File Nos. 333-34741
811-05200
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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. 1 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 25 [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 Frances S. Cook
Blazzard, Grodd & Hasenauer, P.C. First Vice President and
P.O Box 5108 Associate Counsel
Westport, CT 06881 Cova Financial Services
Life Insurance Company
(203) 226-7866 One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on January 28, 1998 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.
Title of Securities Being Registered:
Individual Deferred Variable Annuity Contracts
EXPLANATORY NOTE
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This Registration Statement contains two Prospectuses (Version A and Version
B). The two versions are identical except for the funding options. This
Post-Effective Amendment includes only the text of Version A of the
Prospectus. Version B was contained in Pre-Effective Amendment No. 1 to this
Registration Statement which was declared effective on December 2, 1997 and
remains unaffected by this Post-Effective Amendment. The Prospectuses will
be filed with the Commission pursuant to Rule 497 under the Securities Act of
1933. The Registrant undertakes to update this Explanatory Note, as needed,
each time a Post-Effective Amendment is filed.
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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 . . . . . . . . . . . . . Index of Special Terms
Item 3. Synopsis . . . . . . . . . . . . . . . Profile
Item 4. Condensed Financial Information . . . Not Applicable
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies . . Other Information - Cova; The
Separate Account; Investment
Options
Item 6. Deductions and Expenses. . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts. . . . . . . . . . . The Fixed and Variable Annuity
Item 8. Annuity Period . . . . . . . . . . . . Income Phase
Item 9. Death Benefit. . . . . . . . . . . . . Death Benefit
Item 10. Purchases and Contract Value . . . . . Purchase
Item 11. Redemptions. . . . . . . . . . . . . . Access to Your Money
Item 12. Taxes. . . . . . . . . . . . . . . . . Taxes
Item 13. Legal Proceedings. . . . . . . . . . . None
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
(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 . . . . . . . . . . . . . Distribution
Item 21. Calculation of Performance Data. . . . Performance Information
Item 22. Annuity Payments . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements . . . . . . . . . Financial Statements
</TABLE>
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 - VERSION A
PROFILE of the Fixed and Variable Annuity Contract
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
CONSIDER AND KNOW BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED IN THE PROSPECTUS WHICH ACCOMPANIES THIS PROFILE. PLEASE READ
THE PROSPECTUS CAREFULLY.
Cova Financial Services Life Insurance Company January ____, 1998
1. THE ANNUITY CONTRACT. The fixed and variable annuity contract offered by Cova
is a contract between you, the owner, and Cova, an insurance company. The
Contract provides a means for investing on a tax-deferred basis in a fixed
account of Cova and 40 investment portfolios. The Contract is intended for
retirement savings or other long-term investment purposes and provides for a
death benefit and guaranteed income options.
The fixed account offers an interest rate that is guaranteed by the insurance
company, Cova. While your money is in the fixed account, the interest your
money will earn as well as your principal is guaranteed by Cova.
This Contract also offers 40 investment portfolios which are listed in Section
4. These portfolios are designed to offer a potentially better return than the
fixed account. However, this is NOT guaranteed. You can also lose your money.
You can put money in up to 15 of the investment portfolios and the fixed
account. (If you are participating in an asset allocation program, this limit
may not apply.) You can transfer between accounts up to 12 times a year without
charge or tax implications. After 12 transfers, the charge is $25 or 2%
of the amount transferred, whichever is less.
The Contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving regular payments
from your Contract.
The amount of money you are able to accumulate in your account during the
accumulation phase will determine the amount of income payments during the
income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE). If you want to receive regular income
from your annuity, you can choose one of three options: (1) monthly payments for
your life (assuming you are the annuitant); (2) monthly payments for your life,
but with payments continuing to the beneficiary for 5, 10 or 20 years (as you
select) if you die before the end of the selected period; and (3) monthly
payments for your life and for the life of another person (usually your spouse)
selected by you. Once you begin receiving regular payments, you cannot change
your payment plan.
During the income phase, you have the same investment choices you had during the
accumulation phase. You can choose to have payments come from the fixed account,
the investment portfolios or both. If you choose to have any part of your
payments come from the investment portfolios, the dollar amount of your payments
may go up or down.
3. PURCHASE. You can buy this Contract with $5,000 or more under most
circumstances. You can add $2,000 or more any time you like during the
accumulation phase. Your registered representative can help you fill out the
proper forms.
4. INVESTMENT OPTIONS. You can put your money in the following investment
portfolios which are described in the prospectuses for the funds. Currently,
if you are not participating in an asset allocation program, you can only
invest in 15 investment portfolios at any one time.
AIM VARIABLE INSURANCE FUNDS, INC.:
MANAGED A I M ADVISORS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
Premier Growth Portfolio
Real Estate Investment Portfolio
COVA SERIES TRUST:
MANAGED BY J. P. MORGAN INVESTMENT MANAGEMENT INC.
Small Cap Stock Portfolio
Large Cap Stock Portfolio
Select Equity Portfolio
International Equity Portfolio
Quality Bond Portfolio
MANAGED BY LORD, ABBETT & CO.
Bond Debenture Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Mid Cap Value Portfolio
Lord Abbett Growth & Income Portfolio
GENERAL AMERICAN CAPITAL COMPANY:
MANAGED BY CONNING ASSET MANAGEMENT COMPANY
Money Market Fund
GOLDMAN SACHS VARIABLE INSURANCE TRUST:
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
Goldman Sachs Growth and Income Fund
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
Goldman Sachs International Equity Fund
Goldman Sachs Global Income Fund
INVESTORS FUND SERIES:
MANAGED BY SCUDDER KEMPER INVESTMENTS, INC.
Kemper Small Cap Value Portfolio
Kemper Government Securities Portfolio
Kemper Small Cap Growth Portfolio
LIBERTY VARIABLE INVESTMENT TRUST:
MANAGED BY NEWPORT FUND MANAGEMENT INC.
Newport Tiger, Variable Series
LORD ABBETT SERIES FUND, INC.:
MANAGED BY LORD, ABBETT & CO.
Growth and Income Portfolio
MFS VARIABLE INSURANCE TRUST:
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS High Income Series
MFS World Governments Series
MFS/Foreign & Colonial Emerging Markets Equity Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
MANAGED BY OPPENHEIMERFUNDS, INC.
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
PUTNAM VARIABLE TRUST:
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam VT Growth and Income Fund
Putnam VT International Growth Fund
Putnam VT International New Opportunities Fund
Putnam VT New Value Fund
Putnam VT Vista Fund
Depending upon market conditions, you can make or lose money in any of these
portfolios.
5. EXPENSES. The Contract has insurance features and investment features,
and there are costs related to each.
Each year Cova deducts a $30 contract maintenance charge from your Contract.
Cova currently waives this charge if the value of your Contract is at least
$50,000. Cova also deducts for its insurance charges which total 1.40% of
the average daily value of your Contract allocated to the investment
portfolios.
If you take your money out, Cova may assess a withdrawal charge which is equal
to 5% of the purchase payment you withdraw. When you begin receiving regular
income payments from your annuity, Cova will assess a state premium tax
charge, if applicable, which ranges from 0%-4% depending upon the state.
There are also investment charges which currently range from .205% to 1.50% of
the average daily value of the investment portfolio depending upon the
investment portfolio.
