the Annuity Date for the life of the
Annuitant and to waive the Withdrawal Charge in the event of the death of the
Contract Owner. The expense risk assumed by the Company is that all actual
expenses involved in administering the Contracts, including Contract maintenance
costs, administrative costs, mailing costs, data processing costs, legal fees,
accounting fees, filing fees and the costs of other services may exceed the
amount recovered from the Contract Maintenance Charge and the Administrative
Expense Charge.
If the Mortality and Expense Risk Premium is insufficient to cover the actual
costs, the loss will be borne by the Company. Conversely, if the amount deducted
proves more than sufficient, the excess will be a profit to the Company. The
Company expects a profit from this charge.
The Mortality and Expense Risk Premium is guaranteed by the Company and cannot
be increased.
DEDUCTION FOR ADMINISTRATIVE EXPENSE CHARGE
The Company deducts on each Valuation Date, both prior to the Annuity Date and
during the Annuity Period, an Administrative Expense Charge which is equal, on
an annual basis, to .15% of the daily net asset value of the Variable Account.
This charge, together with the Contract Maintenance Charge (see below), is to
reimburse the Company for the expenses it incurs in the establishment and
maintenance of the Contracts and the Variable Account. These expenses include
but are not limited to: preparation of the Contracts, confirmations, annual
reports and statements, maintenance of Contract Owner records, maintenance of
Variable Account records, administrative personnel costs, mailing costs, data
processing costs, legal fees, accounting fees, filing fees, the costs of other
services necessary for Contract Owner servicing and all accounting, valuation,
regulatory and reporting requirements. Since this charge is an asset-based
charge, the amount of the charge attributable to a particular Contract may have
no relationship to the administrative costs actually incurred by that Contract.
The Company does not intend to profit from this charge. This charge will be
reduced to the extent that the amount of this charge is in excess of that
necessary to reimburse the Company for its administrative expenses. Should this
charge prove to be insufficient, the Company will not increase this charge and
will incur the loss.
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE
The Company deducts an annual Contract Maintenance Charge of $30 from the
Contract Value on each Contract Anniversary. (In South Carolina the Contract
Maintenance Charge is the lesser of $30 each Contract Year or 2% of the Contract
Value on the Contract Anniversary.) This charge is to reimburse the Company for
its administrative expenses. This charge is deducted by subtracting values from
the General Account and/or cancelling Accumulation Units from each applicable
Sub-Account in the ratio that the value of each Account bears to the total
Contract Value. When the Contract is withdrawn for its full Withdrawal Value, on
other than the Contract Anniversary, the Contract Maintenance Charge will be
deducted at the time of withdrawal. If the Annuity Date is not a Contract
Anniversary, a prorata portion of the annual Contract Maintenance Charge will be
deducted. After the Annuity Date, the Contract Maintenance Charge will be
collected on a monthly basis and will result in a reduction of each Annuity
Payment. The Company has set this charge at a level so that, when considered in
conjunction with the Administrative Expense Charge (see "Deduction for
Administrative Expense Charge" on Page __), it will not make a profit from the
charges assessed for administration.
DEDUCTION FOR PREMIUM TAXES
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values. Some states assess premium taxes at
the time purchase payments are made; others assess premium taxes at the time
annuity payments begin. The Company currently intends to advance any premium
taxes due at the time purchase payments are made and then deduct premium taxes
from a Contract Owner's Contract Value at the time annuity payments begin or
upon withdrawal if the Company is unable to obtain a refund. The Company,
however, reserves the right to deduct premium taxes when incurred. Premium taxes
generally range from 0% to 4%.
DEDUCTION FOR INCOME TAXES
While the Company is not currently maintaining a provision for federal income
taxes with respect to the Variable Account, the Company has reserved the right
to establish a provision for income taxes if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of the
Variable Account. The Company will deduct for any income taxes incurred by it as
a result of the operation of the Variable Account whether or not there was a
provision for taxes and whether or not it was sufficient.
DEDUCTION FOR TRUST AND FUND EXPENSES
There are other deductions from and expenses paid out of the assets of the Trust
and Fund which are described in the accompanying Trust and Fund prospectuses.
DEDUCTION FOR TRANSFER FEE
Prior to the Annuity Date, a Contract Owner may transfer all or a part of an
Account without the imposition of any fee or charge if there have been no more
than 12 transfers made in the Contract Year. If more than 12 transfers have been
made in the Contract Year, the Company will deduct a transfer fee of $25 per
transfer or, if less, 2% of the amount transferred. If the Contract Owner is
participating in the Dollar Cost Averaging program providing for the automatic
transfer of funds from the Money Market Sub-Account or the General Account to
any other Sub-Account(s), such transfers are not taken into account in
determining any transfer fee. (See "Purchase Payments and Contract Value -Dollar
Cost Averaging" on Page __.)
THE CONTRACTS
OWNERSHIP
The Contract Owner has all rights and may receive all benefits under the
Contract. Prior to the Annuity Date, the Contract Owner is the person designated
in the Application, unless changed. On and after the Annuity Date, the Annuitant
is the Contract Owner. On and after the death of the Annuitant, the Beneficiary
is the Contract Owner.
The Contract Owner may change the Contract Owner at any time. A change of
Contract Owner will automatically revoke any prior designation of Contract
Owner. A request for change must be: (1) made in writing; and (2) received at
the Company. The change will become effective as of the date the written request
is signed. A new designation of Contract Owner will not apply to any payment
made or action taken by the Company prior to the time it was received.
ANNUITANT
The Annuitant is the person on whose life Annuity Payments are based. The
Annuitant is the person designated in the Application, unless changed.
ASSIGNMENT
The Contract Owner may, at any time during his or her lifetime, assign his or
her rights under the Contract. The Company will not be bound by any assignment
until written notice is received by the Company. The Company is not responsible
for the validity of any assignment. The Company will not be liable as to any
payment or other settlement made by the Company before receipt of the
assignment.
If the Contract is issued pursuant to a retirement plan which receives favorable
tax treatment under the provisions of Sections 401, 403(b) or 408 of the
Internal Revenue Code, it may not be assigned, pledged or otherwise transferred
except as may be allowed under applicable law.
BENEFICIARY
The Beneficiary is named in the Application, unless changed, and is entitled to
receive the benefits to be paid at the death of the Contract Owner.
Unless the Contract Owner provides otherwise, the Death Benefit will be paid in
equal shares or all to the survivor as follows:
(1) to the primary Beneficiaries who survive the Contract Owner's death;
or if there are none,
(2) to the contingent Beneficiaries who survive the Contract Owner's
death; or if there are none,
(3) to the estate of the Contract Owner.
CHANGE OF BENEFICIARY
Subject to the rights of any irrevocable Beneficiary, the Contract Owner may
change the Beneficiary or contingent Beneficiary. A change may be made by filing
a written request with the Company. The change will take effect as of the date
the notice is signed. The Company will not be liable for any payment made or
action taken before it records the change.
TRANSFERS OF CONTRACT VALUES DURING THE ACCUMULATION PERIOD
Prior to the Annuity Date, the Contract Owner may transfer all or part of an
Account without the imposition of any fee or charge if there have been no more
than 12 transfers made in the Contract Year. If more than 12 transfers have been
made in the Contract Year, the Company will deduct a transfer fee. If the
Contract Owner is participating in the Dollar Cost Averaging program providing
for the automatic transfer of funds from the Money Market Sub-Account or the
General Account to the Variable Account, such transfers are not taken into
account in determining any transfer fee. (See "Charges and Deductions -Deduction
for Transfer Fee" on Page __ and "Purchase Payments and Contract Value - Dollar
Cost Averaging" on Page __.) After the Annuity Date, the Contract Owner may make
a transfer once in each Contract Year. All transfers are subject to the
following:
(1) the deduction of any transfer fee that may be imposed (no charge for
first 12 transfers in a Contract Year; thereafter, the fee is $25 per transfer
or, if less, 2% of the amount transferred). The transfer fee will be deducted
from the Account from which the transfer is made. However, if the entire
interest in the Account is being transferred, the transfer fee will be deducted
from the amount which is transferred.
(2) The minimum amount which may be transferred is the lesser of (i) $1000;
or (ii) the Contract Owner's entire interest in the Account.
(3) Transfers will be effected during the Valuation Period next following
receipt by the Company of a written transfer request (or by telephone, if
authorized) containing all required information. However, no transfer may be
made effective within seven (7) calendar days of the Annuity Date.
(4) Any transfer direction must clearly specify the amount which is to be
transferred and the Accounts which are to be affected.
(5) The Company reserves the right at any time and without prior notice to
any party including, but not limited to, the circumstances described in the
Suspension of Payments or Transfers provision, to terminate, suspend or modify
the transfer privileges described above.
If the Contract Owner elects to use the telephone transfer privilege, neither
the Company nor its Annuity Service Office will be liable for transfers made in
accordance with the Contract Owner's instructions.
DEATH OF THE ANNUITANT
Upon death of the Annuitant prior to the Annuity Date, the Contract Owner must
designate a new Annuitant. If no designation is made within 30 days of the death
of the Annuitant, the Contract Owner will become the Annuitant. However, if the
Contract Owner is a non-natural person, then the death or change of the
Annuitant will be treated as the death of the Contract Owner. (See "Death of the
Contract Owner" below.)
Upon death of the Annuitant after the Annuity Date, the Death Benefit, if any,
will be as specified in the Annuity Option elected.
DEATH OF THE CONTRACT OWNER
Upon death of the Contract Owner prior to the Annuity Date, the Death Benefit
will be paid to the Beneficiary designated by the Contract Owner. The Death
Benefit will be the greater of:
(1) the purchase payment less any withdrawals and any applicable
Withdrawal Charge; or
(2) the Contract Value; or
(3) the Contract Value on the fifth Contract Anniversary or, if later,
every fifth Contract Anniversary thereafter less any withdrawals and any
applicable Withdrawal Charge made since the last fifth Contract Anniversary.
The Death Benefit will be determined and paid as of the Valuation Period next
following the date of receipt by the Company of both due proof of death and an
election for a single sum payment or election under an Annuity Option as of the
date of death.
If a single sum payment is requested, the proceeds will be paid within seven (7)
days of receipt of proof of death and the election. Payment under an Annuity
Option may be elected during the sixty-day period beginning with the date of
receipt of proof of death or a single sum payment will be made to the
Beneficiary at the end of the sixty-day period.
The entire Death Benefit must be paid within five (5) years of the date of death
unless:
(1) the Beneficiary is the spouse of the Contract Owner, in which event the
Beneficiary will become the Contract Owner and may elect that the Contract
remain in effect; or
(2) the Beneficiary is not the spouse of the Contract Owner, in which event
the Death Benefit is payable under an Annuity Option over the lifetime of the
Beneficiary beginning within one year of the date of death.
The Contract can be held by joint owners. Any joint owner must be the spouse of
the other owner. Upon the death of either joint owner, the surviving spouse will
be the designated Beneficiary. Any other Beneficiary designated in the
Application or as subsequently changed will be treated as a contingent
Beneficiary unless otherwise indicated.
ANNUITY PROVISIONS
ANNUITY DATE AND ANNUITY OPTION
The Contract Owner selects an Annuity Date and Annuity Option at the time of the
Application. The Annuity Date must always be the first day of a calendar month
and must be at least one month after the Issue Date. The Annuity Date may not be
later than the first day of the first calendar month following the Annuitant's
85th birthday. If no Annuity Option is elected, Option 2 with 10 years
guaranteed will automatically be applied.
CHANGE IN ANNUITY DATE AND ANNUITY OPTION
Prior to the Annuity Date, the Contract Owner may, upon at least thirty (30)
days prior written notice to the Company, change the Annuity Date. The Annuity
Date must always be the first day of a calendar month. The Annuity Date may not
be later than the first day of the first calendar month following the
Annuitant's 85th birthday.
The Contract Owner may, upon at least thirty (30) days prior written notice to
the Company, at any time prior to the Annuity Date, change the Annuity Option.
ALLOCATION OF ANNUITY PAYMENTS
If all of the Contract Value on the seventh calendar day before the Annuity Date
is allocated to the General Account, the annuity will be paid as a Fixed
Annuity. If all of the Contract Value on that date is allocated to the Variable
Account, the annuity will be paid as a Variable Annuity. If the Contract Value
on that date is allocated to both the General Account and the Variable Account,
the Annuity will be paid as a combination of a Fixed Annuity and a Variable
Annuity to reflect the allocation between the Accounts.
TRANSFERS DURING THE ANNUITY PERIOD
During the Annuity Period, payees under the Contract may transfer, by written
request, Contract Values among the Accounts subject to the following:
(1) the Contract Owner may make a transfer once each Contract Year between
Sub-Accounts of the Variable Account.
(2) During the Annuity Period, the payee(s) may, by written notice to the
Company, convert Variable Annuity Payments to Fixed Annuity Payments. The
payee(s) may not convert Fixed Annuity Payments to Variable Annuity Payments.
The amount converted to Fixed Annuity Payments from a Sub-Account is subject to
certain procedures set out in the General Account provisions.
ANNUITY OPTIONS
The actual dollar amount of Variable Annuity Payments is dependent upon (i) the
Contract Value on the Annuity Date, (ii) the annuity table specified in the
Contract, (iii) the Annuity Option selected, and (iv) the investment performance
of the Sub-Account selected.
The annuity tables contained in the Contract are based on a three percent (3%)
assumed investment rate. If the actual net investment rate exceeds three percent
(3%), payments will increase. Conversely, if the actual rate is less than three
percent (3%), Annuity Payments will decrease. If a higher assumed investment
rate was used, the initial payment would be higher, but the actual net
investment rate would have to be higher in order for Annuity Payments to
increase.
Variable Annuity Payments will reflect the investment performance of the
Variable Account in accordance with the allocation of the Contract Value to the
Sub-Account on the Annuity Date. Thereafter, allocations may not be changed
except as provided in Transfers During the Annuity Period, above. The total
dollar amount of each Annuity Payment is the sum of the Variable Annuity Payment
and the Fixed Annuity Payment reduced by the Contract Maintenance Charge (except
in Oregon where the Fixed Annuity Payment is not reduced by the Contract
Maintenance Charge).
The amount payable under the Contract may be made under one of the following
options or any other option acceptable to the Company:
OPTION 1. LIFE ANNUITY.
An annuity payable monthly during the lifetime of the Annuitant. Payments
cease at the death of the Annuitant.
OPTION 2. LIFE ANNUITY WITH 5, 10 OR 20 YEARS GUARANTEED.
An annuity payable monthly during the lifetime of the Annuitant with the
guarantee that, if at the death of the Annuitant, payments have been made for
less than the selected guaranteed period, payments will be continued to the
Beneficiary for the remainder of the guaranteed period. If the Beneficiary does
not desire payments to continue for the remainder of the guaranteed period, he
or she may elect to have the present value of the guaranteed Annuity Payments
remaining, as of the date notice of death is received by the Company, commuted
at the assumed investment rate.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY.
An annuity payable monthly during the joint lifetime of the Annuitant and
another person. At the death of either Payee, Annuity Payments will continue to
be made to the survivor Payee. The survivor's Annuity Payments will be equal to
100%, 66 2/3% or 50% of the amount payable during the joint lifetime, as chosen.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity Payments will be paid as monthly installments. However, if the net
amount available to apply under any Annuity Option is less than $5,000 ($2,000
in Massachusetts and Texas), the Company has the right to pay the amount in one
single lump sum. In addition, if the payments provided for would be or become
less than $100 ($20 in Texas), the Company has the right to change the frequency
of payments to provide payments of at least $100 ($20 in Texas).
PURCHASE PAYMENTS AND CONTRACT VALUE
PURCHASE PAYMENTS
The Contracts are purchased under a single purchase payment plan. The single
purchase payment is due on the Issue Date and must be at least $5,000. Prior
Company approval must be obtained for any purchase payments in excess of
$1,000,000. The Company reserves the right to decline any Application or
purchase payment.
ALLOCATION OF PURCHASE PAYMENTS
Purchase payments are allocated to the General Account or appropriate
Sub-Account(s) within the Variable Account as elected by the Contract Owner. For
each Sub-Account, purchase payments are converted into Accumulation Units. The
number of Accumulation Units credited to the Contract is determined by dividing
the purchase payment allocated to the Sub-Account by the value of the
Accumulation Unit for the Sub-Account. Purchase payments allocated to the
General Account are credited in dollars.
For the single purchase payment, if the Application for a Contract is in good
order, the Company will apply the purchase payment to the Variable Account and
credit the Contract with Accumulation Units and/or to the General Account and
credit the Contract with dollars within two business days of receipt. If the
Application for a Contract is not in good order, the Company will attempt to get
it in good order or the Company will return the Application and the purchase
payment within five (5) business days. The Company will not retain a purchase
payment for more than five (5) business days while processing an incomplete
Application unless it has been so authorized by the purchaser.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected, permits a Contract Owner
to systematically transfer each month amounts from the Money Market Sub-Account
or the General Account to any Sub-Account(s). By allocating amounts on a
regularly scheduled basis as opposed to allocating the total amount at one
particular time, a Contract Owner may be less susceptible to the impact of
market fluctuations. The minimum amount which may be transferred is $500. A
Contract Owner must have a minimum of $6,000 of Contract Value in the Money
Market Sub-Account or the General Account, or the amount required to complete
the Contract Owner's designated program, in order to participate in the Dollar
Cost Averaging program.
All Dollar Cost Averaging transfers will be made on the 15th of each month (or
the next Valuation Date if the 15th of the month is not a Valuation Date). If
the Contract Owner is participating in the Dollar Cost Averaging program, such
transfers are not taken into account in determining any transfer fee. Under
certain circumstances, there may be restrictions with respect to a Contract
Owner's ability to participate in the Dollar Cost Averaging program.
DISTRIBUTOR
Cova Life Sales Company ("Life Sales"), One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644, acts as the distributor of the Contracts. Life
Sales is an affiliate of the Company. The Contracts are offered on a continuous
basis.
CONTRACT VALUE
The value of the Contract is the sum of the values for each Sub-Account and the
value in the General Account. The value of each Sub-Account is determined by
multiplying the number of Accumulation Units attributable to the Sub-Account by
the value of an Accumulation Unit for the Sub-Account.
ACCUMULATION UNIT
Purchase payments allocated to the Variable Account and amounts transferred to
or within the Variable Account are converted into Accumulation Units. This is
done by dividing each purchase payment by the value of an Accumulation Unit for
the Valuation Period during which the purchase payment is allocated to the
Variable Account or the transfer is made. The Accumulation Unit value for each
Sub-Account was arbitrarily set initially at $10. The Accumulation Unit value
for any later Valuation Period is determined by subtracting (b) from (a) and
dividing the result by (c) where:
(a) is the net result of
(1) the assets of the Sub-Account; i.e., the aggregate value of the
underlying Eligible Investment shares held at the end of such Valuation Period,
plus or minus
(2) the cumulative charge or credit for taxes reserved which is
determined by the Company to have resulted from the operation of the
Sub-Account;
(b) is the cumulative unpaid charge for the Mortality and Expense Risk
Premium and for the Administrative Expense Charge (see "Charges and Deductions"
above); and
(c) is the number of Accumulation Units outstanding at the end of such
Valuation Period.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
WITHDRAWALS
While the Contract is in force and before the Annuity Date, the Company will,
upon written request to the Company by the Contract Owner, allow the withdrawal
of all or a portion of the Contract for its Withdrawal Value. Withdrawals will
result in the cancellation of Accumulation Units from each applicable
Sub-Account of the Variable Account or a reduction in the General Account Value
in the ratio that the Sub-Account Value and/or the General Account Value bears
to the total Contract Value. The Contract Owner must specify in writing in
advance which units are to be cancelled or values are to be reduced if other
than the above mentioned method of cancellation is desired. The Company will pay
the amount of any withdrawal within seven (7) days of receipt of a request,
unless the Suspension of Payments or Transfers provision is in effect (see
"Suspension of Payments or Transfers" below).
The Withdrawal Value is the Contract Value for the Valuation Period next
following the Valuation Period during which a written request for withdrawal is
received at the Company reduced by the sum of:
(1) any applicable taxes not previously deducted;
(2) any applicable Contract Maintenance Charge; and
(3) any applicable Withdrawal Charge.
Each partial withdrawal must be for an amount which is not less than $1,000 or,
if smaller, the remaining value in the Sub-Account or General Account. The
remaining value in each Sub-Account or General Account from which a partial
withdrawal is requested must be at least $1,000 after the partial withdrawal is
completed.
Certain tax withdrawal penalties and restrictions may apply to withdrawals from
Contracts. (See "Tax Status" on Page __.) For Contracts purchased in connection
with 403(b) plans, the Code limits the withdrawal of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403(b)(11) of the Code) to circumstances only when the Contract Owner:
(1) attains age 59-1/2; (2) separates from service; (3) dies; (4) becomes
disabled (within the meaning of Section 72(m)(7) of the Code); or (5) in the
case of hardship.