The following chart is designed to help you understand the expenses in the
Contract. The column "Total Annual Expenses" shows the total of the $30 contract
maintenance charge (which is represented as .10% below), the 1.40% insurance
charges and the investment expenses for each investment portfolio. The next two
columns show you two examples of the expenses, in dollars, you would pay under a
Contract. The examples assume that you invested $1,000 in a Contract which earns
5% annually and that you withdraw your money: (1) at the end of year 1, and (2)
at the end of year 10. For year 1, the Total Annual Expenses are assessed as
well as the withdrawal charges. For year 10, the example shows the aggregate of
all the annual expenses assessed for the 10 years, but there is no withdrawal
charge.
The premium tax is assumed to be 0% in both examples.
<TABLE>
<CAPTION>
Examples:
Total Annual Expenses
Total Annual at end of:
Total Annual Portfolio Total Annual (1) (2)
Portfolio Insurance Charges Expenses Expenses 1 Year 10 Years
- --------- ----------------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
MANAGED A I M ADVISORS, INC.
AIM V.I. Capital Appreciation 1.50% .73% 2.23% $72.59 $254.10
AIM V.I. International Equity 1.50% .96% 2.46% $74.90 $277.23
AIM V.I. Value 1.50% .73% 2.23% $72.59 $254.10
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
Premier Growth 1.50% .95% 2.45% $74.80 $276.23
Real Estate Investment 1.50% .95% 2.45% $74.80 $276.23
MANAGED BY NEWPORT FUND MANAGEMENT, INC.
Newport Tiger, Variable 1.50% 1.27% 2.77% $78.00 $307.49
MANAGED BY CONNING ASSET MANAGEMENT COMPANY
Money Market 1.50% .205% 1.71% $67.31 $199.08
MANAGED BY J. P. MORGAN INVESTMENT MANAGEMENT INC.
Small Cap Stock 1.50% .95% 2.45% $74.80 $276.23
Large Cap Stock 1.50% .75% 2.25% $72.80 $256.13
Select Equity 1.50% .85% 2.35% $73.80 $266.24
International Equity 1.50% .95% 2.45% $74.80 $276.23
Quality Bond 1.50% .65% 2.15% $71.79 $245.92
MANAGED BY LORD, ABBETT & CO.
Bond Debenture 1.50% .85% 2.35% $73.80 $266.24
Large Cap Research 1.50% 1.10% 2.60% $76.30 $291.02
Developing Growth 1.50% 1.00% 2.50% $75.30 $281.19
Mid Cap Value 1.50% 1.10% 2.60% $76.30 $291.02
Lord Abbett Growth & Income 1.50% .75% 2.25% $72.80 $256.13
Growth and Income 1.50% .59% 2.09% $71.19 $239.74
MANAGED BY SCUDDER KEMPER INVESTMENTS, INC.
Kemper Small Cap Value 1.50% .95% 2.45% $74.80 $276.23
Kemper Government Securities 1.50% .66% 2.16% $71.89 $246.95
Kemper Small Cap Growth 1.50% .75% 2.25% $72.80 $256.13
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
MFS Emerging Growth 1.50% 1.00% 2.50% $75.30 $281.19
MFS Research 1.50% 1.00% 2.50% $75.30 $281.19
MFS Growth With Income 1.50% 1.00% 2.50% $75.30 $281.19
MFS High Income 1.50% 1.00% 2.50% $75.30 $281.19
MFS World Governments 1.50% 1.00% 2.50% $75.30 $281.19
MFS/Foreign & Colonial Emerging
Markets Equity 1.50% 1.50% 3.00% $80.29 $329.29
MANAGED BY OPPENHEIMERFUNDS, INC.
Oppenheimer High Income 1.50% .81% 2.31% $73.40 $262.21
Oppenheimer Bond 1.50% .78% 2.28% $73.10 $259.18
Oppenheimer Growth 1.50% .79% 2.29% $73.20 $260.19
Oppenheimer Growth & Income 1.50% 1.00% 2.50% $75.30 $281.19
Oppenheimer Strategic Bond 1.50% .85% 2.35% $73.80 $266.24
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam VT Growth and Income 1.50% .54% 2.04% $70.69 $234.55
Putnam VT International Growth 1.50% .98% 2.48% $75.10 $279.21
Putnam VT International New
Opportunities 1.50% 1.39% 2.89% $79.19 $318.93
Putnam VT New Value 1.50% .83% 2.33% $73.60 $264.23
Putnam VT Vista 1.50% .81% 2.31% $73.40 $262.21
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
Goldman Sachs Growth and Income 1.50% .90% 2.40% $74.30 $271.25
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
Goldman Sachs International Equity 1.50% 1.25% 2.75% $77.80 $305.57
Goldman Sachs Global Income 1.50% 1.05% 2.55% $75.80 $286.12
</TABLE>
For the newly formed portfolios, the expenses have been estimated. The expenses
reflect any expense reimbursement or fee waiver. For more detailed information,
see the Fee Table in the prospectus for the Contract.
6. TAXES. Your earnings are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty on the earnings. Payments during the income
phase are considered partly a return of your original investment. That part of
each payment is not taxable as income.
7. ACCESS TO YOUR MONEY. You can take money out at any time during the
accumulation phase. After the first year, you can take up to 10% of your total
purchase payments each year without charge from Cova. Withdrawals in excess of
that will be charged 5% of each payment you take out. Each purchase payment
you add to your Contract has its own 5 year withdrawal charge period. After
Cova has had a payment for 5 years, there is no charge for withdrawing that
payment. Of course, you may also have to pay income tax and a tax penalty
on any money you take out.
8. PERFORMANCE. The value of the Contract will vary up or down depending upon
the investment performance of the Portfolio(s) you choose. The total return
figures are based on historical data and are not intended to indicate future
performance. The following chart shows total return for the Growth and Income
Portfolio of Lord Abbett Series Fund, Inc. for the time periods shown. These
numbers reflect the insurance charges, the contract maintenance charge and the
expenses of the investment portfolios. These numbers do not reflect any
withdrawal charges which if applied would reduce such performance. Performance
is not shown here for any of the other Portfolios because the Separate Account
was not invested in the other Portfolios for a complete calendar year as of
December 31, 1996.
<TABLE>
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<S> <C> <C> <C> <C> <C> <C> <C>
Portfolio 1996 1995 1994 1993 1992 1991 1990
- ------------ ----- ----- ------ ----- ----- ----- -----
Growth and Income 16.23% 26.73% 0.26% 12.28% 12.69% 24.23% 0.74%
</TABLE>
9. DEATH BENEFIT. If you die before moving to the income phase, the person you
have chosen as your beneficiary will receive a death benefit. This death benefit
will be the greater of three amounts: 1) the money you've put in less any money
you've taken out, and the related withdrawal charges, or 2) the value of your
Contract at the time the death benefit is to be paid, or 3) the value of your
Contract at the most recent 5th-year-anniversary before the date of death plus
any money you've added since that anniversary minus any money you've taken out
since that anniversary, and the related withdrawal charges. If you die after age
80, slightly different rules apply.
10. OTHER INFORMATION.
Free Look. If you cancel the Contract within 10 days after receiving it (or
whatever period is required in your state), we will send your money back without
assessing a withdrawal charge. You will receive whatever your Contract is worth
on the day we receive your request. This may be more or less than your original
payment. If we're required by law to return your original payment, we will put
your money in the Money Market Fund during the free look period and will refund
the greater of your original payment (less any withdrawals) or the value of your
Contract.
No Probate. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
Who should purchase the Contract? The contract is designed for people
seeking long-term tax-deferred accumulation of assets, generally for retirement
or other long-term purposes. The tax-deferred feature is most attractive to
people in high federal and state tax brackets. You should not buy this Contract
if you are looking for a short-term investment or if you cannot take the risk of
getting back less money than you put in.
Additional Features. This Contract has additional features you might be
interested in. These include:
You can arrange to have money automatically sent to you each month while
your Contract is still in the accumulation phase. Of course, you'll have to pay
taxes on money you receive. We call this feature the Systematic Withdrawal
Program.
You can arrange to have a regular amount of money automatically invested in
investment portfolios each month, theoretically giving you a lower average cost
per unit over time than a single one time purchase. We call this feature Dollar
Cost Averaging.
You can arrange to automatically readjust the money between investment
portfolios periodically to keep the blend you select. We call this feature
Automatic Rebalancing.
Under certain circumstances, Cova will give you your money without a
withdrawal charge if you need it while you're in a nursing home. We call this
feature the Nursing Home Waiver.
These features are not available in all states and may not be suitable for your
particular situation.
11. INQUIRIES. If you need more information, please contact us at:
Cova Life Sales Company
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181
800-523-1661
THE FIXED
AND VARIABLE ANNUITY
ISSUED BY
COVA VARIABLE ANNUITY ACCOUNT ONE
AND
COVA FINANCIAL SERVICES
LIFE INSURANCE COMPANY
This prospectus describes the Fixed and Variable Annuity Contract offered by
Cova Financial Services Life Insurance Company (Cova).
The annuity contract has 41 investment choices - a fixed account which offers
an interest rate which is guaranteed by Cova, and 40 investment portfolios
listed below. You can put your money in the fixed account and/or any of
these investment portfolios. CURRENTLY, IF YOU ARE NOT PARTICIPATING IN AN
ASSET ALLOCATION PROGRAM, YOU CAN ONLY INVEST IN 15 INVESTMENT PORTFOLIOS AT
ANY ONE TIME.
AIM VARIABLE INSURANCE FUNDS, INC.:
MANAGED A I M ADVISORS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
Premier Growth Portfolio
Real Estate Investment Portfolio
COVA SERIES TRUST:
MANAGED BY J. P. MORGAN INVESTMENT MANAGEMENT INC.
Small Cap Stock Portfolio
Large Cap Stock Portfolio
Select Equity Portfolio
International Equity Portfolio
Quality Bond Portfolio
MANAGED BY LORD, ABBETT & CO.
Bond Debenture Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Mid Cap Value Portfolio
Lord Abbett Growth & Income Portfolio
GENERAL AMERICAN CAPITAL COMPANY:
MANAGED BY CONNING ASSET MANAGEMENT COMPANY
Money Market Fund
GOLDMAN SACHS VARIABLE INSURANCE TRUST:
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
Goldman Sachs Growth and Income Fund
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
Goldman Sachs International Equity Fund
Goldman Sachs Global Income Fund
INVESTORS FUND SERIES:
MANAGED BY SCUDDER KEMPER INVESTMENTS, INC.
Kemper Small Cap Value Portfolio
Kemper Government Securities Portfolio
Kemper Small Cap Growth Portfolio
LIBERTY VARIABLE INVESTMENT TRUST:
MANAGED BY NEWPORT FUND MANAGEMENT INC.
Newport Tiger, Variable Series
LORD ABBETT SERIES FUND, INC.:
MANAGED BY LORD, ABBETT & CO.
Growth and Income Portfolio
MFS VARIABLE INSURANCE TRUST:
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS High Income Series
MFS World Governments Series
MFS/Foreign & Colonial Emerging Markets Equity Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
MANAGED BY OPPENHEIMERFUNDS, INC.
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
PUTNAM VARIABLE TRUST:
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam VT Growth and Income Fund
Putnam VT International Growth Fund
Putnam VT International New Opportunities Fund
Putnam VT New Value Fund
Putnam VT Vista Fund
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the Cova Fixed and Variable
Annuity Contract.
To learn more about the Cova Fixed and Variable Annuity Contract, you can
obtain a copy of the Statement of Additional Information (SAI) dated
January ____, 1998. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is legally a part of the prospectus. The Table of
Contents of the SAI is on Page __ of this prospectus. For a free copy of the
SAI, call us at (800)831-5433 or write us at: One Tower Lane, Suite 3000,
Oakbrook Terrace, Illinois 60181-4644.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY.
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.
January ____, 1998.
TABLE OF CONTENTS Page
INDEX OF SPECIAL TERMS
FEE TABLE
EXAMPLES
1. THE ANNUITY CONTRACT
2. ANNUITY PAYMENTS (THE INCOME PHASE)
3. PURCHASE
Purchase Payments
Allocation of Purchase Payments
Accumulation Units
4. INVESTMENT OPTIONS
AIM Variable Insurance Funds, Inc.
Alliance Variable Products Series Fund, Inc.
Cova Series Trust
General American Capital Company
Goldman Sachs Variable Insurance Trust
Investors Fund Series
Liberty Variable Investment Trust
Lord Abbett Series Fund, Inc.
MFS Variable Insurance Trust
Oppenheimer Variable Account Funds
Putnam Variable Trust
Transfers
Dollar Cost Averaging Program
Automatic Rebalancing Program
Approved Asset Allocation Programs
Voting Rights
Substitution
5. EXPENSES
Insurance Charges
Contract Maintenance Charge
Withdrawal Charge
Reduction or Elimination of the
Withdrawal Charge
Premium Taxes
Transfer Fee
Income Taxes
Investment Portfolio Expenses
6. TAXES
Annuity Contracts in General
Qualified and Non-Qualified Contracts
Withdrawals - Non-Qualified Contracts
Withdrawals - Qualified Contracts
Withdrawals - Tax-Sheltered Annuities
Diversification
7. ACCESS TO YOUR MONEY
Systematic Withdrawal Program
8. PERFORMANCE
9. DEATH BENEFIT
Upon Your Death
Death of Annuitant
10. OTHER INFORMATION
Cova
The Separate Account
Distributor
Ownership
Beneficiary
Assignment
Suspension of Payments or Transfers
Financial Statements
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
APPENDIX - PERFORMANCE INFORMATION
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you
as possible. By the very nature of the contract, however, certain technical
words or terms are unavoidable. We have identified the following as some of
these words or terms. They are identified in the text in italic and the page
that is indicated here is where we believe you will find the best explanation
for the word or term.
PAGE
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Date
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Fixed Account
Income Phase
Investment Portfolios
Joint Owner
Non-Qualified
Owner
Purchase Payment
Qualified
Tax Deferral
COVA VARIABLE ANNUITY ACCOUNT ONE FEE TABLE
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.
<TABLE>
<CAPTION>
<S> <C>
CONTRACT MAINTENANCE CHARGE (see Note 4 below) $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%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO EXPENSES
(as a percentage of the average daily net assets of an investment portfolio)
AIM VARIABLE INSURANCE FUNDS, INC.
<S> <C> <C> <C>
Management Total Annual
Fees Other Expenses Portfolio Expenses
----------- --------------------- --------------------
Managed by A I M Advisors, Inc.
AIM V.I. Capital Appreciation Fund .64% .09% .73%
AIM V.I. International Equity Fund .75% .21% .96%
AIM V.I. Value Fund .64% .09% .73%
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
<S> <C> <C> <C>
Total Annual
Other Expenses Portfolio Expenses
Management (after expense (after expense
Fees reimbursement) reimbursement)*
----------- --------------------- -----------------
Managed by Alliance Capital
Management L.P.