However, withdrawals for hardship are restricted to the portion of the Contract
Owner's Contract Value which represents contributions made by the Contract Owner
and does not include any investment results. The limitations on withdrawals
became effective on January 1, 1989 and apply only to salary reduction
contributions made after December 31, 1988, to income attributable to such
contributions and to income attributable to amounts held as of December 31,
1988. The limitations on withdrawals do not affect rollovers or transfers
between certain Qualified Plans. Contract Owners should consult their own tax
counsel or other tax adviser regarding any distributions.
TEXAS OPTIONAL RETIREMENT PROGRAM
A Contract issued to a participant in the Texas Optional Retirement Program
("ORP") will contain an ORP endorsement that will amend the Contract as follows:
A) If for any reason a second year of ORP participation is not begun, the total
amount of the State of Texas' first-year contribution will be returned to the
appropriate institute of higher education upon its request. B) No benefits will
be payable, through surrender of the Contract or otherwise, until the
participant dies, accepts retirement, terminates employment in all Texas
institutions of higher education or attains the age of 70-1/2. The value of the
Contract may, however, be transferred to other contracts or carriers during the
period of ORP participation. A participant in the ORP is required to obtain a
certificate of termination from the participant's employer before the value of a
Contract can be withdrawn.
SUSPENSION OF PAYMENTS OR TRANSFERS
The Company reserves the right to suspend or postpone payments for any period
when:
(1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
(2) trading on the New York Stock Exchange is restricted;
(3) an emergency exists as a result of which disposal of securities held in
the Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
(4) during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners; provided that
applicable rules and regulations of the Securities and Exchange Commission will
govern as to whether the conditions described in (2) and (3) exist.
The Company reserves the right to defer payment for a withdrawal or transfer
from the General Account for the period permitted by law but not for more than
six months after written election is received by the Company.
PERFORMANCE INFORMATION
MONEY MARKET PORTFOLIO
From time to time, the Money Market Sub-Account of the Variable Account may
advertise its yield and effective yield. Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
yield of the Money Market Sub-Account refers to the income generated by Contract
Values in the Money Market Sub-Account over a seven-day period (which period
will be stated in the advertisement). This income is annualized. That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
Contract Values in the Money Market Sub-Account. The effective yield is
calculated similarly. However, when annualized, the income earned by Contract
Values is assumed to be reinvested. This results in the effective yield being
slightly higher than the yield because of the compounding effect of the assumed
reinvestment. The yield figure will reflect the deduction of any asset-based
charges and any applicable Contract Maintenance Charge, but will not reflect the
deduction of any Withdrawal Charge. The deduction of any Withdrawal Charge would
reduce any percentage increase or make greater any percentage decrease.
OTHER PORTFOLIOS
From time to time, the Company may advertise performance data for the various
other Portfolios under the Contract. Such data will show the percentage change
in the value of an Accumulation Unit based on the performance of an investment
medium over a period of time, usually a calendar year, determined by dividing
the increase (decrease) in value for that Unit by the Accumulation Unit value at
the beginning of the period. This percentage figure will reflect the deduction
of any asset-based charges and any applicable Contract Maintenance Charges under
the Contracts, but will not reflect the deduction of any Withdrawal Charge. The
deduction of any Withdrawal Charge would reduce any percentage increase or make
greater any percentage decrease.
Any advertisement will also include average annual total return figures
calculated as described in the Statement of Additional Information. The total
return figures reflect the deduction of any applicable Contract Maintenance
Charges and Withdrawal Charges, as well as any asset-based charges.
The Company may make available yield information with respect to some of the
Portfolios. Such yield information will be calculated as described in the
Statement of Additional Information. The yield information will reflect the
deduction of any applicable Contract Maintenance Charge as well as any
asset-based charges.
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the Portfolios against
established market indices such as the Standard & Poor's 500 Stock Index, the
Dow Jones Industrial Average or other management investment companies which have
investment objectives similar to the Portfolio being compared. The Standard &
Poor's 500 Stock Index is an unmanaged, unweighted average of 500 stocks, the
majority of which are listed on the New York Stock Exchange. The Dow Jones
Industrial Average is an unmanaged, weighted average of thirty blue chip
industrial corporations listed on the New York Stock Exchange. Both the Standard
& Poor's 500 Stock Index and the Dow Jones Industrial Average assume quarterly
reinvestment of dividends.
The Company may also distribute sales literature which compares the performance
of the Accumulation Unit values of the Contracts issued through the Variable
Account with the unit values of variable annuities issued through the separate
accounts of other insurance companies. Such information will be derived from the
Lipper Variable Insurance Products Performance Analysis
Service or from the VARDS Report.
The Lipper Variable Insurance Products Performance Analysis Service is published
by Lipper Analytical Services, Inc., a publisher of statistical data which
currently tracks the performance of almost 4,000 investment companies. The
rankings compiled by Lipper may or may not reflect the deduction of asset-based
insurance charges. The Company's sales literature utilizing these rankings will
indicate whether or not such charges have been deducted. Where the charges have
not been deducted, the sales literature will indicate that if the charges had
been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect the
deduction of asset-based insurance charges.
TAX STATUS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY
OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
ANNUITY CONTRACTS UNDER FEDERAL INCOME TAX LAW. IT SHOULD BE FURTHER UNDERSTOOD
THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL RULES NOT
DESCRIBED IN THIS PROSPECTUS MAY BE APPLICABLE IN CERTAIN SITUATIONS. MOREOVER,
NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. A Contract
Owner is not taxed on increases in the value of a Contract until distribution
occurs, either in the form of a lump sum payment or as annuity payments under
the Annuity Option selected. For a lump sum payment received as a total
withdrawal (total surrender), the recipient is taxed on the portion of the
payment that exceeds the cost basis of the Contract. For Non-Qualified
Contracts, this cost basis is generally the purchase payments, while for
Qualified Contracts there may be no cost basis. The taxable portion of the lump
sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract bears to the expected return under the Contract.
The exclusion amount for payments based on a variable annuity option is
determined by dividing the cost basis of the Contract by the number of years
over which the annuity is expected to be paid. Payments received after the
investment in the Contract has been recovered (i.e. when the total of the
excludible amounts equal the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries under the
Contracts should seek competent financial advice about the tax consequences of
any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in imposition of federal income tax
to the Contract Owner with respect to earnings allocable to the Contract prior
to the receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consists of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, each United States government
agency or instrumentality shall be treated as a separate issuer.
The Company intends that all Portfolios underlying the Contracts will be managed
by the investment advisers in such a manner as to comply with these
diversification requirements.
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract for
tax purposes if the owner of the contract has excessive control over the
investments underlying the contract (i.e., by being able to transfer values
among sub-accounts with only limited restrictions). The issuance of such
guidelines may require the Company to impose limitations on a Contract Owner's
right to control the investment. It is not known whether any such guidelines
would have retroactive effect.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on purchase payments
for the Contracts will be taxed currently to the Contract Owner if the Contract
Owner is a non-natural person, e.g., a corporation, or certain other entities.
Such Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity as agent for a natural person nor to Contracts held by Qualified
Plans. Purchasers should consult their own tax adviser before purchasing a
Contract to be owned by a non-natural person.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. Contract Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign or
pledge their Contracts.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to Federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
Federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or distributions for a specified
period of 10 years or more; or b) distributions which are required minimum
distributions; or c) the portion of the distributions not includible in gross
income (i.e. returns of after-tax contributions). Participants should consult
their own tax counsel or other tax advisor regarding withholding.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 59-1/2; (b) after the death of the Contract
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) paid in a series of
substantially equal periodic payments made not less frequently than annually for
the life (or life expectancy) of the taxpayer or for the joint lives (or joint
life expectancies) of the taxpayer and his or her Beneficiary; (e) under an
immediate annuity or (f) which are allocable to purchase payments made prior to
August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts" on Page __.)
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of plan and terms and conditions of each
specific plan. Contract Owners, Annuitants and Beneficiaries are cautioned that
benefits under a Qualified Plan may be subject to the terms and conditions of
the plan regardless of the terms and conditions of the Contracts issued pursuant
to the plan. Following are general descriptions of the types of Qualified Plans
with which the Contracts may be used. Such descriptions are not exhaustive and
are for general informational purposes only. The tax rules regarding Qualified
Plans are very complex and will have differing applications depending on
individual facts and circumstances. Each purchaser should obtain competent tax
advice prior to purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described in
this Prospectus. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" on Page __.)
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
A. H.R. 10 PLANS
Section 401 of the Code permits self-employed individuals to establish
Qualified Plans for themselves and their employees, commonly referred to as H.R.
10 or Keogh plans. Contributions made to the Plan for the benefit of the
employees will not be included in the gross income of the employees until
distributed from the Plan. The tax consequences to participants may vary
depending upon the particular plan design. However, the Code places limitations
and restrictions on all Plans including on such items as: amount of allowable
contributions; form, manner and timing of distributions; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Purchasers of Contracts for use with an H.R. 10 Plan should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
B. TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of tax-sheltered annuities
by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includible in the gross income of the
employees until the employees receive distributions from the Contracts. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. (See "Tax Treatment of Withdrawals Qualified
Contracts" below.) Any employee should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
C. INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity ("IRA").
Under applicable limitations, certain amounts may be contributed to an IRA which
will be deductible from the individual's gross income. These IRAs are subject to
limitations on eligibility, contributions, transferability and distributions.
(See "Tax Treatment of Withdrawals - Qualified Contracts" below.) Under certain
conditions, distributions from other IRAs and other Qualified Plans may be
rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of Contracts to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
D. CORPORATE PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the Contracts to provide benefits under the
Plan. Contributions to the Plan for the benefit of employees will not be
includible in the gross income of the employees until distributed from the Plan.
The tax consequences to participants may vary depending upon the particular plan
design. However, the Code places limitations and restrictions on all plans
including on such items as: amount of allowable contributions; form, manner and
timing of distributions; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. (See "Tax Treatment of Withdrawals -
Qualified Contracts" below.) Purchasers of Contracts for use with Corporate
Pension or Profit-Sharing Plans should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of
any distribution from qualified retirement plans, including Contracts issued and
qualified under Code Sections 401 (H.R. 10 and Corporate Pension and
Profit-Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b) (Individual
Retirement Annuities). To the extent amounts are not includible in gross income
because they have been rolled over to an IRA or to another eligible Qualified
Plan, no tax penalty will be imposed. The tax penalty will not apply to the
following distributions: (a) if distribution is made on or after the date on
which the Contract Owner or Annuitant (as applicable) reaches age 59-1/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (for this purpose disability is as defined in Section
72(m)(7) of the Code); (c) after separation from service, distributions that are
part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Contract Owner or Annuitant
(as applicable) or the joint lives (or joint life expectancies) of such Contract
Owner or Annuitant (as applicable) and his or her designated Beneficiary; (d)
distributions to a Contract Owner or Annuitant (as applicable) who has separated
from service after he has attained age 55; (e) distributions made to the
Contract Owner or Annuitant (as applicable) to the extent such distributions do
not exceed the amount allowable as a deduction under Code Section 213 to the
Contract Owner or Annuitant (as applicable) for amounts paid during the taxable
year for medical care; and (f) distributions made to an alternate payee pursuant
to a qualified domestic relations order. The exceptions stated in (d), (e) and
(f) above do not apply in the case of an Individual Retirement Annuity. The
exception stated in (c) above applies to an Individual Retirement Annuity
without the requirement that there be a separation from service.
Generally, distributions from a qualified plan must commence no later than April
1 of the calendar year, following the year in which the employee attains age 70.
Required distributions must be over a period not exceeding the life expectancy
of the individual or the joint lives or life expectancies of the individual and
his or her designated beneficiary. If the required maximum distributions are not
made, a 50% penalty tax is imposed as to the amount not distributed.
TAX-SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 59-1/2;
(2) separates from service; (3) dies; (4) becomes disabled (within the meaning
of Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions made by the Contract Owner and
does not include any investment results. The limitations on withdrawals became
effective on January 1, 1989 and apply only to salary reduction contributions
made after December 31, 1988, to income attributable to such contributions and
to income attributable to amounts held as of December 31, 1988. The limitations
on withdrawals do not affect rollovers or transfers between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company and the Variable Account
have been included in the Statement of Additional Information.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Variable Account,
the Distributor or the Company is a party.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
PAGE
Company 3
Experts 3
Legal Opinions 3
Distributor 3
Yield Calculation For Money Market Sub-Account 3
Performance Information 4
Annuity Provisions 5
Variable Annuity 5
Fixed Annuity 6
Annuity Unit 6
Net Investment Factor 6
Mortality and Expense Guarantee 6
Financial Statements 6
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL SINGLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
issued by
COVA VARIABLE ANNUITY ACCOUNT ONE
(FORMERLY, XEROX VARIABLE ANNUITY ACCOUNT ONE)
AND
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
(FORMERLY, XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY)
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED ______________, FOR THE
INDIVIDUAL SINGLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS WHICH
ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE
THE COMPANY AT: One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois
60181-4644, (800) 831-LIFE.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED ____________.
TABLE OF CONTENTS
PAGE
Company................................................................ 3
Experts................................................................ 3
Legal Opinion.......................................................... 3
Distributor............................................................ 3
Yield Calculation for Money Market Sub-Account......................... 3
Performance Information................................................ 4
Annuity Provisions..................................................... 5
Variable Annuity..................................................... 5
Fixed Annuity........................................................ 6
Annuity Unit......................................................... 6
Net Investment Factor................................................ 6
Mortality and Expense Guarantee...................................... 6
Financial Statements................................................... 6
COMPANY
Information regarding Cova Financial Services Life Insurance Company (the
"Company") and its ownership is contained in the Prospectus. On June 1, 1995,
the Company changed its name from Xerox Financial Services Life Insurance
Company to its present name.
On April 1, 1996, the Company contributed initial capital to the Large Cap Stock
and Quality Bond Sub-Accounts of the Separate Account. As of September 30, 1996,
the capital contributed to the Quality Bond Sub-Account by the Company
represented approximately 67% of the total assets of such Sub-Account and the
capital contributed to the Large Cap Stock Sub-Account by the Company
represented approximately 88% of the total assets of such Sub-Account. The
Company currently intends to remove these assets from the Sub-Accounts on a
prorata basis in proportion to money invested in the Sub-Accounts by Contract
Owners.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995 and
1994 and for each of the years in the three-year period ended December 31, 1995,
and the financial statements of the Separate Account as of December 31, 1995 and
1994, included herein, have been included herein in reliance upon the reports of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
LEGAL OPINIONS
Legal matters in connection with the Contracts described herein are being passed
upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
DISTRIBUTOR
Cova Life Sales Company ("Life Sales") acts as the distributor. Prior to June 1,
1995, Cova Life Sales Company was known as Xerox Life Sales Company. Life Sales
is an affiliate of the Company. The offering is on a continuous basis.
YIELD CALCULATION FOR MONEY MARKET SUB-ACCOUNT
The Money Market Sub-Account of the Variable Account will calculate its current
yield based upon the seven days ended on the date of calculation. The Company
does not currently advertise yield information for the Money Market
Sub-Account.
The current yield of the Money Market Sub-Account is computed by determining the
net change (exclusive of capital changes) in the value of a hypothetical
pre-existing Contract Owner account having a balance of one Accumulation Unit of
the Sub-Account at the beginning of the period, subtracting the Mortality and
Expense Risk Premium, the Administrative Expense Charge and the Contract
Maintenance Charge, dividing the difference by the value of the account at the
beginning of the same period to obtain the base period return and multiplying
the result by (365/7).
The Money Market Sub-Account computes its effective compound yield according to
the method prescribed by the Securities and Exchange Commission. The effective
yield reflects the reinvestment of net income earned daily on Money Market
Sub-Account assets.
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not.
The yields quoted should not be considered a representation of the yield of the
Money Market Sub-Account in the future since the yield is not fixed. Actual
yields will depend not only on the type, quality and maturities of the
investments held by the Money Market Sub-Account and changes in the interest
rates on such investments, but also on changes in the Money Market Sub-Account's
expenses during the period.
Yield information may be useful in reviewing the performance of the Money Market
Sub-Account and for providing a basis for comparison with other investment
alternatives. However, the Money Market Sub-Account's yield fluctuates, unlike
bank deposits or other investments which typically pay a fixed yield for a
stated period of time. The yield information does not reflect the deduction of
any applicable Withdrawal Charge at the time of the surrender. (See "Charges and
Deductions - Deduction for Withdrawal Charge (Sales Load)" in the Prospectus.)
PERFORMANCE INFORMATION
From time to time, the Company may advertise performance data as described in
the Prospectus. Any such advertisement will include total return figures for the
time periods indicated in the advertisement. Such total return figures will
reflect the deduction of a 1.25% Mortality and Expense Risk Premium, a .15%
Administrative Expense Charge, the investment advisory fee for the underlying
Portfolio being advertised and any applicable Contract Maintenance Charges and
Withdrawal Charges.
The hypothetical value of a Contract purchased for the time periods described in
the advertisement will be determined by using the actual Accumulation Unit
values for an initial $1,000 purchase payment, and deducting any applicable
Contract Maintenance Charges and any applicable Withdrawal Charge to arrive at
the ending hypothetical value. The average annual total return is then
determined by computing the fixed interest rate that a $1,000 purchase payment
would have to earn annually, compounded annually, to grow to the hypothetical
value at the end of the time periods described. The formula used in these
calculations is:
n
P(1 + T) = ERV
P = a hypothetical initial payment of $1,000 T = average annual total
return n = number of years
ERV = ending redeemable value at the end of the time periods used (or
fractional portion thereof) of a hypothetical $1,000 payment made
at the beginning of the time periods used.
In addition to total return data, the Company may include yield information in
its advertisements. For each Sub-Account (other than the Money Market
Sub-Account) for which the Company will advertise yield, it will show a yield
quotation based on a 30 day (or one month) period ended on the date of the most
recent balance sheet of the Variable Account included in the registration
statement, computed by dividing the net investment income per Accumulation Unit
earned during the period by the maximum offering price per Unit on the last day
of the period, according to the following formula:
6
(a - b)
Yield = 2[(_______ + 1) - 1]
(cd)
Where:
a = Net investment income earned during the period by the Trust
or Fund attributable to shares owned by the Sub-Account.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of Accumulation Units outstanding
during the period.
d = The maximum offering price per Accumulation Unit on the last
day of the period.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of any
Withdrawal Charge.
Contract Owners should note that the investment results of each Sub-Account will
fluctuate over time, and any presentation of the Sub-Account's total return or
yield for any period should not be considered as a representation of what an
investment may earn or what a Contract Owner's total return or yield may be in
any future period.
ANNUITY PROVISIONS
VARIABLE ANNUITY
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Sub-Account(s) of the Variable Account. At the Annuity Date,
the Contract Value in each Sub-Account will be applied to the applicable Annuity
Tables. The Annuity Table used will depend upon the Annuity Option chosen. If,
as of the Annuity Date, the then current Annuity Option rates applicable to this
class of Contracts provide a first Annuity Payment greater than guaranteed under
the same Annuity Option under this Contract, the greater payment will be made.
The dollar amount of Annuity Payments after the first is determined as follows:
(1) the dollar amount of the first Annuity Payment is divided by the value
of an Annuity Unit as of the Annuity Date. This establishes the number of
Annuity Units for each monthly payment. The number of Annuity Units remains
fixed during the Annuity Payment period.
(2) the fixed number of Annuity Units is multiplied by the Annuity Unit
value for the last Valuation Period of the month preceding the month for which
the payment is due. This result is the dollar amount of the payment.
The total dollar amount of each Variable Annuity Payment is the sum of all
Sub-Account Variable Annuity Payments reduced by the Contract Maintenance
Charge.
FIXED ANNUITY
A fixed annuity is a series of payments made during the Annuity Period which are
guaranteed as to dollar amount by the Company and do not vary with the
investment experience of the Variable Account. The General Account Value on the
day immediately preceding the Annuity Date will be used to determine the Fixed
Annuity monthly payment. The first monthly Annuity Payment will be based upon
the Annuity Option elected and the appropriate Annuity Option Table.
ANNUITY UNIT
The value of an Annuity Unit for each Sub-Account was arbitrarily set initially
at $10. This was done when the first Eligible Investment shares were purchased.
The Sub-Account Annuity Unit value at the end of any subsequent Valuation Period
is determined by multiplying the Sub-Account Annuity Unit value for the
immediately preceding Valuation Period by the product of (a) the Net Investment
Factor for the day for which the Annuity Unit Value is being calculated, and (b)
0.999919.
NET INVESTMENT FACTOR
The Net Investment Factor for any Sub-Account for any Valuation Period is
determined by dividing:
(a) the Accumulation Unit value as of the close of the current Valuation
Period, by
(b) the Accumulation Unit value as of the close of the immediately
preceding Valuation Period.
The Net Investment Factor may be greater or less than one, as the Annuity Unit
value may increase or decrease.