Premier Growth Portfolio .72% .23% .95%
Real Estate Investment Portfolio** 0% .95% .95%
<FN>
*The expenses are net of voluntary reimbursements. Expenses have been capped at .95% annually for each
of the portfolios listed above. The adviser to the Fund intends to continue such reimbursements for the
foreseeable future. Absent such reimbursement, the management fees would have been 1.00% and the other
expenses would have been .23% for the Premier Growth Portfolio. The estimated expenses for the Real
Estate Investment Portfolio, before reimbursement, are: .90% management fees and 5.10% for other expenses.
**Annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
COVA SERIES TRUST
<S> <C> <C> <C>
Total Annual
Other Expenses Portfolio
Management (after expense (after expense
Fees reimbursement)(1) reimbursement)(1)
----------- --------------------- -----------------
Managed by J.P. Morgan
Investment Management Inc.
Select Equity Portfolio* .75% .10% .85%
Small Cap Stock Portfolio* .85% .10% .95%
International Equity Portfolio* .85% .10% .95%
Quality Bond Portfolio* .55% .10% .65%
Large Cap Stock Portfolio* .65% .10% .75%
Managed by Lord, Abbett & Co.
Bond Debenture Portfolio* .75% .10% .85%
Mid Cap Value Portfolio** 1.00% .10% 1.10%
Large Cap Research Portfolio** 1.00% .10% 1.10%
Developing Growth Portfolio** .90% .10% 1.00%
Lord Abbett Growth and Income
Portfolio** .65% .10% .75%
- --------------------------------- ----------- --------------------- -------------
<FN>
(1) Since August 20, 1990, Cova has been reimbursing the investment portfolios
of Cova Series Trust for all operating expenses (exclusive of the management
fees) in excess of approximately .10%. Absent the expense reimbursement,
the percentages shown for total annual portfolio expenses (on an annualized basis)
for the year or period ended December 31, 1996 would have been 1.70% for the Select
Equity Portfolio, 2.68% for the Small Cap Stock Portfolio, 3.80% for the International
Equity Portfolio, 1.52% for the Quality Bond Portfolio, 1.23% for the Large Cap Stock
Portfolio and 2.05% for the Bond Debenture Portfolio.
*Annualized. The Portfolio commenced investment operations on April 2, 1996.
**Estimated. The Portfolio commenced investment operations on August 19, 1997.
</FN>
</TABLE>
<TABLE>
<CAPTION>
GENERAL AMERICAN CAPITAL COMPANY
<S> <C> <C> <C>
Management Total Annual
Fees Other Expenses Portfolio Expenses
----------- --------------------- --------------------
Managed by Conning Asset
Management Company
Money Market Fund .205% .00% .205%
</TABLE>
<TABLE>
<CAPTION>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
<S> <C> <C> <C>
Total Annual
Other Expenses Portfolio Expenses
Management (after expense (after expense
Fees reimbursement)* reimbursement)*
----------- --------------------- --------------------
Managed by Goldman Sachs Asset
Management
Goldman Sachs Growth and Income Fund .75% .15% .90%
Managed by Goldman Sachs Asset
Management International
Goldman Sachs International
Equity Fund 1.00% .25% 1.25%
Goldman Sachs Global Income Fund .90% .15% 1.05%
<FN>
*The investment advisers have voluntarily agreed to reduce or limit certain "Other
Expenses" of such Funds (excluding management fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses) to the
extent such expenses exceed the amounts set forth above under "Other Expenses".
The reductions or limits, if any, are calculated monthly on a non-cumulative
basis and may be discontinued or modified by the investment advisers in their
discretion at any time.
</FN>
</TABLE>
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
<S> <C> <C> <C>
Management Total Annual
Fees Other Expenses Portfolio Expenses
----------- --------------------- --------------------
Managed by Scudder Kemper
Investments, Inc.
Kemper Small Cap Value Portfolio .75% .20%* .95%
Kemper Government Securities Portfolio .55% .11% .66%
Kemper Small Cap Growth Portfolio .65% .10% .75%
*Estimated first year expenses.
</TABLE>
<TABLE>
<CAPTION>
LIBERTY VARIABLE INVESTMENT TRUST
<S> <C> <C> <C>
Management Total Annual
Fees Other Expenses Portfolio Expenses
----------- --------------------- --------------------
Managed by Newport Fund
Management Inc.
Newport Tiger, Variable Series .90% .37% 1.27%
LORD ABBETT SERIES FUND, INC.
Management 12b-1 Total Annual
Fees Fees Other Expenses Portfolio Expenses
---------- ----- --------------- -------------------
Managed by Lord, Abbett & Co.
Growth and Income Portfolio* .50% .07% .02% .59%
<FN>
*The Growth and Income Portfolio of Lord Abbett Series Fund, Inc. has 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. As of the date of this Prospectus, no payments had been made under the 12b-1 plan.
For the year ending December 31, 1997, the 12b-1 fees are estimated to be .07%. The examples below
for this Portfolio reflect the estimated 12b-1 fees.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST
<S> <C> <C> <C>
Total Annual
Other Expenses Portfolio Expenses
Management (after expense (after expense
Fees reimbursement)* reimbursement)*
----------- --------------------- -------------------
Managed by Massachusetts Financial
Services Company
MFS Emerging Growth Series .75% .25% 1.00%
MFS Research Series .75% .25% 1.00%
MFS Growth With Income Series .75% .25% 1.00%
MFS High Income Series .75% .25% 1.00%
MFS World Governments Series .75% .25% 1.00%
MFS/Foreign & Colonial Emerging
Markets Equity Series 1.25% .25% 1.50%
<FN>
*The adviser has agreed to bear expenses for each Series, subject to reimbursement by each Series,
so that each Series' "Other Expenses" do not exceed .25% annually for each Series listed above.
Absent such reimbursement, "Total Annual Portfolio Expenses" would be: 1.16% for the MFS Emerging Growth
Series; 1.48% for the MFS Research Series; 2.07% for the MFS Growth With Income Series; 1.62% for the
MFS High Income Series; 2.03% for the MFS World Governments Series; and are estimated to be 1.73% for
the MFS/Foreign & Colonial Emerging Markets Equity Series.
</FN>
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
<S> <C> <C> <C>
Total Annual
Other Expenses Portfolio Expenses
Management (after expense (after expense
Fees reimbursement) reimbursement)
----------- --------------------- -------------------
Managed by OppenheimerFunds, Inc.
Oppenheimer High Income Fund .75% .06% .81%
Oppenheimer Bond Fund .74% .04% .78%
Oppenheimer Growth Fund* .75% .04% .79%
Oppenheimer Growth & Income Fund .75% .25% 1.00%
Oppenheimer Strategic Bond Fund .75% .10% .85%
<FN>
*Total Annual Portfolio Expenses would have been .81% in the absence of a voluntary one-time fee
reimbursement.
</FN>
</TABLE>
<TABLE>
<CAPTION>
PUTNAM VARIABLE TRUST
Management Total Annual
Fees Other Expenses Portfolio Expenses
---- -------------- ------------------
<S> <C> <C> <C>
Managed by Putnam Investment
Management, Inc.
Putnam VT Growth and Income Fund .49% .05% .54%
Putnam VT International Growth Fund .80% .18% .98%*
Putnam VT International New
Opportunities Fund 1.20% .19% 1.39%*
Putnam VT New Value Fund .70% .13% .83%*
Putnam VT Vista Fund .65% .16% .81%*
*Estimated expenses for first full fiscal year.
</TABLE>
EXAMPLES
You 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.
Time Periods
1 year 3 years
--------- ----------
AIM VARIABLE INSURANCE FUNDS, INC.
Managed by A I M Advisors, Inc.
AIM V.I. Capital Appreciation Fund (a)$72.59 (a)$114.54
(b)$22.59 (b)$ 69.54
AIM V.I. International Equity Fund (a)$74.90 (a)$121.47
(b)$24.90 (b)$ 76.47
AIM V.I. Value Fund (a)$72.59 (a)$114.54
(b)$22.59 (b)$ 69.54
ALLIANCE VARIABLE PRODUCTS SERIES FUND,
INC.
Managed by Alliance Capital
Management L.P.
Premier Growth Portfolio (a)$74.80 (a)$121.17
(b)$24.80 (b)$ 76.17
Real Estate Investment Portfolio (a)$74.80 (a)$121.17
(b)$24.80 (b)$ 76.17
COVA SERIES TRUST
Managed by J.P. Morgan Investment
Management Inc.
Small Cap Stock Portfolio (a)$74.80 (a)$121.17
(b)$24.80 (b)$ 76.17
Large Cap Stock Portfolio (a)$72.80 (a)$115.15
(b)$22.80 (b)$ 70.15
Select Equity Portfolio (a)$73.80 (a)$118.16
(b)$23.80 (b)$ 73.16
International Equity Portfolio (a)$74.80 (a)$121.17
(b)$24.80 (b)$ 76.17
Quality Bond Portfolio (a)$71.79 (a)$112.12
(b)$21.79 (b)$ 67.12
Managed by Lord, Abbett & Co.
Bond Debenture Portfolio (a)$73.80 (a)$118.16
(b)$23.80 (b)$ 73.16
Large Cap Research Portfolio (a)$76.30 (a)$125.66
(b)$26.30 (b)$ 80.66
Developing Growth Portfolio (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
Mid Cap Value Portfolio (a)$76.30 (b)$125.66
(b)$26.30 (b)$ 80.66
Lord Abbett Growth & Income Portfolio (a)$72.80 (a)$115.15
(b)$22.80 (b)$ 70.15
GENERAL AMERICAN CAPITAL COMPANY
Managed by Conning Asset Management
Company
Money Market Fund (a)$67.31 (a)$ 98.54
(b)$17.31 (b)$ 53.54
GOLDMAN SACHS VARIABLE INSURANCE TRUST:
Managed by Goldman Sachs Asset
Management
Goldman Sachs Growth and Income Fund (a)$74.30 (a)$119.67
(b)$24.30 (b)$ 74.67
Managed by Goldman Sachs Asset
Management International
Goldman Sachs International Equity
Fund (a)$77.80 (a)$130.14
(b)$27.80 (b)$ 85.14
Goldman Sachs Global Income Fund (a)$75.80 (a)$124.17
(b)$25.80 (b)$ 79.17
INVESTORS FUND SERIES
Managed by Scudder Kemper Investments, Inc.
Kemper Small Cap Value Portfolio (a)$74.80 (a)$121.17
(b)$24.80 (b)$ 76.17
Kemper Government Securities Portfolio (a)$71.89 (a)$112.42
(b)$21.89 (b)$ 67.42
Kemper Small Cap Growth Portfolio (a)$72.80 (a)$115.15
(b)$22.80 (b)$ 70.15
LIBERTY VARIABLE INVESTMENT TRUST
Managed by Newport Fund Management Inc.
Newport Tiger, Variable Series (a)$78.00 (a)$130.73
(b)$28.00 (b)$ 85.73
LORD ABBETT SERIES FUND, INC.
Managed by Lord, Abbett & Co.
Growth and Income Portfolio (a)$71.19 (a)$110.30
(b)$21.19 (b)$ 65.30
MFS VARIABLE INSURANCE TRUST
Managed by Massachusetts Financial
Services Company
MFS Emerging Growth Series (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
MFS Research Series (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
MFS Growth With Income Series (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
MFS High Income Series (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
MFS World Governments Series (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
MFS/Foreign & Colonial Emerging
Markets Equity Series (a)$80.29 (a)$137.54
(b)$30.29 (b)$ 92.54
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Managed by Oppenheimer Funds, Inc.
Oppenheimer High Income Fund (a)$73.40 (a)$116.96
(b)$23.40 (b)$ 71.96
Oppenheimer Bond Fund (a)$73.10 (a)$116.05
(b)$23.10 (b)$ 71.05
Oppenheimer Growth Fund (a)$73.20 (a)$116.35
(b)$23.20 (b)$ 71.35
Oppenheimer Growth & Income Fund (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
Oppenheimer Strategic Bond Fund (a)$73.80 (a)$118.16
(b)$23.80 (b)$ 73.16
PUTNAM VARIABLE TRUST
Managed by Putnam Investment Management, Inc.
Putnam VT Growth and Income Fund (a)$70.69 (a)$108.78
(b)$20.69 (b)$ 63.78
Putnam VT International Growth Fund (a)$75.10 (a)$122.07
(b)$25.10 (b)$ 77.07
Putnam VT International New
Opportunities Fund (a)$79.19 (a)$134.29
(b)$29.19 (b)$ 89.29
Putnam VT New Value Fund (a)$73.60 (a)$117.56
(b)$23.60 (b)$ 72.56
Putnam VT Vista Fund (a)$73.40 (a)$116.96
(b)$23.40 (b)$ 71.96
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the Fee Table is to show you the various expenses you will
incur directly or indirectly with the contract. The Fee Table reflects
expenses of the Separate Account as well as of the investment portfolios.
2. The withdrawal charge is 5% of the purchase payments you withdraw. After
Cova has had a purchase payment for 5 years, there is no charge by Cova for a
withdrawal of that purchase payment. You may also have to pay income tax and a
tax penalty on any money you take out. After the first year, you can take up
to 10% of your total purchase payments each year without a charge from Cova.
3. Cova will not charge you the transfer fee even if there are more than 12
transfers in a year if the transfer is for the Dollar Cost Averaging,
Automatic Rebalancing or Approved Asset Allocation Programs.
4. Cova will not charge the contract maintenance charge if the value of your
contract is $50,000 or more, although, if you make a complete withdrawal, Cova
will charge the contract maintenance charge.
5. Premium taxes are not reflected. Premium taxes may apply depending on the
state where you live.
6. The assumed average contract size 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.
1. THE ANNUITY CONTRACT
This Prospectus describes the Fixed and Variable Annuity Contract offered by
Cova.
An annuity is a contract between you, the owner, and an insurance company (in
this case Cova), where the insurance company promises to pay you an income, in
the form of annuity payments, beginning on a designated date that's at least
30 days in the future. Until you decide to begin receiving annuity payments,
your annuity is in the accumulation phase. Once you begin receiving annuity
payments, your contract switches to the income phase. The Contract benefits
from tax deferral.
Tax deferral means that you are not taxed on earnings or appreciation on the
assets in your contract until you take money out of your contract.
The contract is called a variable annuity because you can choose among 40
investment portfolios and, depending upon market conditions, you can make or
lose money in any of these portfolios. If you select the variable annuity
portion of the contract, the amount of money you are able to accumulate
in your contract during the accumulation phase depends upon the investment
performance of the investment portfolio(s) you select. The amount of the
annuity payments you receive during the income phase from the variable
annuity portion of the contract also depends upon the investment
performance of the investment portfolios you select for the income
phase.