MORTALITY AND EXPENSE GUARANTEE
The Company guarantees that the dollar amount of each Annuity Payment after the
first Annuity Payment will not be affected by variations in mortality or expense
experience.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts.
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996 (Unaudited)
(In thousands of dollars)
ASSETS
INVESTMENTS:
<TABLE>
<CAPTION>
<S> <C>
COVA SERIES TRUST:
Quality Income Portfolio - 5,007,520 shares at a net asset value of $10.53 per share (cost $52,549) $ 52,754
High Yield Portfolio - 3,906,238 shares at a net asset value of $10.70 per share (cost $40,993) 41,787
Growth and Income Portfolio - 2,096,504 shares at a net asset value of $13.58 per share (cost $25,017) 28,461
Money Market Portfolio - 32,959,900 shares at a net asset value of $1.00 per share (cost $32,960) 32,960
Stock Index Portfolio - 5,389,275 shares at a net asset value of $15.52 per share (cost $66,086) 83,643
Bond Debenture Portfolio - 460,658 shares at a net asset value of $10.81 per share (cost $4,757) $ 4,981
Quality Bond Portfolio - 605,241 shares at a net asset value of $10.04 per share (cost $6,035) 6,075
Small Cap Stock Portfolio - 757,132 shares at a net asset value of $10.64 per share (cost 7,776) 8,053
Large Cap Stock Portfolio - 1,452,014 shares at a net asset value of $10.44 per share (cost $14,524) 15,163
Select Equity Portfolio - 1,198,070 shares at a net asset value of $10.11 per share (cost $11,855) 12,118
International Equity Portfolio - 838,077 shares at a net asset value of $10.37 per share (cost $8,502) 8,687
LORD ABBETT SERIES FUND, INC:
Growth and Income Portfolio - 15,566,544 shares at a net asset value of $16.93 per share (cost $217,362) 263,506
Global Equity Portfolio - 209,576 shares at a net asset value of $12.26 per share (cost $2,259) 2,570
GENERAL AMERICAN CAPITAL COMPANY
Money Market Portfolio - 14,120 shares at a net asset value of $17.01 per share (cost $238) 240
TOTAL ASSETS $ 560,998
==========
LIABILITIES AND CONTRACT OWNERS' EQUITY
FEES PAYABLE TO COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY $ 129
CONTRACT OWNERS' EQUITY:
Trust Quality Income - 3,485,260 accumulation units at $15.132856 per unit 52,742
Trust High Yield - 2,015,197 accumulation units at $20.731096 per unit 41,777
Trust Growth and Income - 1,799,637 accumulation units at $15.811166 per unit 28,454
Trust Money Market - 2,802,025 accumulation units at $11.760162 per unit 32,952
Trust Stock Index - 4,732,539 accumulation units at $17.669922 per unit 83,624
Trust Bond Debenture Portfolio - 459,511 accumulation units at $10.837855 per unit 4,980
Trust Quality Bond Portfolio -600,904 accumulation units at $10.107693 per unit 6,074
Trust Small Cap Stock Portfolio - 759,505 accumulation units at $10.601053 per unit 8,052
Trust Large Cap Stock Portfolio - 1,452,773 accumulation units at $10.434763 per unit 15,159
Trust Select Equity Portfolio - 1,199,716 accumulation units at $10.098491 per unit 12,115
Trust International Equity Portfolio - 838,318 accumulation units at $10.359859 per unit 8,685
Fund Growth and Income - 11,249,326 accumulation units at $23.418841 per unit 263,446
Fund Global Equity - 167,133 accumulation units at $15.371697 per unit 2,569
GACC Money Market Portfolio - 23,703 accumulation units at $10.131477 per unit 240
----------
TOTAL CONTRACT OWNERS' EQUITY 560,869
----------
TOTAL LIABILITIES AND CONTRACT OWNERS' EQUITY $ 560,998
==========
</TABLE>
See accompanying notes to financial statements.
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1996 (Unaudited)
(In thousands of dollars)
COVA
LORD ABBETT
SERIES TRUST
SERIES FUND, INC. GACC
<TABLE>
<CAPTION>
QUALITY HIGH GROWTH & MONEY STOCK BOND QUALITY INTL SMALL
INCOME YIELD INCOME MARKET INDEX DEBENTURE BOND EQUITY CAP STOCK
--------- ------- ---------- ------- ------- ---------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,370 $1,667 $ 208 $ 1,314 $ 796 $ 15 $ 68 $ 36 $ 13
Total Income 1,370 1,667 208 1,314 796 15 68 36 13
EXPENSES:
Mortality and Expense `
Risk Fee 461 357 226 315 811 13 28 34 32
Administrative Fee 55 43 27 38 97 2 3 4 4
Total Expenses 516 400 253 353 908 15 31 38 36
Net Investment Income 854 1,267 (45) 961 (112) 0 37 (2) (23)
NET REALIZED GAIN/(LOSS)
ON INVESTMENTS (27) (204) 105 -- 3,308 6 (6) 71 46
NET CHANGE IN UNREALIZED
GAIN/(LOSS) ON INVESTMENTS (1,265) 1,255 1,808 -- 6,580 224 40 184 278
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS (1,292) 1,051 1,913 -- 9,888 230 34 255 324
NET INCREASE/(DECREASE) IN
CONTRACT OWNERS' EQUITY
RESULTING FROM OPERATIONS ($438) $2,318 $ 1,868 $ 961 $9,776 $ 230 $ 71 $ 253 $ 301
LARGE SELECT GROWTH & GLOBAL Money
CAP STOCK EQUITY INCOME EQUITY Market Total
----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 69 $ 23 -- -- -- $ 5,579
Total Income 69 23 -- -- -- 5,579
EXPENSES:
Mortality and Expense
Risk Fee 70 37 2,135 24 1 4,544
Administrative Fee 9 4 256 3 -- 545
Total Expenses 79 41 2,391 27 1 5,089
Net Investment Income (10) (18) (2,391) (27) (1) 490
NET REALIZED GAIN/(LOSS)
ON INVESTMENTS 5 (17) 92 14 -- 3,393
NET CHANGE IN UNREALIZED
GAIN/(LOSS) ON INVESTMENTS 639 263 23,676 159 2 33,843
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS 644 246 23,768 173 2 37,236
NET INCREASE/(DECREASE) IN
CONTRACT OWNERS' EQUITY
RESULTING FROM OPERATIONS $ 634 $ 228 $ 21,377 $ 146 $ 1 $37,726
</TABLE>
See Accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF CHANGES IN CONTRACT OWNERS' EQUITY
For the Nine Months Ended September 30, 1996 (Unaudited)
(In thousands of dollars)
COVA
LORD ABBETT
SERIES TRUST
SERIES FUND, INC. GACC
________
<TABLE>
<CAPTION>
QUALITY HIGH GROWTH & MONEY STOCK BOND QUALITY INTL
INCOME YIELD INCOME MARKET INDEX DEBENTURE BOND EQUITY
--------- -------- ---------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 854 $ 1,267 ($45) $ 961 ($112) $ 0 $ 37 ($2)
Net Realized Gain/(Loss)
on Investments (27) (204) 105 __ 3,308 6 (6) 71
Net Unrealized Gain/(Loss)
on Investments (1,265) 1,255 1,808 __ 6,580 224 40 184
NET INCREASE/(DECREASE) IN
Contract Owners' Equity
Resulting from Operations (438) 2,318 1,868 961 9,776 230 71 253
From Account Unit Transactions:
Contributions by Cova Life -- -- -- -- -- 500 5,000 5,000
Redemptions by Cova Life -- -- -- -- -- (508) (1,000) (5,128)
Proceeds from Units of
the Account Sold 1,460 1,624 2,360 36,144 2,661 2,793 641 3,774
Payments for Units of the
Account Redeemed (3,037) (1,767) (677) (1,984) (3,248) (17) (5) (6)
Account Transfers 13,504 3,090 5,286 (36,297) (11,327) 1,982 1,367 4,792
Net Increase/(Decrease) in
Contract Owners' Equity
From Account Unit
Transactions 11,927 2,947 6,969 (2,137) (11,914) 4,750 6,003 8,432
Net Increase/(Decrease) in
Contract Owners' Equity 11,489 5,265 8,837 (1,176) (2,138) 4,980 6,074 8,685
Contract Owners' Equity:
Beginning of Period 41,253 36,512 19,617 34,128 85,762 -- -- --
End of Period $ 52,742 $41,777 $ 28,454 $ 32,952 $ 83,624 $ 4,980 $ 6,074 $ 8,685
SMALL LARGE SELECT GROWTH & GLOBAL Money
CAP STOCK CAP STOCK EQUITY INCOME EQUITY MARKETTOTAL
----------- ----------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income ($23) ($10) ($18) ($2,391) ($27) ($1) $ 490
Net Realized Gain/(Loss)
on Investments 46 5 (17) 92 14 __ 3,393
Net Unrealized Gain/(Loss)
on Investments 278 639 263 23,676 159 2 33,843
NET INCREASE/(DECREASE) IN
Contract Owners' Equity
Resulting from Operations 301 634 228 21,377 146 1 37,726
From Account Unit Transactions:
Contributions by Cova Life 5,000 15,000 5,000 -- -- -- 35,500
Redemptions by Cova Life (5,135) (2,206) (4,922) -- -- -- (18,899)
Proceeds from Units of
the Account Sold 3,703 477 6,338 24,061 142 61 86,239
Payments for Units of the
Account Redeemed (11) (1) (28) (8,717) (201) -- (19,699)
Account Transfers 4,194 1,255 5,499 36,095 (18) 178 29,600
Net Increase/(Decrease) in
Contract Owners' Equity
From Account Unit
Transactions 7,751 14,525 11,887 51,439 (77) 239 112,741
Net Increase/(Decrease) in
Contract Owners' Equity 8,052 15,159 12,115 72,816 69 240 150,467
Contract Owners' Equity:
Beginning of Period -- -- -- 190,630 2,500 -- 410,402
End of Period $ 8,052 $ 15,159 $ 12,115 $ 263,446 $ 2,569 $ 240 $ 560,869
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN CONTRACT OWNERS' EQUITY
For the Year Ended December 31, 1995
(In thousands of dollars)
VAN KAMPEN MERRITT
LORD ABBETT
SERIES TRUST
SERIES FUND, INC.
<TABLE>
<CAPTION>
QUALITY HIGH GROWTH & MONEY STOCK GROWTH & GLOBAL
INCOME YIELD INCOME MARKET INDEX INCOME EQUITY TOTAL
-------- -------- ---------- --------- ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
From Operations:
Net Investment Income $ 1,948 $ 2,332 $ 1,371 $ 2,318 $ 2,875 $ 12,501 $ 149 $ 23,495
Net Realized Gain/(Loss)
on Investments 16 (117) 46 __ 2,589 383 63 2,980
Net Unrealized Gain
on Investments 3,600 1,786 2,248 110 11,838 22,184 5 41,771
Net Increase in Contract
Owners' Equity
Resulting from
Operations 5,564 4,001 3,665 2,428 17,302 35,069 217 68,246
From Account Unit Transactions:
Redemptions by Cova
Financial Services Life
Insurance Company __ __ __ __ __ __ (132) (132)
Proceeds from Units of
the Account Sold 2,609 3,648 2,179 27,608 2,384 29,458 686 68,572
Payments for Units of the
Account Redeemed 5,174 (2,111) (718) (4,508) 4,200 (18,059) (1,244) (36,014)
Account Transfers 4,321 11,321 3,550 67,278 33,469 29,746 (135) 14,994
Net Increase/(Decrease) in
Contract Owners' Equity
From Account Unit
Transactions 1,756 12,858 5,011 (44,178) 31,653 41,145 (825) 47,420
Net Increase/(Decrease) in
Contract Owners' Equity 7,320 16,859 8,676 (41,750) 48,955 76,214 (608) 115,666
Contract Owners' Equity:
Beginning of Period 33,933 19,653 10,941 75,878 36,807 114,416 3,108 294,736
End of Period $ 41,253 $36,512 $ 19,617 $ 34,128 $85,762 $ 190,630 $ 2,500 $410,402
======== ========== ========= ======= ========== ======== =========
</TABLE>
See accompanying notes to financial statements.
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1996 (Unaudited)
1. Organization:
Cova Variable Annuity Account One, (the "Separate Account") is a separate
investment account established by a resolution of the Board of Directors of
Cova Financial Services Life Insurance Company ("Cova Life"). The Separate
Account operates as a Unit Investment Trust under the Investment Company Act
of 1940.
The Separate Account is divided into sub-accounts, with the assets of each
sub-account invested in the Cova Series Trust (formerly Van Kampen Merritt
Series Trust) ("Trust"), the Lord Abbett Series Fund, Inc. ("Fund") or General
American Capital Company (GACC). All portfolios of the Trust are managed by
Cova Investment Advisory Corporation (the Adviser). The Trust has entered
into an investment advisory agreement with the Adviser, pursuant to which the
Adviser manages the investment operations of the Trusts affairs. The Trust
pays the Adviser a monthly fee based on the average daily net assets. The
Adviser has entered into a sub-advisory agreement with Van Kampen American
Capital Investment Advisory Corp., J.P. Morgan Investment Management, Inc. and
Lord, Abbett & Co. for investment advisory services in connection with the
management of the Trust. During 1996 and prior, the Trust portfolios
available for investment were the Quality Income, High Yield, Growth and
Income, Money Market, Stock Index, Select Equity, Large Cap Stock, Small Cap
Stock, International Equity, Quality Bond, and Bond Debenture Portfolios. The
Fund had two portfolios available for investment during and prior to 1996;
the Growth and Income Global Equity Portfolios. GACC had the Money Market
Portfolio available for investment in 1996. Not all portfolios of the Trust,
Fund and GACC are available for investment depending upon the nature and
specific terms of the different contracts currently being offered for sale.
The Trust, Fund and GACC are all diversified, open-end, management investment
companies which are intended to meet differing investment objectives.
The Trust Quality Income Portfolio invests in U.S. Government issued debt
obligations and in various investment-grade debt instruments, including
mortgage pass-through certificates and collateralized mortgage obligations.
The Trust High Yield Portfolio invests primarily in medium and lower-grade
debt securities and futures and options contracts. The Trust Growth and
Income Portfolio invests primarily in common stocks and futures and options
contracts. The Trust Money Market and GACC Money Market Portfolios invest in
short-term money market instruments. The Trust Stock Index Portfolio invests
in common stocks, stock index futures and options, and short-term securities.
The Trust Select Equity and Large Cap Stock Portfolios invest in stocks of
large and medium-sized companies holding from 60 to 90 and from 225 to 250
stocks, respectively. The Trust Small Cap Stock Portfolio invests primarily
in the common stock of small U.S. companies. The Trust International Equity
Portfolio invests primarily in stocks of established companies based in
developed countries. The Trust Quality Bond Portfolio investment objective is
to provide a high total return consistent with moderate risk of capital and
maintenance of liquidity. The Trust Bond Debenture Portfolio invests
primarily in convertible and discount debt securities. The Fund Growth and
Income Portfolio invests in common stocks. The Fund Global Equity Portfolio
invests primarily in both domestic and foreign common stocks and forward
currency contracts.
In order to satisfy diversification requirements and provide for optimum
policyholder returns, Cova Life has made periodic contributions to the Trust
and Fund to provide for the initial purchases of investments. In return, Cova
Life has been credited with accumulation units of the Separate Account. As
additional funds are received through policyholder deposits, Cova Life has, at
its discretion and without adversely impacting the investment operations of
the Trust and Fund, removed its capital investment in the Separate Account by
liquidating accumulation units. Since inception, $48,700,000 has been
contributed to the Separate Account by Cova Life of which, after subsequent
redemptions and net of realized and unrealized gains and losses on
investments, $17,403,720 remains as of September 30, 1996.
KPMG Peat Marwick LLP
1010 Market Street
St. Louis, MO 63101-2085
INDEPENDENT AUDITOR'S REPORT
The Contract Owners of Cova Variable
Annuity Account One
Cova Financial Services Life Insurance Company:
We have audited the accompanying statement of assets and liabilities of the
Quality Income, High Yield, Growth and Income, Money Market, and Stock Index
sub-accounts (investment options within the Van Kampen Merritt Series Trust)
and the Growth and Income and Global Equity sub-accounts (investment options
within the Lord Abbett Series Fund, Inc.) of Cova Variable Annuity Account One
of Cova Financial Services Life Insurance Company (the Separate Account) as of
December 31, 1995, and the related statement of operations for the year then
ended, and the statement of changes in contract owners' equity for each of the
two years in the period then ended, and the financial highlights for each of
the periods presented. These financial statements and financial highlights
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned at December 31, 1995 by correspondence with the Van Kampen Merritt
Series Trust and the Lord Abbett Series Fund, Inc. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
sub-accounts of Cova Variable Annuity Account One of Cova Financial Services
Life Insurance Company as of December 31, 1995, and the results of their
operations for the year then ended, the changes in their contract owners'
equity for each of the two years in the period then ended, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
By: /s/ KPMG PEAT MARWICK LLP
___________________________
KPMG Peat Marwick LLP
February 9, 1996
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
ASSETS
INVESTMENTS:
<TABLE>
<CAPTION>
<S> <C>
VAN KAMPEN MERRITT SERIES TRUST:
Quality Income Portfolio - 3,795,029 shares at a net asset value of $10.87 per share (cost $39,788,169) $ 41,257,437
High Yield Portfolio - 3,495,538 shares at a net asset value of $10.45 per share (cost $36,977,062) 36,515,856
Growth and Income Portfolio - 1,568,033 shares at a net asset value of $12.51 per share (cost $17,983,818) 19,619,568
Money Market Portfolio - 34,132,295 shares at a net asset value of $1.00 per share (cost $34,132,295) 34,132,295
Stock Index Portfolio - 6,195,688 shares at a net asset value of $13.84 per share (cost $74,796,201) 85,772,259
LORD ABBETT SERIES FUND, INC:
Growth and Income Portfolio - 12,510,916 shares at a net asset value of $15.24 per share (cost $168,182,678) 190,651,303
Global Equity Portfolio - 218,212 shares at a net asset value of $11.46 per share (cost $2,347,939) 2,500,282
--------------
TOTAL ASSETS $ 410,449,000
LIABILITIES AND CONTRACT OWNERS' EQUITY
FEES PAYABLE TO COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY $ 46,951
CONTRACT OWNERS' EQUITY:
Trust Quality Income - 2,690,633 accumulation units at $15.331971 per unit 41,252,707
Trust High Yield - 1,870,232 accumulation units at $19.522535 per unit 36,511,673
Trust Growth and Income - 1,342,833 accumulation units at $14.608904 per unit 19,617,323
Trust Money Market - 2,987,132 accumulation units at $11.425133 per unit 34,128,376
Trust Stock Index - 5,436,980 accumulation units at $15.773906 per unit 85,762,417
Fund Growth and Income - 8,947,108 accumulation units at $21.306277 per unit 190,629,558
Fund Global Equity - 172,206 accumulation units at $14.517502 per unit 2,499,995
--------------
TOTAL CONTRACT OWNERS' EQUITY 410,402,049
--------------
TOTAL LIABILITIES AND CONTRACT OWNERS' EQUITY $ 410,449,000
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
VAN KAMPEN MERRITT
LORD ABBETT
SERIES TRUST
SERIES FUND, INC.
<TABLE>
<CAPTION>
QUALITY HIGH GROWTH & MONEY STOCK GROWTH & GLOBAL
INCOME YIELD INCOME MARKET INDEX INCOME EQUITY
----------- ------------ ---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends $ 2,492,472 $ 2,739,550 $1,564,298 $ 3,041,467 $ 3,700,759 $ 14,542,511 $187,705
----------- ------------ ---------- ----------- ----------- ------------ --------
Total Income 2,492,472 2,739,550 1,564,298 3,041,467 3,700,759 14,542,511 187,705
EXPENSES:
Mortality and Expense
Risk Fee 486,430 363,864 172,191 646,185 737,442 1,822,160 34,676
Administrative Fee 58,371 43,664 20,663 77,542 88,493 218,659 4,161
Total Expenses 544,801 407,528 192,854 723,727 825,935 2,040,819 38,837
Net Investment Income 1,947,671 2,332,022 1,371,444 2,317,740 2,874,824 12,501,692 148,868
Net Realized Gain/(Loss)
on Investments 16,010 (117,175) 45,687 _ _ 2,588,787 382,600 62,728
Net Change in Unrealized
Gain on Investments 3,599,953 1,785,959 2,247,668 109,903 11,838,391 22,183,647 5,346
Net Realized and Unrealized
Gain on Investments 3,615,963 1,668,784 2,293,355 109,903 14,427,178 22,566,247 68,074
Net Increase in Contract
Owners' Equity Resulting
From Operations $5,563,6343 $4,000,8066 $3,664,799 $2,427,6433 $17,302,002 $35,067,9399 $216,942
=========== ============ ========== =========== =========== ============ ========
TOTAL
------------
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends $ 28,268,762
------------
Total Income 28,268,762
EXPENSES:
Mortality and Expense
Risk Fee 4,262,948
Administrative Fee 511,553
Total Expenses 4,774,501
Net Investment Income 23,494,261
Net Realized Gain/(Loss)
on Investments 2,978,637
Net Change in Unrealized
Gain on Investments 41,770,867
Net Realized and Unrealized
Gain on Investments 44,749,504
Net Increase in Contract
Owners' Equity Resulting
From Operations $68,243,7655
============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF CHANGES IN CONTRACT OWNERS' EQUITY
For the Year Ended December 31, 1995
VAN KAMPEN MERRITT
LORD ABBETT
SERIES TRUST
SERIES FUND, INC.