The contract also contains a fixed account. The fixed account offers an
interest rate that is guaranteed by Cova. Cova guarantees that the interest
credited to the fixed account will not be less than 3% per year. If you
select the fixed account, your money will be placed with the other general
assets of Cova. If you select the fixed account, the amount of money you are
able to accumulate in your contract during the accumulation phase depends
upon the total interest credited to your contract. The amount of the annuity
payments you receive during the income phase from the fixed account
portion of the contract will remain level for the entire income phase.
As owner of the contract, you exercise all rights under the contract. You can
change the owner at any time by notifying Cova in writing. You and your spouse
can be named joint owners. We have described more information on this in
Section 10 - Other Information.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
Under the contract you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the annuity
date. Your annuity date must be the first day of a calendar month. You can
also choose among income plans. We call those annuity options.
We ask you to choose your annuity date and annuity option when you purchase
the contract. You can change either at any time before the annuity date with
30 days notice to us. Your annuity date cannot be any earlier than one month
after you buy the contract. Annuity payments must begin by the annuitant's
85th birthday or 10 years from the date the contract was issued, whichever is
later. The annuitant is the person whose life we look to when we make annuity
payments.
If you do not choose an annuity option at the time you purchase the contract,
we will assume that you selected Option 2 which provides a life annuity with
10 years of guaranteed payments.
During the income phase, you have the same investment choices you had just
before the start of the income phase. At the annuity date, you can choose
whether payments will come from the fixed account, the investment portfolio(s)
or a combination of both. If you don't tell us otherwise, your annuity
payments will be based on the investment allocations that were in place on the
annuity date.
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things: 1) the value of your contract in the investment portfolio(s) on the
annuity date, 2) the 3% assumed investment rate used in the annuity table for
the contract, and 3) the performance of the investment portfolios you
selected. If the actual performance exceeds the 3% assumed rate, your annuity
payments will increase. Similarly, if the actual rate is less than 3%, your
annuity payments will decrease.
You can choose one of the following annuity options. After annuity payments
begin, you cannot change the annuity option.
OPTION 1. LIFE ANNUITY. Under this option, we will make an annuity payment
each month so long as the annuitant is alive. After the annuitant dies, we
stop making annuity payments.
OPTION 2. LIFE ANNUITY WITH 5, 10 OR 20 YEARS GUARANTEED. Under this option,
we will make an annuity payment each month so long as the annuitant is alive.
However, if, when the annuitant dies, we have made annuity payments for less
than the selected guaranteed period, we will then continue to make annuity
payments for the rest of the guaranteed period to the beneficiary. If the
beneficiary does not want to receive annuity payments, he or she can ask us
for a single lump sum.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. Under this option, we will make
annuity payments each month so long as the annuitant and a second person are
both alive. When either of these people dies, we will continue to make annuity
payments, so long as the survivor continues to live. The amount of the annuity
payments we will make to the survivor can be equal to 100%, 66 2/3% or 50% of
the amount that we would have paid if both were alive.
Annuity payments are made monthly unless you have less than $5,000 to apply
toward a payment ($2,000 if the contract is issued in Massachusetts or Texas).
In that case, Cova may provide your annuity payment in a single lump sum.
Likewise, if your annuity payments would be less than $100 a month ($20 in
Texas), Cova has the right to change the frequency of payments so that your
annuity payments are at least $100 ($20 in Texas).
3. PURCHASE
PURCHASE PAYMENTS
A purchase payment is the money you give us to buy the contract. The minimum
we will accept is $5,000 when the contract is bought as a non-qualified
contract. If you are buying the contract as part of an IRA (Individual
Retirement Annuity), 401(k) or other qualified plan, the minimum we will
accept is $2,000. The maximum we accept is $1 million without our prior
approval. You can make additional purchase payments of $2,000 or more to
either type of contract.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your purchase payment to the
fixed account and/or one or more of the investment portfolios you have
selected. If you make additional purchase payments, we will allocate them in
the same way as your first purchase payment unless you tell us otherwise.
If you change your mind about owning this contract, you can cancel it within
10 days after receiving it (or the period required in your state). When you
cancel the contract within this time period, Cova will not assess a withdrawal
charge. You will receive back whatever your contract is worth on the day we
receive your request. In certain states, or if you have purchased the contract
as an IRA, we may be required to give you back your purchase payment if you
decide to cancel your contract within 10 days after receiving it (or whatever
period is required in your state). If that is the case, we will put your
purchase payment in the Money Market Fund of General American Capital Company
for 15 days after we allocate your first purchase payment. (In some
states, the period may be longer.) At the end of that period, we will
re-allocate those funds as you selected.
Once we receive your purchase payment and the necessary information, we will
issue your contract and allocate your first purchase payment within 2 business
days. If you do not give us all of the information we need, we will contact
you to get it. If for some reason we are unable to complete this process
within 5 business days, we will either send back your money or get your
permission to keep it until we get all of the necessary information. If you
add more money to your contract by making additional purchase payments, we
will credit these amounts to your contract within one business day. Our
business day closes when the New York Stock Exchange closes, usually 4:00 p.m.
Eastern time.
ACCUMULATION UNITS
The value of the variable annuity portion of your contract will go up or down
depending upon the investment performance of the investment portfolio(s) you
choose. In order to keep track of the value of your contract, we use a unit of
measure we call an accumulation unit. (An accumulation unit works like a share
of a mutual fund.) During the income phase of the contract we call the unit an
annuity unit.
Every day we determine the value of an accumulation unit for each of the
investment portfolios. We do this by:
1. determining the total amount of money invested in the particular
investment portfolio;
2. subtracting from that amount any insurance charges and any other charges
such as taxes we have deducted; and
3. dividing this amount by the number of outstanding accumulation units.
The value of an accumulation unit may go up or down from day to day.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited is determined by dividing the
amount of the purchase payment allocated to an investment portfolio by the
value of the accumulation unit for that investment portfolio.
We calculate the value of an accumulation unit for each investment portfolio
after the New York Stock Exchange closes each day and then credit your
contract.
EXAMPLE:
On Monday we receive an additional purchase payment of $5,000 from you. You
have told us you want this to go to the Quality Bond Portfolio. When the New
York Stock Exchange closes on that Monday, we determine that the value of an
accumulation unit for the Quality Bond Portfolio is $13.90. We then divide
$5,000 by $13.90 and credit your contract on Monday night with 359.71
accumulation units for the Quality Bond Portfolio.
4. INVESTMENT OPTIONS
The contract offers 40 investment portfolios which are listed below.
Currently, if you are not participating in an asset allocation program, you
can only invest in 15 investment portfolios at any one time. Additional
investment portfolios may be available in the future.
YOU SHOULD READ THE PROSPECTUSES FOR THESE FUNDS CAREFULLY BEFORE INVESTING.
COPIES OF THESE PROSPECTUSES ARE ATTACHED TO THIS PROSPECTUS. CERTAIN
PORTFOLIOS CONTAINED IN THE FUND PROSPECTUSES MAY NOT BE AVAILABLE WITH YOUR
CONTRACT.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM Variable Insurance Funds, Inc. is a mutual fund with multiple
portfolios. A I M Advisors, Inc. is the investment adviser to each portfolio.
The following portfolios are available under the contract:
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Alliance Variable Products Series Fund, Inc. is a mutual fund with multiple
portfolios. Alliance Capital Management L.P. is the investment adviser to
each portfolio. The following portfolios are available under the contract:
Premier Growth Portfolio
Real Estate Investment Portfolio
COVA SERIES TRUST
Cova Series Trust is managed by Cova Investment Advisory Corporation (Cova
Advisory), which is an affiliate of Cova. Cova Series Trust is a mutual
fund with multiple portfolios. Cova Advisory has engaged sub-advisers to
provide investment advice for the individual investment portfolios. The
following portfolios are available under the contract:
J.P. Morgan Investment Management Inc. is the sub-adviser to the following
portfolios:
Small Cap Stock Portfolio
Large Cap Stock Portfolio
Select Equity Portfolio
International Equity Portfolio
Quality Bond Portfolio
Lord, Abbett & Co. is the sub-adviser to the following portfolios:
Bond Debenture Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Mid Cap Value Portfolio
Lord Abbett Growth & Income Portfolio
GENERAL AMERICAN CAPITAL COMPANY
General American Capital Company is a mutual fund with multiple portfolios.
Each portfolio is managed by Conning Asset Management Company. The following
portfolio is available under the contract:
Money Market Fund
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Goldman Sachs Variable Insurance Trust is a mutual fund with multiple
portfolios. Goldman Sachs Asset Management is the investment adviser for the
Goldman Sachs Growth and Income Fund and Goldman Sachs Asset Management
International is the investment adviser for the Goldman Sachs International
Equity Fund and Goldman Sachs Global Income Fund. The following portfolios
are available under the contract:
Goldman Sachs Growth and Income Fund
Goldman Sachs International Equity Fund
Goldman Sachs Global Income Fund
INVESTORS FUND SERIES
Investors Fund Series is a mutual fund with multiple portfolios. Scudder
Kemper Investments, Inc. is the investment adviser for the Kemper
Government Securities Portfolio, the Kemper Small Cap Growth Portfolio and
the Kemper Small Cap Value Portfolio. The following portfolios are available
under the contract:
Kemper Small Cap Value Portfolio
Kemper Government Securities Portfolio
Kemper Small Cap Growth Portfolio
LIBERTY VARIABLE INVESTMENT TRUST
Liberty Variable Investment Trust is a mutual fund with multiple portfolios.
Keyport Advisory Services Corp. (KASC) is the investment manager to the Trust.
KASC has engaged Newport Fund Management, Inc. as sub-adviser to provide
investment advice for the Newport Tiger, Variable Series. The following
portfolio is available under the contract:
Newport Tiger, Variable Series (a portfolio investing in equity securities of
companies located in certain countries of Asia).
LORD ABBETT SERIES FUND, INC.
Lord Abbett Series Fund, Inc. is a mutual fund. The following portfolio
managed by Lord, Abbett & Co. is available under the contract:
Growth and Income Portfolio
MFS VARIABLE INSURANCE TRUST
MFS Variable Insurance Trust is a mutual fund with multiple portfolios.
Massachusetts Financial Services Company is the investment adviser to each
portfolio. The following portfolios are available under the contract:
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS High Income Series
MFS World Governments Series
MFS/Foreign & Colonial Emerging Markets Equity Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Variable Account Funds is a mutual fund with multiple portfolios.
OppenheimerFunds, Inc. is the investment adviser to each portfolio. The
following portfolios are available under the contract:
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
PUTNAM VARIABLE TRUST
Putnam Variable Trust is a mutual fund with multiple portfolios. Putnam
Investment Management, Inc. is the investment adviser to each portfolio. The
following portfolios are available under the contract:
Putnam VT Growth and Income Fund
Putnam VT International Growth Fund
Putnam VT International New Opportunities Fund
Putnam VT New Value Fund
Putnam VT Vista Fund (a stock portfolio)
Shares of the investment portfolios may be offered in connection with certain
variable annuity contracts and variable life insurance policies of various
life insurance companies which may or may not be affiliated with Cova. Certain
investment portfolios may also be sold directly to qualified plans. The funds
do not believe that offering their shares in this manner will be disadvantageous
to you.
TRANSFERS
You can transfer money among the fixed account and the investment
portfolios.
TRANSFERS DURING THE ACCUMULATION PHASE.
You can make 12 transfers every year during the accumulation phase without
charge. We measure a year from the anniversary of the day we issued your
contract. You can make a transfer to or from the fixed account and to or from
any investment portfolio. If you make more than 12 transfers in a year, there
is a transfer fee deducted. The fee is $25 per transfer or, if less, 2% of the
amount transferred. The following apply to any transfer during the
accumulation phase:
1. Your request for transfer must clearly state which investment portfolio(s)
or the fixed account are involved in the transfer.
2. Your request for transfer must clearly state how much the transfer is for.
3. You cannot make any transfers within 7 calendar days of the annuity date.
TRANSFERS DURING THE INCOME PHASE. You can only make transfers between the
investment portfolios once each year. We measure a year from the anniversary
of the day we issued your contract. You cannot transfer from the fixed account
to an investment portfolio, but you can transfer from one or more investment
portfolios to the fixed account at any time. If you make more than 12
transfers, a transfer fee will be charged.
Cova has reserved the right during the year to terminate or modify the
transfer provisions described above.
You can make transfers by telephone. If you own the contract with a joint
owner, unless Cova is instructed otherwise, Cova will accept instructions from
either you or the other owner. Cova will use reasonable procedures to confirm
that instructions given us by telephone are genuine. If Cova fails to use such
procedures, we may be liable for any losses due to unauthorized or fraudulent
instructions. Cova tape records all telephone instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount each month from the Money Market Fund or the fixed account to any
of the other investment portfolio(s). By allocating amounts on a regular
schedule as opposed to allocating the total amount at one particular time, you
may be less susceptible to the impact of market fluctuations.
The minimum amount which can be transferred each month is $500. You must have
at least $6,000 in the Money Market Fund or the fixed account, (or the
amount required to complete your program, if less) in order to participate in
the Dollar Cost Averaging Program. There is no additional charge for
participating in the Dollar Cost Averaging Program.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
AUTOMATIC REBALANCING PROGRAM
Once your money has been allocated among the investment portfolios, the
performance of each portfolio may cause your allocation to shift. You can
direct us to automatically rebalance your contract to return to your original
percentage allocations by selecting our Automatic Rebalancing Program. You can
tell us whether to rebalance quarterly, semi-annually or annually. We will
measure these periods from the anniversary of the date we issued your
contract. The transfer date will be the 1st day after the end of the period
you selected. There is no additional charge for participating in the
Automatic Rebalancing Program. If you participate in the Automatic
Rebalancing Program, the transfers made under the program are not taken into
account in determining any transfer fee.
EXAMPLE:
Assume that you want your initial purchase payment split between 2 investment
portfolios. You want 40% to be in the Quality Bond Portfolio and 60% to be in
the Select Equity Portfolio. Over the next 2 1/2 months the bond market does
very well while the stock market performs poorly. At the end of the first
quarter, the Quality Bond Portfolio now represents 50% of your holdings
because of its increase in value. If you had chosen to have your holdings
rebalanced quarterly, on the first day of the next quarter, Cova would sell
some of your units in the Quality Bond Portfolio to bring its value back to
40% and use the money to buy more units in the Select Equity Portfolio to
increase those holdings to 60%.
APPROVED ASSET ALLOCATION PROGRAMS
Cova recognizes the value to certain owners of having available, on a
continuous basis, advice for the allocation of your money among the investment
options available under the contracts. Certain providers of these types of
services have agreed to provide such services to owners in accordance with
Cova's administrative rules regarding such programs.