________________________________________________________
___________________
<TABLE>
<CAPTION>
QUALITY HIGH GROWTH & MONEY STOCK GROWTH &
INCOME YIELD INCOME MARKET INDEX INCOME
------------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 1,947,671 $ 2,332,022 $ 1,371,444 $ 2,317,740 $ 2,874,824 $ 12,501,692
Net Realized Gain/(Loss)
on Investments 16,010 (117,175) 45,687 _ _ 2,588,787 382,600
Net Unrealized Gain
on Investments 3,599,953 1,785,959 2,247,668 109,903 11,838,391 22,183,647
NET INCREASE IN CONTRACT
Owners' Equity
Resulting from
Operations 5,563,634 4,000,806 3,664,799 2,427,643 17,302,002 35,067,939
From Account Unit Transactions:
Redemptions by Cova
Financial Services Life
Insurance Company _ _ _ _ _ _ _ _ _ _ _ _
Proceeds from Units of
the Account Sold 2,609,198 3,648,081 2,179,253 27,608,801 2,384,152 29,457,859
Payments for Units of the
Account Redeemed (5,173,896) (2,111,627) (717,441) (4,508,332) (4,199,482) (18,058,651)
Account Transfers 4,321,271 11,321,086 3,550,031 (67,277,501) 33,469,082 29,746,158
Net Increase/(Decrease) in
Contract Owners' Equity
From Account Unit
Transactions 1,756,573 12,857,540 5,011,843 (44,177,032) 31,653,752 41,145,366
Net Increase/(Decrease) in
Contract Owners' Equity 7,320,207 16,858,346 8,676,642 (41,749,389) 48,955,754 76,213,305
Contract Owners' Equity:
Beginning of Period 33,932,500 19,653,327 10,940,681 75,877,765 36,806,663 114,416,253
End of Period $41,252,7077 $36,511,673 $19,617,323 $ 34,128,376 $85,762,417 $190,629,558
============= ============ ============ ============= ============ =============
GLOBAL
EQUITY TOTAL
------------ -------------
<S> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 148,868 $ 23,494,261
Net Realized Gain/(Loss)
on Investments 62,728 2,978,637
Net Unrealized Gain
on Investments 5,346 41,770,867
NET INCREASE IN CONTRACT
Owners' Equity
Resulting from
Operations 216,942 68,243,765
From Account Unit Transactions:
Redemptions by Cova
Financial Services Life
Insurance Company (131,875) (131,875)
Proceeds from Units of
the Account Sold 686,017 68,573,361
Payments for Units of the
Account Redeemed (1,244,057) (36,013,486)
Account Transfers (135,353) 14,994,774
Net Increase/(Decrease) in
Contract Owners' Equity
From Account Unit
Transactions (825,268) 47,422,774
Net Increase/(Decrease) in
Contract Owners' Equity (608,326) 115,666,539
Contract Owners' Equity:
Beginning of Period 3,108,321 294,735,510
End of Period $ 2,499,995 $410,402,049
============ =============
</TABLE>
See accompanying notes to financial statements.
VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF CHANGES IN CONTRACT OWNERS' EQUITY
For the Year Ended December 31, 1994
VAN KAMPEN MERRITT
LORD ABBETT
SERIES TRUST
SERIES FUND, INC.
TOTAL
$12,184,894
(2,376,747)
(12,420,870)
(2,612,723)
(165,388)
51,347,975
(17,333,821)
3,525,880
37,374,646
34,761,923
259,973,587
$294,735,510
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period
per sub-account are presented below:
<TABLE>
<CAPTION>
VAN KAMPEN MERRITT SERIES TRUST - QUALITY INCOME PORTFOLIO
For the Year For the Year For the Year
Ended Ended Ended
12/31/95 12/31/94 12/31/93
-------------- -------------- --------------
<S> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 13.17 $ 13.97 $ 12.75
Net Investment Income .72 .60 1.00
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions 1.44 (1.40) .22
Total from Investment Operations Operations1.38(.80)1.22.73.140 O 2.16 (.80) 1.22
- -------------------------------------------------------------------
Accumulation Unit Value,
End of Period $ 15.33 $ 13.17 $ 13.97
============== ============== ==============
Total Return* 16.41% 5.70% 9.50%
Contract Owners Equity ,
End of Period (in thousands) $ 41,253 $ 33,933 $ 51,111
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40% 1.40%
Ratio of Net Investment Income
to Average Contract
Owners' Equity 4.99% 4.48% 8.30%
Number of Units Outstanding
at End of Period 2,690,633 2,576,412 3,659,656
For the Year For the Year
Ended Ended
12/31/92 12/31/91
-------------- --------------
<S> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 12.02 $ 10.62
Net Investment Income .64 .67
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions .09 .73
Total from Investment Operations Operations1.38(.80)1.22.73.140 O .73 1.40
- -------------------------------------------------------------------
Accumulation Unit Value,
End of Period $ 12.75 $ 12.02
============== ==============
Total Return* 6.10% 13.20%
Contract Owners Equity ,
End of Period (in thousands) $ 24,124 $ 6,779
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40%
Ratio of Net Investment Income
to Average Contract
Owners' Equity 5.45% 6.09%
Number of Units Outstanding
at End of Period 1,891,499 563,960
<FN>
* Investment returns do not reflect any annual contract maintenance fees
or withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period
per sub-account are presented below:
<TABLE>
<CAPTION>
VAN KAMPEN MERRITT SERIES TRUST - HIGH YIELD PORTFOLIO
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 16.98 $ 18.02 $ 14.99 $ 12.75 $ 10.06
-------------- -------------- -------------- -------------- --------------
Net Investment Income 1.44 1.38 1.80 2.26 1.14
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions 1.10 (2.42) 1.23 (.02) 1.55
Total from Investment Operations 2.54 (1.04) 3.03 2.24 2.69
Accumulation Unit Value,
End of Period $ 19.52 $ 16.98 $ 18.02 $ 14.99 $ 12.75
============== ============== ============== ============== ==============
Total Return* 14.99% (5.79)% 20.21% 17.53% 26.73%
Contract Owners Equity ,
End of Period (in thousands) $ 36,512 $ 19,653 $ 18,846 $ 5,416 $ 3,803
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40% 1.40% 1.40% 1.40%
Ratio of Net Investment Income
to Average Contract
Owners' Equity 7.98% 7.92% 13.05% 16.04% 9.83%
Number of Units Outstanding
at End of Period 1,870,232 1,157,642 1,045,815 361,296 298,202
<FN>
* Investment returns do not reflect any annual contract maintenance fees or
withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period
per sub-account are presented below:
<TABLE>
<CAPTION>
VAN KAMPEN MERRITT SERIES TRUST - GROWTH & INCOME PORTFOLIO
For the Period From
For the Year For the Year For the Year 5/1/92
Ended Ended Ended (Commencement of Operations)
12/31/95 12/31/94 12/31/93 Through 12/31/92
<S> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 11.20 $ 11.92 $ 10.47 $ 10.00
-------------- -------------- -------------- -----------------------------
Net Investment Income 1.02 .19 .54 .19
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions 2.39 (.91) .91 .28
Total from Investment Operations 3.41 (.72) 1.45 .47
Accumulation Unit Value,
End of Period $ 14.61 $ 11.20 $ 11.92 $ 10.47
============== ============== ============== =============================
Total Return** 30.49% (6.07)% 13.84% 7.09%*
Contract Owners Equity ,
End of Period (in thousands) $ 19,617 $ 10,941 $ 6,528 $ 2,627
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40% 1.40% 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 9.92% 2.05% 7.54% 3.82%*
Number of Units Outstanding
at End of Period 1,342,833 977,209 574,643 250,919
<FN>
* Annualized
** Investment returns do not reflect any annual contract maintenance fees or
withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period
per sub-account are presented below:
<TABLE>
<CAPTION>
VAN KAMPEN MERRITT SERIES TRUST - MONEY MARKET PORTFOLIO
For the Year Months For the Year For the Year For the Year
Ended Ended Ended Ended
12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 10.90 $ 10.61 $ 10.46 $ 10.21
--------------------- -------------- -------------- --------------
Net Investment Income .50 .30 .19 .25
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions .03 (.01) (.04) --
Total from Investment Operations .53 .29 .15 .25
Accumulation Unit Value,
End of Period $ 11.43 $ 10.90 $ 10.61 $ 10.46
===================== ============== ============== ==============
Total Return** 4.85% 2.70% 1.45% 2.44%
Contract Owners Equity ,
End of Period (in thousands) $ 34,128 $ 75,878 $ 6,552 $ 4,031
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40% 1.40% 1.40%
Ratio of Net Investment Income
to Average Contract
Owners' Equity 4.48% 2.90% 1.78% 2.46%
Number of Units Outstanding
at End of Period 2,987,132 6,963,421 617,575 385,448
For the Period
From 11/1/91
Through 12/31/91 12/31/91
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 10.00
--------------------------
Net Investment Income .21
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions --
Total from Investment Operations .21
Accumulation Unit Value,
End of Period $ 10.21
==========================
Total Return** 4.19%*
Contract Owners Equity ,
End of Period (in thousands) $ 5,386
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 4.04%*
Number of Units Outstanding
at End of Period 527,571
<FN>
* Annualized
** Investment returns do not reflect any annual contract maintenance
fees or withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period
per sub-account are presented below:
<TABLE>
<CAPTION>
VAN KAMPEN MERRITT SERIES TRUST - STOCK INDEX PORTFOLIO
For the Year Months For the Year For the Year For the Year For the Period
Ended Ended Ended Ended From 11/1/91
12/31/95 12/31/94 12/31/93 12/31/92 Through 12/31/91
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 11.68 $ 11.87 $ 11.05 $ 10.55 $ 10.00
--------------------- -------------- -------------- -------------- ------------------
Net Investment Income .51 .37 .22 .52 (.02)
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions 3.58 (.56) .60 (.02) .57
Total from Investment Operations 4.09 (.19) .82 .50 .55
Accumulation Unit Value,
End of Period $ 15.77 $ 11.68 $ 11.87 $ 11.05 $ 10.55
===================== ============== ============== ============== ==================
Total Return** 35.06% (1.58)% 7.35% 4.75% 38.03%*
Contract Owners Equity ,
End of Period (in thousands) $ 85,762 $ 36,807 $ 91,269 $ 34,979 $ 6,753
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40% 1.40% 1.40% 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 4.85% 2.10% 2.99% 10.02% (1.40)%*
Number of Units Outstanding
at End of Period 5,436,980 3,151,443 7,691,151 3,164,251 639,923
<FN>
* Annualized
** Investment returns do not reflect any annual contract maintenance
fees or withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period
per sub-account are presented below:
<TABLE>
<CAPTION>
LORD ABBETT SERIES FUND, INC. - GROWTH AND INCOME PORTFOLIO
For theYear For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 16.64 $ 16.42 $ 14.50 $ 12.73 $ 10.15
------------- -------------- -------------- -------------- --------------
Net Investment Income 1.37 .76 .88 1.06 .85
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions 3.30 (.54) 1.04 .71 1.73
Total from Investment Operations 4.67 .22 1.92 1.77 2.58
------------- -------------- -------------- -------------- --------------
Accumulation Unit Value,
- ---------------------------------
End of Period $ 21.31 $ 16.64 $ 16.42 $ 14.50 $ 12.73
- --------------------------------- ============= ============== ============== ============== ==============
Total Return* 28.03% 1.32% 13.24% 13.98% 25.42%
- --------------------------------- ------------- -------------- -------------- -------------- --------------
Contract Owners Equity ,
- ---------------------------------
End of Period (in thousands) $ 190,630 $ 114,416 $ 82,033 $ 37,146 $ 18,154
- --------------------------------- ------------- -------------- -------------- -------------- --------------
Ratio of Expenses to Average
- ---------------------------------
Contract Owners' Equity 1.40% 1.40% 1.40% 1.40% 1.40%
- --------------------------------- ------------- -------------- -------------- -------------- --------------
Ratio of Net Investment Income
- ---------------------------------
to Average Contract
- ---------------------------------
Owners' Equity 8.57% 5.40% 8.12% 10.59% 9.05%
- --------------------------------- ------------- -------------- -------------- -------------- --------------
Number of Units Outstanding
- ---------------------------------
at End of Period 8,947,108 6,875,139 4,994,582 2,560,999 1,426,577
- --------------------------------- ------------- -------------- -------------- -------------- --------------
<FN>
* Investment returns do not reflect any annual contract maintenance
fees or withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period
per sub-account are presented below:
<TABLE>
<CAPTION>
LORD ABBETT SERIES FUND, INC. - GLOBAL EQUITY PORTFOLIO
For the Year Months For the Year For the Year For the Year For the Year
--------------------- -------------- -------------- -------------- --------------
Ended Ended Ended Ended Ended
--------------------- -------------- -------------- -------------- --------------
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
--------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
- ---------------------------------
Beginning of Period $ 13.33 $ 13.29 $ 10.64 $ 10.97 $ 9.79
- --------------------------------- --------------------- -------------- -------------- -------------- --------------
Net Investment Income .91 1.45 .24 .18 .14
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions .28 (1.41) 2.41 (.51) 1.04
Total from Investment Operations 1.19 .04 2.65 (.33) 1.18
--------------------- -------------- -------------- -------------- --------------
Accumulation Unit Value,
- ---------------------------------
End of Period $ 14.52 $ 13.33 $ 13.29 $ 10.64 $ 10.97
- --------------------------------- ===================== ============== ============== ============== ==============
Total Return* 8.91% .27% 24.91% (2.98)% 12.02%
- --------------------------------- --------------------- -------------- -------------- -------------- --------------
Contract Owners Equity ,
- ---------------------------------
End of Period (in thousands) $ 2,500 $ 3,108 $ 3,635 $ 3,249 $ 4,292
- --------------------------------- --------------------- -------------- -------------- -------------- --------------
Ratio of Expenses to Average
- ---------------------------------
Contract Owners' Equity 1.40% 1.40% 1.40% 1.40% 1.40%
- --------------------------------- --------------------- -------------- -------------- -------------- --------------
Ratio of Net Investment Income
- ---------------------------------
to Average Contract
- ---------------------------------
Owners' Equity 5.36% 9.78% 1.88% 1.38% 2.19%
- --------------------------------- --------------------- -------------- -------------- -------------- --------------
Number of Units Outstanding
- ---------------------------------
at End of Period 172,206 233,186 273,399 305,314 391,234
- --------------------------------- --------------------- -------------- -------------- -------------- --------------
<FN>
* Investment returns do not reflect any annual contract maintenance
fees or withdrawal charges.
</TABLE>
See accompanying notes to financial statements.
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1995 and 1994
1. ORGANIZATION:
Cova Variable Annuity Account One, (formerly Xerox Variable Annuity Account
One) (the "Separate Account") is a separate investment account established by
a resolution of the Board of Directors of Cova Financial Services Life
Insurance Company ("Cova Life") formerly known as Xerox Financial Services
Life Insurance Company (Xerox Life). On June 1, 1995, a subsidiary of General
American Life Insurance Company (GALIC) purchased Xerox Life under the terms
of a stock purchase agreement. After closing of the sale transaction, Xerox
Life and the Separate Account were renamed. Operations of the separate
account were not affected by this transaction. The Separate Account operates
as a Unit Investment Trust under the Investment Company Act of 1940.
The Separate Account is divided into sub-accounts, with the assets of each
sub-account invested in either the Van Kampen Merritt Series Trust ("Trust")
or the Lord Abbett Series Fund, Inc. ("Fund"). The Trust is managed by Van
Kampen American Capital Investment Advisory Corp. During 1995 and prior, the
Trust consisted of five portfolios available for investment; the Quality
Income, High Yield, Growth & Income, Money Market, and Stock Index Portfolios.
The Fund had two portfolios available for investment during and prior to
1995; the Growth and Income Global Equity Portfolios. Not all portfolios of
the Trust and Fund are available for investment depending upon the nature and
specific terms of the different contracts currently being offered for sale.
Both the Trust and Fund are diversified, open-end, management investment
companies which are intended to meet differing investment objectives.
The Trust Quality Income Portfolio invests in U.S. Government issued debt
obligations and in various investment-grade debt instruments, including
mortgage pass-through obligations and collateralized mortgage obligations.
The Trust High Yield Portfolio invests in medium and lower-grade debt
securities and futures and options contracts. The Trust Growth and Income
Portfolio invests in common stocks and futures and options contracts. The
Trust Money Market Portfolio invests in short-term money market instruments.
The Trust Stock Index Portfolio invests in common stocks, stock index futures
and options, and short-term securities. The Fund Growth and Income Portfolio
invests in common stocks. The Fund Global Equity Portfolio invests in both
domestic and foreign common stocks and forward currency contracts.
In order to satisfy diversification requirements and provide for optimum
policyholder returns, Cova Life has made periodic contributions to the Trust
and Fund to provide for the initial purchases of investments. In return, Cova
Life has been credited with accumulation units of the Separate Account. As
additional funds were received through policyholder deposits, Cova Life has,
at its discretion and without adversely impacting the investment operations of
the Trust and Fund, removed its capital investment in the Separate Account by
liquidating all of its remaining accumulation units at December 31, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES:
A. INVESTMENT VALUATION
Investments in shares of the Trust and Fund are carried in the statement of
assets and liabilities at the underlying net asset value of the Trust and
Fund. The net asset value of the Trust and Fund has been determined on the
market value basis and is valued daily by the Trust and Fund investment
managers. Realized gains and losses are calculated by the average cost
method.
B. REINVESTMENT OF DIVIDENDS
Dividends received from net investment income and net realized capital gains
are reinvested in additional shares of the portfolio of the Trust or Fund
making the distribution or, at the election of the Separate Account, received
in cash. Dividend income and capital gain distributions are recorded as
income on the ex-dividend date.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1995 and 1994
C. FEDERAL INCOME TAXES
Operations of the Separate Account form a part of Cova Life, which is taxed as
a "Life Insurance Company" under the Internal Revenue Code ("Code"). Under
current provisions of the Code, no Federal income taxes are payable by Cova
Life with respect to earnings of the Separate Account.
Under the principles set forth in Internal Revenue Ruling 81-225 and Section
817(h) of the Code and regulations thereunder, Cova Life believes that it will
be treated as the owner of the assets invested in the Separate Account for
Federal income tax purposes, with the result that earnings and gains, if any,
derived from those assets will not be included in a contract owners' gross
income until amounts are withdrawn or received pursuant to an Optional Payment
Plan.
3. CONTRACT CHARGES:
There are no deductions made from purchase payments for sales charges at the
time of purchase. However, if all or a portion of the contract value is
withdrawn, a withdrawal charge is calculated and deducted from the contract
value. The withdrawal charge is imposed on withdrawals of contract values
attributable to purchase payments within five years after receipt and is equal
to 5% of the purchase payment withdrawn. After the first contract
anniversary, provided that the contract value prior to withdrawal exceeds
$5,000, an owner may make a withdrawal each contract year of up to 10% of the
aggregate purchase payments free from withdrawal charges. An annual contract
maintenance charge of $30 is imposed on all contracts with contract values
less than $50,000 on their policy anniversary. The charge covers the cost of
contract administration for the previous year and is prorated between the
sub-accounts to which the contract value is allocated.
Mortality and expense risks assumed by Cova Life are compensated by a charge
equivalent to an annual rate of 1.25% of the value of net assets. The
mortality risks assumed by Cova Life arise from its contractual obligation to
make annuity payments after the annuity date for the life of the annuitant,
and to waive the withdrawal charge in the event of the death of the contract
owner.
In addition, the Separate Account bears certain administration expenses, which
are equivalent to an annual rate of .15% of net assets. These charges cover
the cost of establishing and maintaining the contracts and Separate Account.
Cova Life currently advances any premium taxes due at the time purchase
payments are made and then deducts premium taxes from the contract value at
the time annuity payments begin or upon withdrawal if Cova Life is unable to
obtain a refund. Cova Life, however, reserves the right to deduct premium
taxes when incurred.
4. ACCOUNT TRANSFERS:
Subject to certain restrictions, the contract owner may transfer all or a part
of the accumulated value of the contract among other offered and available
account options of the Separate Account and fixed rate annuities of Cova Life.
If more than 12 transfers have been made in the contract year, a transfer fee
of $25 per transfer or, if less, 2% of the amount transferred will be deducted
from the account value. If the owner is participating in the Dollar Cost
Averaging program, such related transfers are not taken into account in
determining any transfer fee.
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1995 and 1994
5. GAIN/(LOSS) ON INVESTMENTS:
The table below summarizes realized and unrealized gains and losses on
investments:
<TABLE>
<CAPTION>
REALIZED GAIN/(LOSS) ON INVESTMENTS:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
12/31/95 12/31/94
<S> <C> <C>
Trust Quality Income Portfolio:
Aggregate Proceeds From Sales $ 21,222,667 $ 55,910,839
Aggregate Cost 21,206,657 58,510,084
Net Realized Gain/(Loss) on Investments $ 16,010 $ (2,599,245)
============== ==============
Trust High Yield Portfolio:
Aggregate Proceeds From Sales $ 1,956,676 $ 9,145,332
Aggregate Cost 2,073,851 9,508,299
Net Realized Loss on Investments $ (117,175) $ (362,967)
============== ==============
Trust Growth and Income Portfolio:
Aggregate Proceeds From Sales $ 1,127,323 $ 1,423,903
Aggregate Cost 1,081,636 1,445,563
-------------- --------------
Net Realized Gain/(Loss) on Investments $ 45,687 $ (21,660)
- ------------------------------------------ ============== ==============
Trust Money Market Portfolio:
- ------------------------------------------
Aggregate Proceeds From Sales $ 71,027,222 $ 60,198,925
- ------------------------------------------ -------------- --------------
Aggregate Cost 71,027,222 60,198,925
- ------------------------------------------ -------------- --------------
Net Realized Gain/(Loss) on Investments _ _ --
- ------------------------------------------ ============== ==============
Trust Stock Index Portfolio:
- ------------------------------------------
Aggregate Proceeds From Sales $ 19,096,794 $ 67,994,793
- ------------------------------------------ -------------- --------------
Aggregate Cost 16,508,007 67,715,975
- ------------------------------------------ -------------- --------------
Net Realized Gain on Investments $ 2,588,787 $ 278,818
- ------------------------------------------ ============== ==============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1995 and 1994
5. GAIN/(LOSS) ON INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
REALIZED GAIN/(LOSS) ON INVESTMENTS:
FOR THE YEAR FOR THE YEAR
Ended Ended
12/31/95 12/31/94
<S> <C> <C>
Fund Growth and Income Portfolio:
Aggregate Proceeds From Sales $ 4,042,598 $ 3,887,963
Aggregate Cost 3,659,998 3,701,950
Net Realized Gain on Investments $ 382,600 $ 186,013
============== ==============
Fund Global Equity Portfolio:
Aggregate Proceeds From Sales $ 945,473 $ 738,271
Aggregate Cost 882,745 595,977
Net Realized Gain on Investments $ 62,728 $ 142,294
============== ==============
UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- ------------------------------------------------------
Trust Quality Income Portfolio:
End of Period $ 1,469,268 $ (2,130,685)
Beginning of Period (2,130,685) (687,104)
Net Change in Unrealized Gain/(Loss) on Investments $ 3,599,953 $ (1,443,581)
============== ==============
Trust High Yield Portfolio:
End of Period $ (461,206) $ (2,247,165)
Beginning of Period (2,247,165) 278,327
Net Change in Unrealized Gain/(Loss) on Investments $ 1,785,959 $ (2,525,492)
============== ==============
Trust Growth and Income Portfolio:
End of Period $ 1,635,750 $ (611,918)
Beginning of Period (611,918) 168,575
Net Change in Unrealized Gain/(Loss) on Investments $ 2,247,668 $ (780,493)
============== ==============
Trust Money Market Portfolio:
End of Period _ _ $ (109,903)
Beginning of Period (109,903) (32,286)
Net Change in Unrealized Gain/(Loss) on Investments $ 109,903 $ (77,617)
============== ==============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1995 and 1994
5. GAIN/(LOSS) ON INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
12/31/94
<S> <C> <C> 12/31/95 12/31/94
Trust Stock Index Portfolio:
End of Period $ 10,976,058 $ (862,333)
Beginning of Period (862,333) 2,144,041
Net Change in Unrealized Gain/(Loss) on Investments $ 11,838,391 $ (3,006,374)
============== ==============
Fund Growth and Income Portfolio:
End of Period $ 22,468,625 $ 284,978
Beginning of Period 284,978 4,422,497
Net Change in Unrealized Gain/(Loss) on Investments $ 22,183,647 $ (4,137,519)
============== ==============
Fund Global Equity Portfolio:
End of Period $ 152,343 $ 146,997
Beginning of Period 146,997 596,791
Net Change in Unrealized Gain/(Loss) on Investments $ 5,346 $ (449,794)
============== ==============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1995 and 1994
6. ACCOUNT UNIT TRANSACTIONS:
The change in the number of accumulation units resulting from account unit
transactions is as follows:
VAN KAMPEN
MERRITT LORD ABBETT
SERIES TRUST SERIES FUND,
INC.
_______________________________________
___________ __________________
<TABLE>
__
<CAPTION>
QUALITY HIGH GROWTH & MONEY STOCK GROWTH & GLOBAL
INCOME YIELD INCOME MARKET INDEX INCOME EQUITY TOTAL
----------- ---------- ---------- ----------- ----------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1993 3,659,656 1,045,815 547,643 617,575 7,691,151 4,994,582 273,399 18,829,821
Redemptions by
Cova Life -- -- -- -- -- (10,000) -- (10,000)
Units Sold 254,048 200,146 151,404 2,494,509 272,775 783,757 -- 4,156,639
Units Redeemed (226,584) (78,180) (25,238) (367,835) (345,996) (264,803) (36,859) (1,345,495)
Units Transferred (1,110,708) (10,139) 303,400 4,219,172 (4,466.487) 1,371,603 (3,354) 303,487
Balances at
December 31, 1994 2,576,412 1,157,642 977,209 6,963,421 3,151,443 6,875,139 233,186 21,934,452
Redemptions by Cova Life -- -- -- -- -- -- (10,000) (10,000)
Units Sold 181,275 195,356 162,687 2,450,650 163,890 1,505,688 50,282 4,709,828
Units Redeemed (362,174) (114,779) (55,487) (405,521) (300,704) (940,462) (91,135) (2,270,262)
Units Transferred 295,120 632,013 258,424 (6,021,418) 2,422,351 1,506,743 (10,127) (916,894)
Balance at
December 31, 1995 2,690,633 1,870,232 1,342,833 2,987,132 5,436,980 8,947,108 172,206 23,447,124
</TABLE>
7. SUBSEQUENT EVENTS:
On February 9, 1996, the Board of Trustees of Van Kampen Merritt Series Trust
voted to change the name of the Trust to Cova Series Trust, replace Van Kampen
American Capital Investment Advisory Corp. with Cova Investment Advisory Corp.
as Trust manager, and engage Van Kampen American Capital Investment Advisory
COVA FINANCIAL SERVICES
LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
Cova Financial Services Life Insurance Company:
We have audited the accompanying consolidated balance sheet of Cova Financial
Services Life Insurance Company and subsidiary (a wholly owned subsidiary of
Cova Corporation) as of December 31, 1995 (Successor or the Company) and the
consolidated balance sheet of Xerox Financial Services Life Insurance Company
and subsidiary as of December 31, 1994 (Predecessor), and the related
consolidated statements of income, shareholders' equity and cash flows for the
periods from June 1, 1995 to December 31, 1995 (Successor period), and from
January 1, 1995 to May 31, 1995, and for the years ended December 31, 1994 and
1993 (Predecessor periods). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the Successor consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Cova
Financial Services Life Insurance Company and subsidiary as of December 31,
1995, and the results of their operations and their cash flows for the
Successor period, in conformity with generally accepted accounting principles.
Also, in our opinion, the aforementioned Predecessor consolidated financial
statements present fairly, in all material respects, the financial position of
Xerox Financial Services Life Insurance Company and subsidiary as of December
31, 1994, and the results of their operations and their cash flows for the
Predecessor periods, in conformity with generally accepted accounting
principles.
As discussed in note 3 to the consolidated financial statements, the Company
changed its method of accounting for investments to adopt the provisions of
the Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," at January 1, 1994.
St. Louis, Missouri
April 15, 1996
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Consolidated Balance Sheets
December 31, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
ASSETS 1995 1994
<S> <C> <C>
Investments:
Debt securities available for sale at market
(cost of $583,868 in 1995 and $2,163,588 in 1994) $ 594,556 $ 1,901,642
Equity securities at market (cost: $10,650 in 1994) -- 8,754
Mortgage loans 77,472 6,825
Real Estate -- 26,735
Policy loans 19,125 17,691
Other invested assets -- 7,597
Short-term investments at cost which approximates market 7,859 93,118
Total investments 699,012 2,062,362 3,566,750
Cash and cash equivalents - interest bearing 59,312 1,133,999
Cash - non-interest bearing 2,944 2,328
Receivable from sale of securities -- 25,829
Accrued investment income 9,116 33,222
Due from affiliates -- 12,938
Deferred policy acquisition costs 8,708 213,362
Present value of future profits 43,914 --
Goodwill 23,358 --
Guaranty assessments recoverable -- 12,192
Federal and state income taxes recoverable 1,397 33,851
Deferred tax benefits (net) 13,556 56,135
Receivable from OakRe 2,391,982 --
Reinsurance receivables 8,891 1,457
Other assets 2,426 2,080
Separate account assets 410,449 294,803
Total Assets $3,675,065 $ 3,884,558
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Consolidated Balance Sheets (continued)
December 31, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
<S> <C> <C>
Policyholder deposits $3,033,763 $3,401,053
Future policy benefits 28,071 25,544
Payable on purchase of securities 5,327 46,285
Current Federal income tax payable 1,000 --
Accounts payable and other liabilities 20,143 17,985
Future purchase price payable to OakRe 23,967 --
Accrued liability for unrealized losses on off-balance-sheet
derivative instruments -- 18,398
Guaranty assessments 14,259 2,046
Separate account liabilities 410,449 294,636
Total Liabilities 3,536,979 $3,805,947
Shareholders' equity:
Common stock, $2 par value. (Authorized 5,000,000 shares;
issued and outstanding 2,899,446 shares in 1995 and 1994) 5,799 5,799
Additional paid-in capital 129,586 136,534
Retained earnings (63) 1,506
Net unrealized appreciation/(depreciation) on securities,
net of tax 2,764 (65,228)
Total Shareholders' Equity 138,086 78,611
Total Liabilities and Shareholders' Equity $3,675,065 $3,884,558
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Income
Years ended December 31, 1995, 1994, and 1993
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
12/31/95 5/31/95 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Premiums (net of $106 premium ceded for the
Company in 1995, and $57,$231,$207 for the $ 921 $ 1,097 $ 2,787 $ 4,002
Predecessor in 1995, 1994 and 1993)
Net investment income 24,188 92,486 277,616 335,583
Net realized gain (loss) on sale of investments 1,324 (12,414) (101,361) 17,699
Other income 3,682 2,855 6,705 3,604
Total revenues 30,115 84,024 185,747 360,888
Benefits and expenses:
Interest on policyholder deposits 17,706 97,867 249,905 265,674
Current and future policy benefits (net of
reinsurance recoveries for the Company of $8
and Predecessor of $4,$888 & $7,480 in
1995, 1994 and 1993) 1,785 1,830 5,259 6,054
Operating and other expenses 7,126 12,777 24,479 29,414
Amortization of purchased intangible assets 3,030 -- -- --
Amortization of deferred acquisition costs 100 11,157 125,357 38,308
Total Benefits and Expenses 29,747 123,631 405,000 339,450
Income/(loss) before income taxes 368 (39,607) (219,253) 21,438
Income Taxes:
Current 1,011 (16,404) (46,882) 15,639
Deferred (580) 6,340 (30,118) (6,137)
Total income tax expense/(benefit) 431 (10,064) (77,000) 9,502
Net Income/(Loss) ($63) ($29,543) $(142,253)) $ 11,936
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Shareholders Equity
Years ended December 31, 1995, 1994 and 1993
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
12/31/95 5/31/95 1994
1993
<S> <C> <C> <C> <C>
Common stock ($2 par value common stock;
Authorized 5,000,000 shares; issued and
outstanding 2,899,446 in 1995 and 1994 and
2,816,090 in 1993, Balance at beg. of period) $ 5,799 $ 5,799 $ 5,632 $ 5,392
Par value of additional shares issued -- -- 167 240
Balance at end of period 5,799 5,799 5,799 5,632
Additional paid-in capital:
Balance at beginning of period 137,749 136,534 120,763 116,003
Adjustment to reflect purchase acquisition
indicated in note 2 (52,163) -- -- --
Capital contribution 44,000 1,215 15,771 4,760
Balance at end of period 129,586 137,749 136,534 120,763
Retained earnings/(deficit):
Balance at beginning of period (36,441) 1,506 143,759 131,823
Adjustment to reflect purchase acquisition
indicated in note 2 36,441 -- -- --
Net income/(loss) (63) (29,543) (142,253) 11,936
Dividends to shareholder -- (8,404) -- --
Balance at end of period $ (63) $(36,441) $ 1,506 $143,759
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1995, 1994 and 1993
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
12/31/95 5/31/95 1994 1993
<S> <C> <C> <C> <C>
Net unrealized appreciation/(depreciation)of securities:
Balance at beginning of period $(28,837) $ (65,228) $ (321) $ (277)
Adjustment to reflect purchase acquisition
indicated in note 2 28,837 -- -- --
Implementation of change in accounting for
marketable debt and equity securities, net of
effects of deferred taxes of $18,375 and
deferred acquisition costs of $42,955 -- -- 34,125 --
Change in unrealized appreciation/(depreciation)
of debt and equity securities 10,724 178,010 (357,502) (74)
Change in deferred Federal income taxes (1,489) (18,458) 53,324 30
Change in deferred acquisition costs attributable
to unrealized losses/(gains) -- (123,161) 205,146 --
Change in present value of future profits
attributable to unrealized (gains) (6,471) -- -- --
Balance at end of period 2,764 (28,837) (65,228) (321)
Total Shareholders' Equity $138,086 $ 78,270 $ 78,611 $269,833
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
12/31/95 5/31/95 1994 1993
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Interest and dividend receipts $ 18,744 $ 131,439 $ 309,856 $ 343,122
Premiums received 921 1,097 2,787 4,002
Insurance and annuity benefit payments (2,799) (1,809) (3,755) (3,465)
Operating disbursements (10,480) (9,689) (26,023) (33,103)
Taxes on income refunded (paid) 60 48,987 17,032 (15,414)
Commissions and acquisition costs paid (17,456) (23,872) (26,454) (30,982)
Other 529 1,120 836 (1,585)
Net cash provided/(used in) by operating activities (10,481) 147,273 274,279 262,575
Cash flows from investing activities:
Cash used for the purch. of investment secur. (875,994) (575,891) (1,935,353) (3,685,448)
Proceeds from invest. secur. sold and matured 253,814 2,885,053 3,040,474 3,675,470
Other 179 (8,557) (8,185) 25,687
Net cash provided by/(used in) in investing activities $(622,003) $2,300,605 $ 1,096,936 $ 15,709
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
12/31/95 5/31/95 1994 1993
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Policyholder deposits $ 132,752 $ 130,660 $ 274,960 $ 348,392
Transfers (to)/from OakRe 628,481 (3,048,531) -- --
Transfer to Separate Accounts (37,946) (4,835) (33,548) (132,340)
Return of policyholder deposits (436,271) (290,586) (608,868) (446,396)
Dividends to Shareholder -- (8,404) -- --
Capital contributions received 44,000 1,215 15,938 5,000
Net cash provided by/(used in) financing activities 331,016 (3,220,481) (351,518) (225,344)
Increase in cash and cash equivalents (301,468) (772,603) 1,019,697 52,940
Cash and cash equivalents at beginning of period 363,724 1,136,327 116,630 63,690
Cash and cash equivalents at end of period $ 62,256 $ 363,724 $1,136,327 $ 116,630
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Cash Flows, Continued
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
12/31/95 5/31/95 1994 1993
<S> <C> <C> <C> <C>
Reconciliation of net income/(loss)to net cash
provided by operating activities:
Net income/(loss) ($63) ($29,543) $(142,253) $ 11,936
Adjustments to reconcile net income/(loss)to net
cash provided by operating activities:
Increase/(decrease) in future policy benefits
(net of reinsurance) (1,013) 11 1,494 4,106
Increase/(decrease) in payables and accrued
liabilities (392) (10,645) 3,830 (7,940)
Decrease/(increase) in accrued investment
income (7,904) 32,010 21,393 1,443
Amortization of intangible assets and costs 3,831 11,309 125,722 38,652
Amortization and accretion of securities
premiums and discounts 307 2,410 3,635 (97)
Recapture commissions paid to OakRe (4,777) -- -- --
Net realized (gain)/loss on sale of investments (1,324) 12,414 101,361 (17,699)
(17,699)
Interest accumulated on policyholder
deposits 17,706 97,867 249,905 265,674
Investment expenses paid 642 2,373 7,296 6,924
Decrease/(Increase)in guaranty assessments (104) 5,070 (935) (4,076)
Increase/(decrease) in current and deferred
Federal income taxes 491 38,923 (59,263) (5,942)
Separate account net income/(loss) 1 1 2 (2,256)
Deferral of costs (14,568) (13,354) (30,024) (29,342)
Other (3,314) (1,573) (7,884) 1,192
Net cash provided by operating activities $(10,481) $ 147,273 $ 274,279 $262,575
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(1) NATURE OF BUSINESS AND ORGANIZATION
NATURE OF THE BUSINESS
Cova Financial Services Life Insurance Company and subsidiary (the Company),
formerly Xerox Financial Services Life Insurance Company (the Predecessor),
market and service single premium deferred annuities, immediate annuities,
variable annuities, and single premium whole-life insurance policies. The
Company is licensed to do business in 45 states and the District of Columbia.
Most of the policies issued present no significant mortality nor longevity
risk to the Company, but rather represent investment deposits by the
policyholders. Life insurance policies provide policy beneficiaries with
mortality benefits amounting to a multiple, which declines with age, of the
original premium.
Under the deferred annuity contracts, interest rates credited to policyholder
deposits are guaranteed by the Company for periods from one to ten years, but
in no case may renewal rates be less than 3%. The Company may assess
surrender fees against amounts withdrawn prior to scheduled rate reset and
adjust account values based on current crediting rates. Policyholders also
may incur certain Federal income tax penalties on withdrawals.
Although the Company markets its products through numerous distributors,
including regional brokerage firms, national brokerage firms and banks,
approximately 59%, 57% and 58% of the companies sales have been through two
specific brokerage firms, A.G. Edwards & Sons, Incorporated. and Edward D.
Jones & Company in 1995, 1994 and 1993, respectively.
ORGANIZATION
Prior to June 1, 1995 Xerox Financial Services, Inc. (XFSI) owned 100% or
2,899,446 shares of the Predecessor. XFSI is a wholly owned subsidiary of
Xerox Corporation.
On June 1, 1995 XFSI sold 100% of the issued and outstanding shares of the
Predecessor to Cova Corporation, a subsidiary of General American Life
Insurance Company (GALIC), a Missouri domiciled life insurance company, in
exchange for approximately $91.4 million in cash and $27.8 million in future
payables. In conjunction with this Agreement, the Predecessor also entered
into a financing reinsurance transaction that caused OakRe Life Insurance
Company(OakRe),a subsidiary of the Predecessor, to assume the existing single
premium deferred annuity deposits (SPDAs) of Cova Financial Services Life
Insurance Company, which had an aggregate carrying value at June 1, 1995 of
$2,982.0 million. In exchange, the Predecessor transferred specifically
identified assets to OakRe with a market value at June 1, 1995 of $2,986.0
million. Ownership of OakRe is retained by XFSI subsequent to the sale of the
Predecessor and other affiliates. The Receivable from OakRe to the Company
(Continued)
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
that was created by this transaction will be liquidated over the remaining
crediting rate guaranty periods (which will be substantially expired in five
years) by the transfer of cash in the amount of the then current account
value, less a recapture commission fee to OakRe on policies retained beyond
their 30-day no-fee surrender window by the Company, upon the next crediting
rate reset date of each annuity policy. The Company may then reinvest that
cash for those policies that are retained and assume the benefits and risks of
those deposits thereafter.
In the event that both OakRe and XFSI default on the receivable, the Company
may draw funds from a standby bank irrevocable letter of credit established by
XFSI in the amount of $500 million. No funds were drawn on this letter of
credit during the period ending December 31, 1995.
In substance, terms of the agreement have allowed the seller, XFSI, to retain
substantially all of the existing financial benefits and risks of the existing
business, while the purchaser, GALIC, obtained the corporate operating and
product licenses, marketing and administrative capabilities of the Company,
and access to the retention of the policyholder deposit base that persists
beyond the next crediting rate reset date. Accordingly, the future gross
profits, as defined in note 3, of the Company on existing business will
consist of the gross profits on separate accounts, single premium deferred
annuities not reinsured to OakRe, single premium whole life policies, and
single premium immediate annuities, commencing at the date of closing; plus
the gross profits from SPDA deposits retained, commencing upon the expiration
of their current guaranteed crediting rate.
(2) CHANGE IN ACCOUNTING
Upon closing of the sale, the Company restated its financial statements in
accordance with "push down purchase accounting", which allocates the net
purchase price for the Company and its subsidiary of $91.4 million according
to the fair values of the acquired assets and liabilities, including the
estimated present value of future profits. These allocated values were
dependent upon policies in force and market conditions at the time of closing.
These allocations are summarized below:
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(In Millions)
<S> <C> June 1, 1995
Assets acquired:
Debt securities $ 32.4
Policy loans 18.3
Cash and cash equivalents 363.7
Present value of future profits 46.7
Goodwill 24.1
Deferred tax benefit 26.8
Receivable from OakRe 2,969.0
Other assets 5.9
Separate account assets 332.7
-------------
3,819.6
Liabilities assumed:
Policyholder deposits 3,299.2
Future policy benefits 27.2
Future purchase price payable 27.8
Deferred Federal income taxes 12.3
Other liabilities 29.0
Separate account liabilities 332.7
3,728.2
-------------
Adjusted purchase price $ 91.4
=============
</TABLE>
In addition to revaluing all material tangible assets and liabilities to their
respective estimated market values as of the closing date of the sale, the
Company also recorded in its financial statements the excess of cost over fair
value of net assets acquired (goodwill) as well as the present value of future
profits to be derived from the purchased and reinsured business. These amounts
were determined in accordance with the purchase method of accounting. This new
basis of accounting resulted in an increase in shareholders equity of $13.1
million in 1995 reflecting the application of push down purchase accounting.
The Companys consolidated financial statements subsequent to June 1, 1995
reflect this new basis of accounting.
All amounts for periods ended before June 1, 1995 are labeled Predecessor and
are based on historical costs. The periods ending on or after such date are
labeled The Company, and are based on fair values at June 1, 1995 and
subsequent costs.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES
Effective January 1, 1994 the Predecessor adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS #115). SFAS #115 requires that investments in all
debt securities and those equity securities with readily determinable market
values be classified into one of three categories: held-to-maturity, trading,
or available-for-sale. Classification of investments is based on management's
current intent. All debt and equity securities at December 31, 1995 and 1994
were classified as available-for-sale. Securities available-for-sale are
carried at market value, with unrealized holding gains and losses reported as
a separate component of stockholders equity, net of deferred effects of income
tax and related effects on deferred acquisition costs.
Amortization of the discount or premium from the purchase of mortgage-backed
bonds is recognized using a level-yield method which considers the estimated
timing and amount of prepayments of the underlying mortgage loans. Actual
prepayment experience is periodically reviewed and effective yields are
recalculated when differences arise between the prepayments previously
anticipated and the actual prepayments received and currently anticipated.
When such a difference occurs, the net investment in the mortgage-backed bond
is adjusted to the amount that would have existed had the new effective yield
been applied since the acquisition of the bond, with a corresponding charge or
credit to interest income (the "retrospective method").
For investments in "high risk" (interest-only strips) collateralized mortgage
obligations (CMOs), the Company's accounting in 1993 followed the provisions
of the Financial Accounting Standards Board's Emerging Issues Task Force
Consensus No. 89-4. A new effective yield was calculated for each individual
high-risk CMO based on the amortized cost of the investment and the current
estimate of future cash flows (the "prospective method"). The recalculated
yield was then used to accrue interest income in the subsequent period.
In 1994, the Predecessor adopted Financial Accounting Standards Board's
Emerging Issues Task Force Consensus No. 93-18 which amends EITF 89-4 and
requires impairment tests to be performed using discounted cash flows at a
risk free discount rate. If the amortized cost of the security exceeds future
cash flows discounted at the risk free rate, then amortized cost is written
down to fair value. The adoption of this Consensus resulted in no adjustments
at January 1, 1994.
A realized loss is recognized and charged against income if the Company's
carrying value in a particular investment in the available-for-sale category
has experienced a significant decline in market value that is deemed to be
other than temporary.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Investment income is recorded when earned. Realized capital gains and losses
on the sale of investments are determined on the basis of specific costs of
investments and are credited or charged to income. Gains or losses on
financial future or option contracts which qualify as hedges of investments
are treated as basis adjustments and are recognized in income over the life of
the hedged investments.
MORTGAGE LOANS AND OTHER INVESTED ASSETS
Real estate reserves are established when declines in collateral values,
estimated in light of current economic conditions and calculated in conformity
with Statement of Financial Accounting Standards No. 114, Accounting by
Creditors for Impairment of a Loan (SFAS 114), indicate a likelihood of loss.
Prior to year-end 1995, the Company evaluated its real estate-related assets
(including accrued interest) by estimating the probabilities of loss utilizing
various projections that included several factors relating to the borrower,
property, term of the loan, tenant composition, rental rates, other supply and
demand factors and overall economic conditions. Generally, at that time, the
reserve was based upon the excess of the loan amount over the estimated future
cash flows from the loan.
SFAS 114 defines impaired loans as loans in which it is probable that a
creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. In 1995, the Company adopted
Statement of Financial Accounting Standards No. 118, Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures (SFAS 118).
SFAS 118 amends SFAS 114, providing clarification of income recognition issues
and requiring additional disclosures relating to impaired loans. The adoption
of SFAS 114 and 118 had no effect on the Companys financial position or
results of operations at or for the period ended December 31, 1995. The
Company had no impaired loans and no valuation allowances established for
potential losses on mortgage loans at December 31, 1995.
Mortgage loans and policy loans are carried at their unpaid principal
balances. Real estate is carried at cost less accumulated depreciation.
Other invested assets are carried at lower of cost or market.
Prior to 1995, when an investment supported by real estate collateral was
deemed "in-substance" foreclosed, the investment was reclassified as real
estate and recorded at its fair value, with any reduction in carrying value
recorded as a realized loss. The change in this valuation allowance was
recorded as a realized capital gain or loss in the statements of income.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include currency and demand deposits in banks, US
Treasury bills, money market accounts, and commercial paper with maturities
under 90 days, which are not otherwise restricted.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
SEPARATE ACCOUNT ASSETS
Separate accounts contain segregated assets of the Company that are
specifically assigned to variable annuity policyholders in the separate
accounts and are not available to other creditors of the Company. The
earnings of separate account investments are also assigned to the
policyholders in the separate accounts, and are not guaranteed or supported by
the other general investments of the Company. The Company earns mortality and
expense risk fees from the separate accounts and assesses withdrawal charges
in the event of early withdrawals. Separate accounts assets are valued at
fair value.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business which vary with and are directly related
to the production of new business, principally commissions, premium taxes,
sales costs, and certain policy issuance and underwriting costs, are deferred.
These deferred costs are amortized in proportion to estimated future gross
profits derived from investment income, realized gains and losses on sales of
securities, unrealized securities gains and losses recognized under SFAS #115,
interest credited to accounts, surrender fees, mortality costs, and policy
maintenance expenses. The estimated gross profit streams are periodically
reevaluated and the unamortized balance of deferred acquisition costs is
adjusted to the amount that would have existed had the actual experience and
revised estimates been known and applied from the inception of the policies
and contracts. The amortization and adjustments resulting from unrealized
gains and losses is not recognized currently in income but as an offset to the
unrealized gains and losses reflected as a separate component of equity.
The components of deferred policy acquistion costs were as follows:
<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
(IN THOUSANDS OF DOLLARS) 12/31/95 5/31/95
1994 1993
<S> <C> <C> <C> <C>
Deferred policy acquisition costs,
beginning of period $ 92,398 $ 213,362 $ 146,504 $155,470
Effects of push down purchase
accounting (92,398) -- -- --
Commissions and expenses deferred 8,809 13,354 30,025 29,342
Amortization (100) (11,157) (125,357) (38,308)
Deferred policy acquisition costs
attributable to unrealized
gains/(losses) -- (123,161) 162,190 --
Deferred policy acquistion costs,
end of period $ 8,709 $ 92,398 $ 213,362 $146,504
</TABLE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
PURCHASE RELATED INTANGIBLE ASSETS AND LIABILITIES
In accordance with the purchase method of accounting for business
combinations, two intangible assets and a future payable related to accrued
purchase price consideration were established as of the purchase date:
Present value of future profits
As of June 1, 1995 the Company established an intangible asset which
represents the present value of future profits to be derived from both the
purchased and transferred blocks of business. Certain estimates were utilized
in the computation of this asset including estimates of future policy
retention, investment income, interest credited to policyholders, surrender
fees, mortality costs, and policy maintenance costs discounted a pre-tax rate
of 18% (12% net after tax). In addition, as the Company has the option of
retaining its SPDA policies after they reach their next interest rate reset
date and are recaptured from OakRe, a component of this asset represents
estimates of future profits on recaptured business. This asset will be
amortized according to the estimated profit stream and will periodically be
adjusted as actual profits materialize and are different from the estimates.
The asset will also be adjusted for amounts attributable to realized and
unrealized securities gains and losses. Any adjustments to the unamortized
balance will be applied as if the revised estimates had been known and applied
since inception. The amortization period is the remaining life of the
policies, which is estimated to be 20 years from the date of original policy
issue. Based on current assumptions, amortization of the original in-force
PVFP asset, expressed as a percentage of the original in-force asset, are
projected to be 7.6%, 7.6%, 6.6%, 5.4% and 5.3% for the years ended December
31, 1996 through 2000, respectively. Actual amortization incurred during
these years may be more or less as assumptions are modified to incorporate
actual results.
The components of present value of future profits are as follows:
<TABLE>
<CAPTION>
The Company
7 Months Ended
(In Thousands) 12/31/95
<S> <C>
Present value of future profits - beginning of period $ 46,709
Interest added 1,941
Commissions capitalized 5,759
Gross amortization, excluding interest (4,024)
Present value of future profits attributable to
unrealized gains (6,471)
---------
Present value of future profits - end of period $ 43,914
=========
</TABLE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
Future payable
Pursuant to the financial reinsurance agreement with OakRe, the receivable
from OakRe becomes due in installments when the SPDA policies reach their next
crediting rate reset date. For any recaptured policies that continue in force
into the next guarantee period, the Company will pay a commission to OakRe of
1.75% up to 40% of policy account values originally reinsured and 3.5%
thereafter. On policies that are recaptured and subsequently exchanged to a
variable annuity policy, the Company will pay a commission to OakRe of 0.50%.
The Company has recorded a future payable that represents the present value of
the anticipated future commission payments payable to OakRe over the remaining
life of the financial reinsurance agreement discounted at an estimated
borrowing rate of 6.5%. This liability will be periodically adjusted as actual
results differ from the estimates used in establishing the total purchase
price. This liability, which can be anticipated with a high degree of
certainty, represents a contingent purchase price payable for the policies
transferred to OakRe on the purchase date and has been pushed down to the
Company through the financial reinsurance agreement. The Company expects that
this payable will be substantially extinguished over the next five years.
The components of this future payable are as follows:
<TABLE>
<CAPTION>
The Company
7 Months Ended
(In Thousands) 12/31/95
<S> <C>
Future payable - beginning of period $ 27,797
Interest added 947
Payments to OakRe (4,777)
---------
Future payable - end of period $ 23,967
=========
</TABLE>
Goodwill
Under the push down method of purchase accounting, the excess of purchase
price over the fair value of assets and liabilities acquired and present value
of future profits less future payable is established as an asset and referred
to as Goodwill. Goodwill will also be periodically adjusted to account for any
retroactive changes to present value of future profits and future payables as
actual results differ from original assumptions and are applied retroactively
as of the original purchase date. The Company has elected to amortize goodwill
on the straight line basis over a 20 year period.
Deferred Tax Assets and Liabilities
Xerox Financial Services, Inc. (XFSI) and General American agreed to file an
election to treat the acquisition of the Company as an asset acquisition under
the provisions of Internal Revenue Code Section 338(h)(10). As a result of
that election, the tax basis of the Companys assets as of the date of
acquisition were revalued based upon fair market values. The principal effect
of the election was to establish a tax asset on the tax-basis balance sheet of
approximately $35.3 million for the value of the business acquired that is
amortizable for tax purposes.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
POLICYHOLDER DEPOSITS
The Company recognizes its liability for policy amounts that are not subject
to policyholder mortality nor longevity risk at the stated contract value,
which is the sum of the original deposit and accumulated interest, less any
withdrawals.
FUTURE POLICY BENEFITS
Reserves are held for future annuity benefits that subject the Company to
risks to make payments contingent upon the continued survival of an individual
or couple (longevity risk). These reserves are valued at the present value of
estimated future benefits discounted for interest, expenses, and mortality.
The assumed mortality is the 1983 Individual Annuity Mortality Tables
discounted at 5.75% to 8.50%, depending upon year of issue.
Current mortality benefits payable are recorded for reported claims and
estimates of amounts incurred but not reported.
PREMIUM REVENUE
The Company recognizes premium revenue at the time of issue on annuity
policies that subject it to longevity risks.
The Company currently assesses no explicit life insurance premium for its
commitment to make payments in excess of its recorded liability that are
contingent upon policyholder mortality. Benefits paid in excess of the
recorded liability are recognized when incurred.
Amounts collected on policies not subject to any mortality or longevity risk
are recorded as increases in the policyholder deposits liability.
FEDERAL INCOME TAXES
Prior to June 1,1995 the revenues and expenses of the Predecessor were
included in a consolidated Federal income tax return with its parent company
and other affiliates. Allocations of Federal income taxes were based upon
separate return calculations.
After June 1, 1995 the Company will be filing its own separate income tax
return, independent from its ultimate parent, GALIC.
The Company accounts for deferred income taxes according to Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS
#109).
Under the asset and liability method of SFAS #109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amount of existing assets
and liabilities and their respective tax bases and operating loss and tax
credit carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
(continued)
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
those temporary differences are expected to be recovered or settled. Under
SFAS #109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income to the period that includes the enactment
date.
RISKS AND UNCERTAINTIES
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
The following elements of the consolidated financial statements are most
affected by the use of estimates and assumptions:
- Investment market valuation
- Amortization of deferred policy acquisition costs
- Calculation and amortization of present value of future profits
- Recoverability of Goodwill
- Recoverability of guaranty fund assessments
The market value of the Company's investments is subject to the risk that
interest rates will change and cause a temporary increase or decrease in the
liquidation value of debt securities. To the extent that fluctuations in
interest rates cause the cash flows of assets and liabilities to change, the
Company might have to liquidate assets prior to their maturity and recognize a
gain or loss. Interest rate exposure for the investment portfolio is managed
through asset/liability management techniques which attempt to control the
risks presented by differences in the probable cash flows and reinvestment of
assets with the timing of crediting rate changes in the Company's policies and
contracts. Changes in the estimated prepayments of mortgage-backed securities
also may cause retrospective changes in the amortization period of securities
and the related recognition of income.
The amortization of deferred acquisition costs is based on estimates of
long-term future gross profits from existing policies. These gross profits
are dependent upon policy retention and lapses, the spread between investment
earnings and crediting rates, and the level of maintenance expenses. Changes
in circumstances or estimates may cause retrospective adjustment to the
periodic amortization expense and the carrying value of the deferred expense.
In a similar manner, the amortization of present value of future profits is
based on estimates of long-term future profits from existing and recaptured
policies.
These gross profits are dependent upon policy retention and lapses, the spread
between investment earnings and crediting rates, and the level of maintenance
expenses. Changes in circumstances or estimates may cause retrospective
adjustment to the periodic amortization expense and the carrying value of the
asset.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long Lived Assets and for Long Lived Assets
to be Disposed of (SFAS 121), which was adopted by the Company in the fourth
quarter of 1995, the Company has considered the recoverability of Goodwill and
has concluded that no circumstances have occurred which would give rise to
impairment of Goodwill for the period ending December 31, 1995.
The Company is subject to assessments in substantially all jurisdictions where
it is licensed to fund guaranteed benefits to policyholders of non-affiliated
insolvent insurers licensed in those jurisdictions. Such assessments
generally are limited to a percentage of the premiums written by the Company
and are fully or partially recoverable as credits against future premium tax
payments in the majority of jurisdictions. The Company is at risk to extent
that the Company may not incur sufficient premium taxes to permit full
recovery of available credits. The Company has been indemnified by OakRe
against any guaranty assessments incurred that relate to insolvencies
occurring prior to June 1, 1995. See note 11 - Guaranty Fund Assessments.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107, "Disclosures About Fair
Value of Financial Instruments" (SFAS #107) applies fair value disclosure
practices with regard to financial instruments, both assets and liabilities,
for which it is practical to estimate fair value. In cases where quoted
market prices are not readily available, fair values are based on estimates
that use present value or other valuation techniques.
These techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. Although fair value
estimates are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, might
not be realized in the immediate settlement of the instruments. SFAS #107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Because of this, and further because a value of
a business is also based upon its anticipated earning power, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
SFAS #115 takes SFAS #107 another step and requires balance sheet adjustments
of debt investments available for sale and equity investments to fair value
with a corresponding adjustment to shareholders' equity. The Predecessor
adopted SFAS #115 in 1994 and classified all of its investments as "available
for sale". The effects of implementing SFAS #115 as of January 1, 1994 was a
net increase in Shareholders' Equity of approximately $29.2 million.
The Predecessor adopted Statement of Financial Accounting Standard No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments" (SFAS #119), as of December 31, 1994. SFAS #119 requires
increased disclosures about derivative financial instruments including the
amount, nature, and terms of all derivative financial instruments as well as
(continued)
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
disclosure of the purposes for which derivative financial instruments are
held, end-of-period fair values and any net gains or losses arising from
trading of derivative financial instruments.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS
AND ACCRUED INVESTMENT INCOME:
The carrying values amounts reported in the balance sheets for these
instruments approximate their fair values. Short-term debt securities are
considered "available for sale."
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED SECURITIES):
Fair values for debt securities are based on quoted market prices, where
available. For debt securities not actively traded, fair value estimates are
obtained from independent pricing services. In some cases, such as private
placements and certain mortgage-backed securities, fair values are estimated
by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the investments. (See
note 4 for fair value disclosures). Fair values for mortgages are based on
management estimates and incorporate independent appraisals of underlying real
property. As of December 31, 1995, fair value of the Companys mortgage loans
are equivalent to the carrying value.
INTEREST RATE SWAPS AND FINANCIAL FUTURES CONTRACTS:
The fair value of interest rate swaps and financial futures contracts are the
amounts the Company would receive or pay to terminate the contracts at the
reporting date, thereby taking into account the current unrealized gains or
losses of open contracts. Amounts are based on quoted market prices, or
pricing models or formulas using current assumptions. (See note 6 for fair
value disclosures).
INVESTMENT CONTRACTS:
The Company's policy contracts require the beneficiaries to commence receipt
of payments by the later of age 85 or 10 years after purchase, and
substantially all permit earlier surrenders, generally subject to fees and
adjustments. Fair values for the Company's liabilities for investment type
contracts (Policyholder Deposits) are estimated as the amount payable on
demand. As of December 31, 1995 and 1994 the cash surrender value of
policyholder funds on deposit were $2,228,009 and $129,404,638 respectively,
less than their stated carrying value. Of the contracts permitting surrender,
90% provide the option to surrender without fee or adjustment during the 30
days following reset of guaranteed crediting rates. The Company has not
determined a practical method to determine the present value of this option.
All of the Company's deposit obligations are fully guaranteed by the acquirer,
GALIC, and the receivable from OakRe equal to the SPDA obligations is
guaranteed by OakRe's parent, XFSI.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
REINSURANCE:
Reinsurance is not material to the Companys operation or its financial
statements. The Company, however, has adopted the provisions of Statement of
Financial Accounting Standard No. 113, Accounting and Reporting for
Reinsurance of Short Duration and Long Duration Contracts (SFAS 113). The
adoption of this accounting standard had no effect on the financial statements
other than gross reporting of balance sheet amounts and disclosure of
reinsurance amounts netted against revenues and expenses.
The financing reinsurance agreement entered into with OakRe does not meet the
conditions for reinsurance accounting under SFAS No. 113. The net assets
initially transferred to OakRe were established as a receivable and are
subsequently increased as interest is accrued on the underlying liabilities
and decreased as funds are transferred back to the Company when policies reach
their crediting rate reset date or benefits are claimed.
OTHER
Certain 1993 and 1994 amounts have been reclassified to conform to the 1995
presentation.
(4) INVESTMENTS
The Company's investments in debt and equity securities are considered
available for sale and carried at estimated fair value, with the aggregate
unrealized appreciation or depreciation being recorded as a separate component
of shareholder equity. The carrying value and amortized cost of investments at
December 31, 1995 and 1994 are as follows:
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
THE COMPANY
1995
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
AMORTIZED
VALUE GAINS LOSSES VALUE
COST
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Debt Securities:
US. Government Treasuries $ 4,307 $ 156 -- $ 4,307 $ 4,151
Mortgage-backed and derivative
securities:
Collateralized mortgage obligations 252,148 4,344 $ (237) 252,148 248,041
Corporate, state, municipalities, and
political subdivisions 338,101 7,261 (836) 338,101 331,676
Total debt securities 594,556 11,761 (1,073) 594,556 583,868
Mortgage loans 77,472 -- -- 77,472 77,472
Policy loans 19,125 -- -- 19,125 19,125
Short term investments 7,859 36 -- 7,859 7,823
Total investments $699,012 $11,797 $(1,073) $699,012 $688,288
<FN>
As of December 31, 1995, the Company has no impaired investments and no valuation
allowances established for potential losses on its investments.
</TABLE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
PREDECESSOR
1994
GROSS GROSS ESTIMATED COST
OR
CARRYING UNREALIZED UNREALIZED FAIR
AMORTIZED
VALUE GAINS LOSSES VALUE
COST
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Debt Securities:
US. Government Treasuries $ 10,834 $ 80 $ (1,787) $ 10,834 $ 12,541
Mortgage-backed and
derivative securities:
GNMA 6,447 186 -- 6,447 6,261
FNMA & FHLMC 272 6 -- 272 266
Collateralized mortgage obligations 1,188,257 490 (185,964) 1,188,257 1,373,731
Foreign governments 27,947 -- (4,355) 27,947 32,302
Corporate, state, municipalities, and
political subdivisions 654,848 9,884 (80,583) 654,848 725,547
Redeemable preferred stocks 13,037 194 (97) 13,037 12,940
Total debt securities 1,901,642 10,840 (272,786) 1,901,642 2,163,588
Other invested assets (1) 7,597 466 (1,335) 6,728 7,597
Equity securities 8,754 -- -- 8,754 8,754
Real estate (1) 26,735 2,034 (153) 28,616 26,735
Mortgage loans 6,825 -- (1,245) 5,580 6,825
Policy loans 17,691 -- -- 17,691 17,691
Short term investments 93,118 4,060 (4,654) 93,118 93,712
Total investments(1) $2,062,362 $17,400 $(280,173) $2,062,129 $2,324,902
Company's beneficial interest in separate
account assets $ 167 N/A N/A $ 167 N/A
<FN>
(1) The Company has established valuation allowances of approximately $200,000 and $400,000 as
of December 31, 1994 for estimated potential losses on real estate and other invested assets,
respectively.
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
The amortized cost and estimated market value of debt securities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Maturities of mortgage-backed securities will be substantially shorter than
their contractual maturity because they require monthly principal installments
and mortgagees may prepay principal.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
<S> <C> <C>
(in thousands of dollars)
Due after one year through five years $135,221 $137,828
Due after five years through ten years 176,906 180,132
Due after ten years 23,700 24,448
Mortgage-backed securities 248,041 252,148
Total $583,868 $594,556
<FN>
At December 31, 1995, approximately 99.25% of the Company's debt securities
are investment grade or are non-rated but considered to be of investment
grade. Of the 0.75% non-investment grade debt securities, all are rated as
BB+.
</TABLE>
Included in debt securities in 1994 and the first five months of 1995 are
investments in interest-only mortgage-backed stripped securities (IOs) and
similar IOettes. Accounting for investments in "high risk" (interest only)
collateralized mortgage obligations (CMOs), is in accordance with the
provisions of the Financial Standards Board's Emerging Issues Task Force
Consensus Nos. 89-4 and 93-18. An effective yield is calculated for each high
risk CMO based on the current amortized cost of the investment and the current
estimate of future cash flow. The recalculated effective yield is used to
record interest income in subsequent periods (the "prospective method"). If
the anticipated cash flow for any "high risk" CMO discounted at the comparable
risk-free rate is less than the unamortized cost, an impairment loss is
recorded and the unamortized cost adjusted. The write-down is treated as a
realized loss. Write-downs of approximately $3,341,163 and $51,120,276 were
recorded in 1994 and 1993, respectively. At December 31, 1994 the Predecessor
held such securities with a carrying value of $36,441,742. The weighted
average of the effective yield that was used to accrue interest income in 1994
was 11.88%.
FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
The Company participates in a securities lending program whereby certain
securities are loaned to third parties, primarily major brokerage firms. The
agreement with a custodian bank facilitating such lending requires a minimum
of 102% of the initial market value of the domestic loaned securities to be
maintained in a collateral pool. To further minimize the credit risk related
to this lending program, the Company monitors the financial condition of the
counter parties to these agreements. Securities loaned at December 31, 1995
had market values totaling $16,034,037. Cash, letters of credit, and
government securities of $16,353,995 was held by the custodian bank as
collateral to secure this agreement. Income on the Companys security lending
program in 1995 was immaterial.
Debt securities with a recorded investment of $0 and $2,827,500, were
non-income producing during the years ended December 31,1995 and 1994.
Information related to troubled debt restructurings during 1994 is as follows:
<TABLE>
<CAPTION>
THE
PREDECESSOR
DEBT MORTGAGE
SECURITIES LOANS
TOTAL
(in thousands of
dollars)
<S> <C> <C> <C>
Aggregate carrying value at December 31, 1994 $3,306 -- $3,306
Gross interest income included in net income
during 1994 205 -- 205
Gross interest income that would have been
earned during 1994 if there had been no
restructuring 538 -- 538
</TABLE>
Information related to troubled debt restructuring during 1993 is as follows:
<TABLE>
<CAPTION>
THE
PREDECESSOR
DEBT
MORTGAGE
SECURITIES LOANS
TOTAL
(in thousands of
dollars)
<S> <C> <C> <C>
Aggregate carrying value at December 31, 1993 $5,275 $6,405 $11,680
Gross interest income included in net income
during 1993 589 568 1,157
Gross interest income that would have been
earned during 1993 if there had been no
restructuring 904 712 1,616
</TABLE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
The components of net investment income were as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
12/31/95 5/31/95 1994
1993
(in thousands of dollars)
<S> <C> <C> <C> <C>
Income on debt securities $19,629 $ 63,581 $ 267,958 $327,489
Income on equity securities -- 302 645 725
Income on short-term investments 2,778 28,060 11,705 4,624
Income on cash on deposit -- -- 316 1,711
Income on interest rate swaps -- 377 (244) 3,365
Income on policy loans 868 624 1,376 1,147
Interest on mortgage loans 1,444 248 1,162 1,053
Income on foreign exchange -- 184 (433) (281)
Income of real estate -- 1,508 3,278 586
Income on separate account investments -- (1) 2 2,256
Miscellaneous interest 109 (24) (853) (168)
--
Total investment income 24,828 94,859 284,912 342,507
Investment expenses (640) (2,373) (7,296) (6,924)
Net investment income $24,188 $ 92,486 $ 277,616 $335,583
Realized capital gains/(losses) were as follows:
Debt securities $ 1,344 $(16,749) $ (79,300) $ 12,716
Mortgage loans -- 1,431 (3,452) (453)
Equity securities -- (423) (76) 2,489
Real estate -- (124) -- 2,335
Short-term investments (20) (1,933) (282) 612
Other assets -- (76) 147 --
Interest rate swaps -- 5,460 (18,398) --
Net realized gains/(losses) on investments $ 1,324 $(12,414) $(101,361) $ 17,699
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
- -----------------------------------------------------
7 MONTHS 5 MONTHS
ENDED ENDED
12/31/95 5/31/95 1994 1993
<S> <C> <C> <C> <C>
Unrealized gains/(losses) were as follows:
Debt securities $10,688 $(85,410) $(261,947) $ --
Equity securities -- -- -- (494)
Short-term investments 36 879 (594) --
Effects on deferred acquisition costs amortization -- 39,030 162,190 --
Effects on present value of future profits (6,471) -- -- --
Unrealized gains/(losses) before income tax 4,253 (45,501) (100,351) (494)
Unrealized income tax benefit/(expense) (1,489) 16,664 35,123 173
Net unrealized gains (losses) on investments $ 2,764 $(28,837) $ (65,228) $(321)
</TABLE>
Proceeds from sales of investments in debt securities for the Company during
1995 were $214,811,186, and for the Predecessor were $2,786,998,780. Gross
gains of $1,533,501 and gross losses of $190,899 were realized by the Company
on its sales. Included in these amounts for the Company are $373,768 of
gross gains realized on the sale of non-investment grade securities. The
Predecessor realized gross gains of $9,499,191 and gross losses of $26,249,279
on its sales. Included in these amounts are $6,367,297 of gross gains and
$7,607,167 of gross losses realized on the sale of non-investment grade
securities.
Proceeds from sales of investments in debt securities during 1994 were
$3,081,863,341. Gross gains of $59,472,808 and gross losses of $136,394,109
were realized on those sales. Included in these amounts are $6,455,887 of
gross gains and $6,692,683 of gross losses realized on the sale of
non-investment grade securities.
Proceeds from sales of investments in debt securities during 1993 were
$3,635,309,534. Gross gains of $229,942,137 and gross losses of $198,648,778
were realized on those sales. Included in these amounts are $47,042,511 of
gross gains and $9,163,938 of gross losses realized on the sale of
non-investment grade securities.
Unrealized appreciation/(depreciation) of debt securities for the Company in
1995, and the Predecessor in 1995, 1994 and 1993 were $10,688,000,
$176,537,000, $(357,401,000), and $15,171,000, respectively. Unrealized
appreciation/(depreciation)of debt securities is calculated as the change
between the cost and market values of debt securities for the years then
ended.
Securities with a book value of approximately $6,933,755 at December 31, 1995
were deposited with government authorities as required by law.
(Continued)
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
(5) SECURITIES GREATER THAN 10% OF SHAREHOLDERS' EQUITY
As of December 31, 1995 the Company held the following individual securities
which exceeded 10% of shareholders' equity:
<TABLE>
<CAPTION>
Long-term Debt Amortized
Securities Cost
- -----------------------------------
<S> <C>
Countrywide Mtg. 1933-12 A4 $18,681,636
American Airlines 14,940,484
</TABLE>
As of December 31, 1994 the Company held the following individual securities
which exceeded 10% of shareholders' equity:
<TABLE>
<CAPTION>
Long-term Debt Amortized Long-term Debt Amortized
Securities Cost Securities Cost
<S> <C> <C> <C>
PRU HOME MTG SEC 1994 SER 26-A $43,947,846 VIRGINIA STATE HOUSING DEV AUTH 1994-A $14,300,000
PRU HOME MTG SEC 1993 SER 19-A9 41,024,780 PRU HOME MTG SEC 1994 SER 8-A2 14,228,882
HOUSING SEC INC 1994 SER 1-A8 34,293,893 FHLMC MC MTG PRT CRT SER 1628-G 13,841,422
FNMA REMIC TR 1994-51 PE 34,079,290 FNMA REMIC TR 1993 SER 33-ZA 13,613,754
FHLMC MC MTG PRT CRT SER 1162-Z 34,029,681 FNMA REMIC TR 1994 SER 58-B 13,502,865
RES FUNDING CORP 1994 SER S7-A3 33,929,196 FNMA REMIC TR 1994 SER 58-A 13,402,600
RES FUNDING CORP 1993 SER S18-A6 30,771,180 TELEPHONE & DATA SYSTEMS 13,382,782
FHLMC MC MTG PRT CRT SER 1652-E 29,880,047 ARGENTINA FRB 13,051,979
G E CAPITAL 1994 SER 4-A6 29,587,419 FHA PROJECT LOAN 223-F(MANASSAS VA) 12,985,981
RES FUNDING CORP 1994 SER S10-A3 28,743,601 PARAMOUNT COMMUNICATIONS 12,985,579
FNMA REMIC TR 1993 SER 131-Z 26,821,993 FNMA REMIC TR 1993 SER G22-ZA 12,962,715
CITICORP MTG 1994 SER 11-A1 26,271,938 FNMA REMIC TR 1992 SER 184-X 12,815,453
COUNTRYWIDE MTG 1993 SER 13-A2 24,027,743 TELARG 12,458,038
G E CAPITAL KRONE LINKED (CI) 23,500,000 UNITED AIRLINES 1991 ETC SER A2 12,420,542
G E CAPITAL MTG 1994 SER 12-A4 23,480,685 PRU HOME MTG SEC 1994 SER 6-A5 12,400,623
GRUMA SA DE CV 23,335,945 SIGNET MASTER TR 1994-4A 11,986,616
FHLMC MC MTG PRT CRT SER 1108-K 23,146,222 GENERAL MOTORS CORP DEBENTURE 11,856,797
FHLMC MC MTG PRT CRT SER 1468-ZA 22,546,223 PRU HOME MTG SEC 1993 SER 43-10 11,791,582
G E CAPITAL MTG 1994 SER 10-A12 21,288,675 CENTRAL BANK OF ARGENTINA 11,695,148
RES FUNDING CORP 1993 SER S26-A8 21,225,227 FHLMC MC MTG PRT CRT SER 1697-PG 11,544,588
LOUISIANA POWER & LIGHT(WATERFORD 3) 20,909,267 FNMA REMIC TR 1993 SER 29-SK 11,316,353
SEARS MTG ACC CORP 1993 SER 11-A5 20,861,498 PRU HOME MTG SEC 1993 SER 41-A4 11,272,637
FEDERAL HOME LOAN BANK 20,716,221 FHLMC MC MTG PRT CRT SER 1513-AF 11,266,102
FHLMC MC MTG PRT CRT SER 1244-G 20,697,580 FNMA REMIC TRUST 1993 SER 4-HB 11,181,840
PRU HOME MTG SEC 1993 SER 30-A9 20,570,432 PHILLIPS PETROLEUM 11,120,220
G E CAPITAL MTG 1992 SER 7 20,423,860 INTERAMERICAN DEV BANK 10,751,421
CSR AMERICA INC 19,916,660 COUNRTYWIDE MTG 1994 SER L-AB 10,603,498
FHLMC MC MTG PRT CRT SER 1364-I 19,892,880 CHASE MTG SEC 1994SER F-A7 10,516,592
FHLMC MC MTG PRT CRT SER 1574-F 19,825,320 FNMA REMIC TR 1994 SER 3-SC 10,434,265
SEARS MTG SEC CORP 1993-7 T7 19,709,253 NEWS AMERICAN HOLDINGS 10,310,547
</TABLE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
(6) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
FINANCIAL FUTURES CONTRACTS
The Predecessor was a party to financial futures contracts under a program of
hedging with off-balance sheet risk in the normal course of business to meet
the needs of its policyholders and to reduce its own exposure to fluctuations
in interest rates. The contracts involved, to varying degrees, elements of
interest rate risk in excess of the amount recognized in the consolidated
balance sheet.
Futures contracts are contracts for delayed delivery of securities in which
the seller agrees to make delivery at a specified future date for a specific
price. Risks arise from the possible inability of counter parties to meet the
terms of their contracts and from movements in securities values and interest
rates. When futures contracts are designated as hedges additional risks arise
due to the possibility that the futures contract will provide an imperfect
correlation to the hedged security.
As of December 31, 1994, the Predecessor held 65 5Yr T-note futures, 190 10Yr
T-note futures, and 50 T-bond futures contracts with a total notional face
amount of $30,500,000. The contracts matured in March, 1995, and resulted in
a net amount of $468,520 being applied as an increase in book value of the
underlying hedged securities. Collateral requirements were set by the Chicago
Board of Trade and averaged $1,121 per contract as of December 31, 1994.
INTEREST RATE SWAPS
During 1994 and the first five months of 1995, the Predecessor was party to
derivative financial instruments in the normal course of business for the
purposes of earning investment income and modifying the interest rate-related
risks of the portfolio.
The notional amounts of derivatives do not represent amounts exchanged by the
parties and, thus, are not a measure of the Company's exposure through the use
of derivatives. The amounts exchanged are determined by reference to the
notional amounts and the other terms of the instruments.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
The following table summarizes various information regarding derivative
financial instruments as of December 31, 1994:
<TABLE>
<CAPTION>
FAIR MARKET LOSSES
NOTIONAL PURPOSE VALUE AT FROM
Amount Nature/Terms For Holding 12/31/94 Investment
- ----------- ----------------------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Open
- -----------
5,000,000 LIBOR/Mexican Par Bond Swap
2/17/1995 receive 10% fixed,
pay 6 Month LIBOR Investment $ (5,460,000) $ 0
35,000,000 Zero Coupon Swap Spread/Yield
Curve 8/19/1996 6 Month LIBOR Investment (12,937,750) 0
Closed
- -----------
25,000,000 Lehman Corporate Index Swap
1/1/1994 Investment 0 (77,305)
25,000,000 Lehman Corporate Index Swap
1/1/1994 Investment 0 (77,305)
</TABLE>
The Libor/Mexican Par Bond swap caused the Predecessor to receive or pay the
net of a fixed-rate of 10%, in exchange for paying 6 month LIBOR, times a
multiplier of six times the notional amount. The substance is as if the
Predecessor owned $30 million par of the bonds using funds borrowed at six
month LIBOR. At maturity, the Predecessor committed to acquire the $30
million par of the bonds if their market price was less than 72, for a payment
of $21.6 million. The Predecessor thereby assumed the market risk below that
price.
The Predecessor received or paid at maturity of the Zero Coupon Swap
Spread/Yield Curve swap an amount derived from both the relationship between
the 6 month LIBOR and the 10 year constant maturity treasury rates, and a
function (swap spread) that usually correlates to corporate bond quality
spreads. The Predecessor could lose money if the yield curve is flat or
inverted and the swap spread is small. The purpose of the instrument was to
offset the effects of holding very large amounts of cash equivalents in
conjunction with XFSIs plan to discontinue its ownership of the Predecessor.
Effective December 31, 1994, XFSI formally assumed the net obligation for this
instrument, resulting in a capital contribution to the Predecessor.
The unrealized depreciation was recorded as a realized loss as of December 31,
1994 based on the current evolving accounting practices for derivative
instruments where as at December 31, 1993 the unrealized loss was treated as
an off-balance-sheet item.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
The following table summarizes various information regarding these derivative
financial instruments as of December 31, 1995:
<TABLE>
<CAPTION>
FAIR MARKET LOSSES
NOTIONAL PURPOSE VALUE AT FROM
Amount Nature/Terms For Holding 12/31/95 Investment in 1995
- ---------- ---------------------------- ----------- ------------ -------------------
<S> <C> <C> <C> <C>
Closed
- ----------
5,000,000 LIBOR/Mexican Par Bond Swap
2/17/1995 receive 10% fixed,
pay 6 Month LIBOR Investment $ 0 $ 0
</TABLE>
(7) POST-RETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company has no direct employees and no retired employees. All personnel
used to support the operations of the Company are supplied by contract by Cova
Life Management Company (CLMC), a wholly owned subsidiary of Cova Corporation.
The Company is allocated a portion of certain health care and life insurance
benefits for future retired employees of CLMC as determined in accordance with
Financial Accounting Standards Board Statement No. 106, "Employers' Accounting
For Postretirement Benefits Other Than Pensions" (SFAS #106). In 1995, the
Company was allocated a portion of benefit costs including severance pay,
accumulated vacations, and disability benefits as determined in accordance
with Financial Accounting Standards Board Statement No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS #112). At December 31, 1995
CLMC had no retired employees nor any employees fully eligible for retirement
and had no disbursements for such benefit commitments. The expense arising
from these obligations is not material.
(8) INCOME TAXES
The Company will file a consolidated Federal Income Tax return for the first
five months of 1995 with the Companys former ultimate parent, Xerox
Corporation, a New York corporation, along with Xerox Corporationss other
eligible subsidiaries. For the last seven months, the Company will file a
consolidated Federal Income Tax return with its wholly-owned subsidiary, First
Cova Life Insurance Company, a New York insurance company. Amounts payable or
recoverable related to periods before June 1, 1995 are subject to an
indemnification agreement with XFSI, which has the effect that the Company is
not at risk for any income taxes nor entitled to recoveries related to those
periods, except for approximately $1.4 million of state income taxes.
The actual Federal income tax expense differed from the expected tax expense
computed by applying the US. Federal statutory rate to income before taxes on
income as follows:
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of COVA Corporation)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
1995 1995 1994 1993
7 MONTHS 5 MONTHS
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computed expected tax expense $129 35.0% $(13,862) 35.0% $(76,739) 35.0% $7,503 35.0%
State income taxes, net 11 3.0 (306) 0.8 (1,552) 0.7 1,631 7.6
Rate change effect on prior deferrals -- -- -- -- -- -- 456 2.1
Tax-exempt bond interest (22) (6.0) (332) 0.8 (1,208) 0.6 (123) (0.6)
Amortization of intangible assets 254 69.0 -- -- 111 (0.1) 111 0.5
Permanent difference due to derivative
transfer -- -- 4,399 (11.1) -- -- -- --
Other 59 16.1 37 (.1) 2,388 (1.1) (76) (0.3)
Total $431 117.1% $(10,064) 25.4% $(77,000) 35.1% $9,502 44.3%
</TABLE>
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1995 &
1994 follows:
<TABLE>
<CAPTION>
The Company Predecessor
1995 1994
<S> <C> <C>
Deferred tax assets:
Policy Reserves $ 7,601 $ 26,602
Liability for commissions on recapture 8,868 --
Tax basis of intangible assets purchased 13,141 --
DAC Proxy Tax 4,749 4,797
Permanent Impairments -- 4,934
Unrealized losses on investments -- 91,889
Book to tax differences on Investments 1,287
Other deferred tax assets 2,860 4,809
Total assets $37,219 $134,318
Deferred tax liabilities:
PVFP $16,774 --
Unrealized gains on investments 1,489 --
Deferred Acquisition Costs 5,316 74,676
Other deferred tax liabilities 84 3,507
Total liabilities $23,663 $ 78,183
Net Deferred Tax Asset/(Liability) $13,556 $ 56,135
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management believes
the deferred tax assets will be fully realized in the future based upon
expectation of the reversal of existing temporary differences, anticipated
future earnings, and consideration of all other available evidence.
Accordingly no valuation allowance is established.
(9) RELATED-PARTY TRANSACTIONS
The Company has entered into management, operations and services agreements
with both affiliated and unaffiliated companies. The affiliated companies are
Cova Life Management Company (CLMC), a Delaware corporation, which provides
management services and the employees necessary to conduct the activities of
the Company, and General American Investment Management Company, which
provides investment advice. Additionally, a portion of overhead and other
corporate expenses are allocated by the Companys ultimate parent, GALIC. The
unaffiliated companies are Johnson & Higgins, a New Jersey corporation, and
Johnson & Higgins/Kirke Van Orsdel, a Delaware corporation, which provide
various services for the Company including underwriting, claims and
administrative functions. The affiliated and unaffiliated service providers
are reimbursed for the cost of their services and are paid a service fee.
Expenses and fees paid to affiliated companies during the 7 months of 1995 for
the Company were $7,139,525, and the five months of 1995 and the years of 1994
and 1993 for the Predecessor were 6,364,609, $8,553,028, and $7,986,999,
respectively.
(10) STATUTORY SURPLUS AND DIVIDEND RESTRICTION
Generally accepted accounting principles (GAAP) differ in certain respects
from the accounting practices prescribed or permitted by insurance regulatory
authorities (statutory accounting principles).
The major differences arise principally from the immediate expense recognition
of policy acquisition costs and intangible assets for statutory reporting,
determination of policy reserves based on different discount rates and
methods, the non-recognition of financial reinsurance for GAAP reporting, the
establishment of an Asset Valuation Reserve as a contingent liability based on
the credit quality of the Company's investment securities, and an Interest
Maintenance Reserve as an unearned liability to defer the realized gains and
losses of fixed income investments presumably resulting from changes to
interest rates and amortize them into income over the remaining life of the
investment sold. In addition, SFAS #115 adjustments to record the carrying
values of debt securities and certain equity securities at market are applied
only under GAAP reporting and capital contributions in the form of notes
receivable from an affiliated company are not recognized under GAAP reporting.
Purchase accounting creates another difference as it requires the restatement
of GAAP assets and liabilities to their estimated fair values and shareholders
equity to the net purchase price. Statutory accounting does not recognize the
purchase method of accounting.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
As of December 31, the differences between statutory capital and surplus and
shareholder's equity determined in conformity with generally accepted
accounting principles (GAAP) were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands of dollars)
<S> <C> <C> <C>
Statutory Capital and Surplus $ 59,682 $ 100,071 $108,617
Reconciling items:
GAAP investment valuation reserves -- (600) (14,076)
Statutory Asset Valuation Reserves 13,378 45,470 43,060
Interest Maintenance Reserve 1,892 15,123 50,074
GAAP investment adjustments to fair value 10,724 (274,222) --
Deferred policy acquisition costs 8,708 213,362 146,504
GAAP basis policy reserves (11,233) 7,944 (45,784)
Deferred federal income taxes (net) 13,556 56,135 (8,933)
Modified coinsurance -- (10,534) (13,994)
Goodwill 23,001 -- --
Present value of future profits 43,914 -- --
Future purchase price payable (23,967) -- --
Elimination of notes contributed
to statutory surplus -- (72,000) --
Other (1,569) (2,138) 4,365
GAAP Shareholders' Equity $138,086 $ 78,611 $269,833
</TABLE>
Statutory net losses for the years ended December 31, 1995, 1994 and 1993 were
$(74,012,650), $(92,952,989),and $(13,299,824), respectively.
The maximum amount of dividends which can be paid by State of Missouri
insurance companies to shareholders without prior approval of the insurance
commissioner is the greater of 10% of statutory earned surplus or statutory
net gain from operations for the preceding year. Accordingly, the maximum
dividend permissible at December 31, 1995 was $ 0.
The National Association of Insurance Commissioners has developed certain Risk
Based Capital (RBC) requirements for life insurers. If prescribed levels of
RBC are not maintained, certain actions may be required on the part of the
Company or its regulators. At December 31, 1995 the Company's Total Adjusted
Capital and Authorized Control Level - RBC were, $73,060,575 and $18,224,056
respectively. This level of adjusted capital qualifies under all tests.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARY
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
(11) GUARANTY FUND ASSESSMENTS
The Company participates with all life insurance companies licensed throughout
the United States, in associations formed to guarantee benefits to
policyholders of insolvent life insurance companies. Under state laws, as a
condition for maintaining the Companys authority to issue new business, the
Company is contingently liable for its share of claims covered by the guaranty
associations for insolvencies incurred through 1995, but for which assessments
have not yet been determined nor assessed, to a maximum in each state
generally of 2% of statutory premiums per annum in the given state. Most
states then permit recovery of assessments as a credit against premium or
other state taxes over, most commonly, five years.
At December 31, 1995, the National Organization of Life and Health Guaranty
Associations (NOLHGA) distributed a study of the major outstanding industry
insolvencies, with estimates of future assessments by state. Based on this
study, the Company has accrued a liability for approximately $14.3 million in
future assessments on insolvencies that occurred before December 31, 1995.
Under the coinsurance agreement between the Company and OakRe (see note 1),
OakRe is required to reimburse the Company for any future assessments that it
pays which relate to insolvencies occurring prior to June 1, 1995. As such,
the Company has recorded an additional receivable from OakRe for $14.3
million.
At the same time, the Company is liable to OakRe for 80% of any future premium
tax recoveries that are realized from any such assessments, and may retain the
PART C
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. FINANCIAL STATEMENTS
The following financial statements of the Variable Account are included in Part
B hereof:
1. Statement of Assets and Liabilities - September 30, 1996 (unaudited).
2. Statement of Operations for the nine months ended September 30, 1996
(unaudited).
3. Statement of Changes in Contract Owners' Equity for the nine
months ended September 30, 1996 (unaudited).
4. Notes to Financial Statements for the nine months ended September
30, 1996 (unaudited) and for the year ended December 31, 1995.
5. Independent Auditors' Report.
6. Statement of Assets and Liabilities as of December 31, 1995.
7. Statement of Operations for the year ended December 31, 1995.
8. Statement of Changes in Contract Owners' Equity for the years
ended December 31, 1995 and 1994.
9. Financial Highlights for the five years in the period ended
December 31, 1995.
10. Notes to Financial Statements for the years ended December 31,
1995 and 1994.
The following consolidated financial statements of the Company are included
in Part B hereof:
1. Independent Auditors' Report.
2. Consolidated Balance Sheets of the Company as of December 31,
1995 and 1994.
3. Consolidated Statements of Income for the Company for the years
ended December 31, 1995, 1994 and 1993.
4. Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1995, 1994 and 1993.
5. Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
6. Notes to Consolidated Financial Statements, December 31, 1995,
1994 and 1993.
b. EXHIBITS
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account.*
2. Not Applicable.
3. Principal Underwriter's Agreement.###
4. Individual Variable Annuity Contract.**
5. Application for Variable Annuity.##
6. (i) Copy of Articles of Incorporation of the Company.#
(ii) Copy of the Bylaws of the Company.*
7. Not Applicable.
8. Not Applicable.
9. Opinion and Consent of Counsel.
10. Consent of Independent Accountants.
11. Not Applicable.
12. Agreement Governing Contribution.***
13. Calculation of Performance Information (to be filed by amendment).
14. Company Organizational Chart.####
27. Financial Data Schedule
* incorporated by reference to Registrant's initial filing on Form N-4
filed on June 11, 1987.
** incorporated by reference to Registrant's Post-Effective Amendment No.
2 to Form N-4 filed on September 27, 1989.
*** incorporated by reference to Registrant's Post-Effective Amendment No.
3 filed on April 2, 1990.
**** incorporated by reference to Registrant's Post-Effective Amendment No.
4 filed on May 1, 1991.
# incorporated by reference to Xerox Financial Services Life Insurance
Company, Pre-Effective Amendment No. 1 to Form S-1 (File No. 33-43099) as
filed on December 24, 1991.
## incorporated by reference to Registrant's Post-Effective Amendment No.
6 to Form N-4 filed on May 1, 1992.
### incorporated by reference to Registrant's Post-Effective Amendment No.
7 to Form N-4 filed on April 30, 1993.
#### incorporated by reference to Cova Variable Annuity Account One,
Post-Effective Amendment No. 8 to Form N-4 (File No. 33-39100) as filed
electronically on April 24, 1996.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Position and Offices
Business Address with Depositor
________________________________ ________________________________
Leonard Rubenstein Chairman of the Board
700 Market Street and Director
St. Louis, MO 63101
Lorry J. Stensrud President and Director
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
William D. Anthony Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
John W. Barber Director
13045 Tesson Ferry Road
St. Louis, MO 63128
Jerome P. Darga Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Judy M. Drew Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Judith A. Gallup Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Patricia E. Gubbe Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Philip A. Haley Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Christopher Harden Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Eric T. Henry Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Jeffery K. Hoelzel Vice President, General Counsel,
One Tower Lane, Suite 3000 Secretary and Director
Oakbrook Terrace, IL 60181-4644
J. Robert Hopson Vice President, Chief Actuary
One Tower Lane, Suite 3000 and Director
Oakbrook Terrace, IL 60181-4644
E. Thomas Hughes, Jr. Treasurer and Director
700 Market Street
St. Louis, MO 63101
Douglas E. Jacobs Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
William C. Mair Vice President, Controller
One Tower Lane, Suite 3000 and Director
Oakbrook Terrace, IL 60181-4644
Matthew P. McCauley Assistant Secretary and Director
700 Market Street
St. Louis, MO 63101
Patrice L. Peltier Vice President and Director
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Myron H. Sandberg Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
John W. Schaus Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH THE DEPOSITOR OR REGISTRANT
A company organizational chart is incorporated by reference to Exhibit 14
contained in Post-Effective Amendment No. 8 to a Registration Statement on Form
N-4 (File No. 33-39100) filed on April 24, 1996.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of November 8, 1996, there were 14,754 non-qualified contract owners and
3,698 qualified contract owners.
ITEM 28. INDEMNIFICATION
The Bylaws of the Company (Article IV, Section 1) provide that:
Each person who is or was a director, officer or employee of the
corporation or is or was serving at the request of the corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise (including the heirs, executors,
administrators or estate of such person) shall be indemnified by the corporation
as of right to the full extent permitted or authorized by the laws of the State
of Missouri, as now in effect and as hereafter amended, against any liability,
judgment, fine, amount paid in settlement, cost and expenses (including
attorney's fees) asserted or threatened against and incurred by such person in
his capacity as or arising out of his status as a director, officer or employee
of the corporation or if serving at the request of the corporation, as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise. The indemnification provided by this bylaw
provision shall not be exclusive of any other rights to which those indemnified
may be entitled under any other bylaw or under any agreement, vote of
shareholders or disinterested directors or otherwise, and shall not limit in any
way any right which the corporation may have to make different or further
indemnification with respect to the same or different persons or classes of
persons.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company 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, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company 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
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Not Applicable.
(b) Cova Life Sales Company is the principal underwriter for the Contracts.
The following persons are the officers and directors of Cova Life Sales Company.
The principal business address for each officer and director of Cova Life Sales
Company is One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644.
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Underwriter
__________________ ________________________________________________
Judy M. Drew President, Chief Operations Officer and Director
Lorry J. Stensrud Director
Patricia E. Gubbe Vice President and Chief Compliance Officer
Patrice L. Peltier Vice President and Director
William C. Mair Director
Jeffery K. Hoelzel Secretary
Philip A. Haley Vice President
Frances S. Cook Assistant Secretary
Robert A. Miner Treasurer
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Christopher Harden, whose address is One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644 maintains physical possession of the accounts,
books or documents of the Variable Account required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. Pursuant to Investment Company Act Rule 26(e), Cova Financial Services
Life Insurance Company ("Company") hereby represents that the fees and
charges deducted under the Contract described in the prospectus, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase
the contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) and has duly caused this Post-Effective Amendment No. 8 to its
Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Oakbrook Terrace, and State of Illinois on this 11th
day of November, 1996.
COVA VARIABLE ANNUITY ACCOUNT ONE
Registrant
By: COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
By: /s/ LORRY J. STENSRUD
______________________________________________
By: COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
Depositor
By: /s/ LORRY J. STENSRUD
______________________________________________
As required by the Securities Act of 1933, this Post-Effective Amendment No. 8
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
______________________ Chairman of the Board and Director ________
Leonard M. Rubenstein Date
/s/ LORRY J. STENSRUD 11/11/96
______________________ President and Director _______
Lorry J. Stensrud Date
______________________ Director _______
J. Robert Hopson Date
William C. Mair* Controller and Director 11/11/96
______________________ ________
William C. Mair Date
Jeffery K. Hoelzel* Director 11/11/96
______________________ ________
Jeffery K. Hoelzel Date
E. Thomas Hughes, Jr.* Treasurer and Director 11/11/96
______________________ ________
E. Thomas Hughes, Jr. Date
Matthew P. McCauley* Director 11/11/96
______________________ ________
Matthew P. McCauley Date
Patrice L. Peltier* Director 11/11/96
______________________ ________
Patrice L. Peltier Date
John W. Barber* Director 11/11/96
______________________ ________
John W. Barber Date
</TABLE>
*By: /s/ LORRY J. STENSRUD
_________________________________________
Lorry J. Stensrud, Attorney-in-Fact
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, E. Thomas Hughes, Jr., a Director
of Cova Financial Services Life Insurance Company, a corporation duly organized
under the laws of the State of Missouri, do hereby appoint Lorry J. Stensrud
and/or Jeffery K. Hoelzel, or either one of the foregoing individually, as my
attorney and agent, for me, and in my name as a Director of this Company on
behalf of the Company or otherwise, with full power to execute, deliver and file
with the Securities and Exchange Commission all documents required for
registration of variable annuity and variable life insurance contracts under the
Securities Act of 1933, as amended, and the registration of unit investment
trusts under the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of April, 1996.
WITNESS:
/S/ DEBRA J. FERGUSON /S/ E. THOMAS HUGHES, JR.
_______________________________ ______________________________________
E. Thomas Hughes, Jr.
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Lorry J. Stensrud, President and a
Director of Cova Financial Services Life Insurance Company, a corporation duly
organized under the laws of the State of Missouri, do hereby appoint Jeffery K.
Hoelzel as my attorney and agent, for me, and in my name as President and a
Director of this Company on behalf of the Company or otherwise, with full power
to execute, deliver and file with the Securities and Exchange Commission all
documents required for registration of variable annuity and variable life
insurance contracts under the Securities Act of 1933, as amended, and the
registration of unit investment trusts under the Investment Company Act of 1940,
as amended, and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 18th day of April, 1996.
WITNESS:
/S/ ROBIN M. POKOP /S/ LORRY J. STENSRUD
________________________________ ______________________________________
Lorry J. Stensrud
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Jeffery K. Hoelzel, a Director of
Cova Financial Services Life Insurance Company, a corporation duly organized
under the laws of the State of Missouri, do hereby appoint Lorry J. Stensrud as
my attorney and agent, for me, and in my name as a Director of this Company on
behalf of the Company or otherwise, with full power to execute, deliver and file
with the Securities and Exchange Commission all documents required for
registration of variable annuity and variable life insurance contracts under the
Securities Act of 1933, as amended, and the registration of unit investment
trusts under the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand this 11th day of April, 1996.
WITNESS:
/S/ DELORES DELGADO /S/ JEFFERY K. HOELZEL
________________________________ _______________________________________
Jeffery K. Hoelzel
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, William C. Mair, Sr. Vice
President, Controller and a Director of Cova Financial Services Life Insurance
Company, a corporation duly organized under the laws of the State of Missouri,
do hereby appoint Lorry J. Stensrud and/or Jeffery K. Hoelzel, or either one of
the foregoing individually, as my attorney and agent, for me, and in my name as
Sr. Vice President, Controller and a Director of this Company on behalf of the
Company or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of
variable annuity and variable life insurance contracts under the Securities Act
of 1933, as amended, and the registration of unit investment trusts under the
Investment Company Act of 1940, as amended, and to do and perform each and every
act that said attorney may deem necessary or advisable to comply with the intent
of the aforesaid Acts.
WITNESS my hand this 11th day of April, 1996.
WITNESS:
/S/ DOLORES DELGADO /S/ WILLIAM C. MAIR
_________________________________ _______________________________________
William C. Mair
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Matthew P. McCauley, a Director
of Cova Financial Services Life Insurance Company, a corporation duly organized
under the laws of the State of Missouri, do hereby appoint Lorry J. Stensrud
and/or Jeffery K. Hoelzel, or either one of the foregoing individually, as my
attorney and agent, for me, and in my name as a Director of this Company on
behalf of the Company or otherwise, with full power to execute, deliver and file
with the Securities and Exchange Commission all documents required for
registration of variable annuity and variable life insurance contracts under the
Securities Act of 1933, as amended, and the registration of unit investment
trusts under the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand this 12th day of April, 1996.
WITNESS:
/S/ VICTORIA A. QUINT /S/ MATTHEW P. McCAULEY
________________________________ ______________________________________
Matthew P. McCauley
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Patrice L. Peltier, a Director of
Cova Financial Services Life Insurance Company, a corporation duly organized
under the laws of the State of Missouri, do hereby appoint Lorry J. Stensrud
and/or Jeffery K. Hoelzel, or either one of the foregoing individually, as my
attorney and agent, for me, and in my name as a Director of this Company on
behalf of the Company or otherwise, with full power to execute, deliver and file
with the Securities and Exchange Commission all documents required for
registration of variable annuity and variable life insurance contracts under the
Securities Act of 1933, as amended, and the registration of unit investment
trusts under the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand this 11th day of April, 1996.
WITNESS:
/S/ REBECCA R. BEDORE /S/ PATRICE L. PELTIER
________________________________ ______________________________________
Patrice L. Peltier
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, John W. Barber, a Director of
Cova Financial Services Life Insurance Company, a corporation duly organized
under the laws of the State of Missouri, do hereby appoint Lorry J. Stensrud
and/or Jeffery K. Hoelzel, or either one of the foregoing individually, as my
attorney and agent, for me, and in my name as a Director of this Company on
behalf of the Company or otherwise, with full power to execute, deliver and file
with the Securities and Exchange Commission all documents required for
registration of variable annuity and variable life insurance contracts under the
Securities Act of 1933, as amended, and the registration of unit investment
trusts under the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of April, 1996.
WITNESS:
/S/ DELORES DELGADO /S/ JOHN W. BARBER
________________________________ ______________________________________
John W. Barber
INDEX TO EXHIBITS
EXHIBIT NO.
99.B9 Opinion and Consent of Counsel
99.B10 Consent of Independent Accountants
27 Financial Data Schedule
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
November 26, 1996
Board of Directors
Cova Financial Services Life
Insurance Company
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181-4644
RE: Opinion of Counsel - Cova Variable Annuity Account One
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form N-4 for the Individual Single Purchase Payment
Deferred Variable Annuity Contracts (the "Contracts") to be issued by Cova
Financial Services Life Insurance Company and its separate account, Cova
Variable Annuity Account One.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. Cova Financial Services Life Insurance Company is a valid and existing
stock life insurance company of the state of Missouri.
2. Cova Variable Annuity Account One is a separate investment account of
Cova Financial Services Life Insurance Company created and validly existing
pursuant to the Missouri Laws and the Regulations thereunder.
3. Upon the acceptance of purchase payments made by an Owner pursuant to a
Contract issued in accordance with the Prospectus contained in the Registration
Statement and upon compliance with applicable law, such an Owner will have a
legally-issued, fully paid, non-assessable contractual interest under such
Contract.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /S/ LYNN KORMAN STONE
_____________________________
Lynn Korman Stone
CONSENT OF INDEPENDENT ACCOUNTANTS
The Contract Owners of Cova Variable Annuity Account One
and Board of Directors of Cova Financial Services Life
Insurance Company
We consent to the use of our reports included herein and to the reference to
our firm under the headings of "Condensed Financial Information" in the
prospectus and "Experts" in the statement of additional information.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
November 27, 1996
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