Cova has made no independent investigation of these programs. Cova has only
established that these programs are compatible with our administrative systems
and rules. Approved asset allocation programs are only available during the
accumulation phase.
Even though Cova permits the use of approved asset allocation programs, the
contract was not designed for professional market timing organizations.
Repeated patterns of frequent transfers are disruptive to the operations of
the investment portfolios, and when Cova becomes aware of such disruptive
practices, we may modify the transfer provisions of the contract.
If you participate in an Approved Asset Allocation Program, the transfers made
under the program are not taken into account in determining any transfer fee.
VOTING RIGHTS
Cova is the legal owner of the investment portfolio shares. However, Cova
believes that when an investment portfolio solicits proxies in conjunction
with a vote of shareholders, it is required to obtain from you and other
owners instructions as to how to vote those shares. When we receive those
instructions, we will vote all of the shares we own in proportion to those
instructions. This will also include any shares that Cova owns on its own
behalf. Should Cova determine that it is no longer required to comply with the
above, we will vote the shares in our own right.
SUBSTITUTION
Cova may be required to substitute one of the investment portfolios you have
selected with another portfolio. We would not do this without the prior
approval of the Securities and Exchange Commission. We will give you notice of
our intent to do this.
5. EXPENSES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses are:
INSURANCE CHARGES
Each day, Cova makes a deduction for its insurance charges. Cova does this as
part of its calculation of the value of the accumulation units and the annuity
units. The insurance charge has two parts: 1) the mortality and expense risk
premium and 2) the administrative expense charge.
MORTALITY AND EXPENSE RISK PREMIUM. This charge is equal, on an annual basis,
to 1.25% of the daily value of the contracts invested in an investment
portfolio, after expenses have been deducted. This charge is for all the
insurance benefits e.g., guarantee of annuity rates, the death benefits, for
certain expenses of the contract, and for assuming the risk (expense risk)
that the current charges will be insufficient in the future to cover the cost
of administering the contract. If the charges under the contract are not
sufficient, then Cova will bear the loss. Cova does, however, expect to profit
from this charge. The mortality and expense risk premium cannot be increased.
Cova may use any profits it makes from this charge to pay for the costs of
distributing the contract.
ADMINISTRATIVE EXPENSE CHARGE. This charge is equal, on an annual basis, to
.15% of the daily value of the contracts invested in an investment portfolio,
after expenses have been deducted. This charge, together with the contract
maintenance charge (see below), is for all the expenses associated with the
administration of the contract. Some of these expenses are: preparation of the
contract, confirmations, annual reports and statements, maintenance of
contract records, personnel costs, legal and accounting fees, filing fees, and
computer and systems costs. Because this charge is taken out of every unit
value, you may pay more in administrative costs than those that are associated
solely with your contract. Cova does not intend to profit from this charge.
However, if this charge and the contract maintenance charge are not enough to
cover the costs of the contracts in the future, Cova will bear the loss.
CONTRACT MAINTENANCE CHARGE
During the accumulation phase, every year on the anniversary of the date when
your contract was issued, Cova deducts $30 from your contract as a contract
maintenance charge. (In South Carolina, the charge is the lesser of $30 or 2%
of the value of the contract.) This charge is for administrative expenses (see
above). This charge can not be increased.
Cova will not deduct this charge, if when the deduction is to be made, the
value of your contract is $50,000 or more. Cova may some time in the future
discontinue this practice and deduct the charge.
If you make a complete withdrawal from your contract, the contract maintenance
charge will also be deducted. A pro rata portion of the charge will be
deducted if the annuity date is other than an anniversary. After the annuity
date, the charge will be collected monthly out of the annuity payment.
WITHDRAWAL CHARGE
During the accumulation phase, you can make withdrawals from your contract.
Cova keeps track of each purchase payment. Once a year after the first year,
you can withdraw up to 10% of your total purchase payments and no withdrawal
charge will be assessed on the 10%, if on the day you make your withdrawal the
value of your contract is $5,000 or more. Otherwise, the charge is 5% of each
purchase payment you take out. However, after Cova has had a purchase payment
for 5 years, there is no charge when you withdraw that purchase payment. For
purposes of the withdrawal charge, Cova treats withdrawals as coming from the
oldest purchase payment first. When the withdrawal is for only part of the
value of your contract, the withdrawal charge is deducted from the remaining
value in your contract.
NOTE: For tax purposes, withdrawals are considered to have come from the last
money into the contract. Thus, for tax purposes, earnings are considered to
come out first.
Cova does not assess the withdrawal charge on any payments paid out as annuity
payments or as death benefits.
After you have owned the contract for one year, if you, or your joint owner,
has been confined to a nursing home or hospital for at least 90 consecutive
days under a doctor's care and you need part or all of the money from your
contract, Cova will not impose a withdrawal charge. You or your joint owner
cannot have been so confined when you purchased your contract if you want to
take advantage of this provision. This is called the Nursing Home Waiver. This
provision is not available in all states.
REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE
Cova will reduce or eliminate the amount of the withdrawal charge when the
contract is sold under circumstances which reduce its sales expense. Some
examples are: if there is a large group of individuals that will be purchasing
the contract or a prospective purchaser already had a relationship with Cova.
Cova will not deduct a withdrawal charge under a contract issued to an
officer, director or employee of Cova or any of its affiliates.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. Cova is responsible for the payment of these
taxes and will make a deduction from the value of the contract for them. Some
of these taxes are due when the contract is issued, others are due when
annuity payments begin. It is Cova's current practice to not charge anyone for
these taxes until annuity payments begin. Cova may some time in the future
discontinue this practice and assess the charge when the tax is due. Premium
taxes generally range from 0% to 4%, depending on the state.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 12 transfers a year, we will deduct
a transfer fee of $25 or 2% of the amount that is transferred whichever is
less.
If the transfer is part of the Dollar Cost Averaging Program, the Automatic
Rebalancing Program or an Approved Asset Allocation Program, it will not
count in determining the transfer fee.
INCOME TAXES
Cova will deduct from the contract for any income taxes which it incurs
because of the contract. At the present time, we are not making any such
deductions.
INVESTMENT PORTFOLIO EXPENSES
There are deductions from and expenses paid out of the assets of the various
investment portfolios, which are described in the attached fund prospectuses.
6. TAXES
NOTE: Cova has prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. Cova has
included in the Statement of Additional Information an additional discussion
regarding taxes.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs -
usually retirement. Congress recognized how important saving for retirement
was and provided special rules in the Internal Revenue Code (Code) for
annuities.
Simply stated these rules provide that you will not be taxed on the earnings
on the money held in your annuity contract until you take the money out. This
is referred to as tax deferral. There are different rules as to how you will
be taxed depending on how you take the money out and the type of contract -
qualified or non-qualified (see following sections).
You, as the owner, will not be taxed on increases in the value of your
contract until a distribution occurs - either as a withdrawal or as annuity
payments. When you make a withdrawal you are taxed on the amount of the
withdrawal that is earnings. For annuity payments, different rules apply. A
portion of each annuity payment is treated as a partial return of your
purchase payments and will not be taxed. The remaining portion of the annuity
payment will be treated as ordinary income. How the annuity payment is divided
between taxable and non-taxable portions depends upon the period over which
the annuity payments are expected to be made. Annuity payments received after
you have received all of your purchase payments are fully includible in
income.
When a non-qualified contract is owned by a non-natural person
(e.g.,corporation or certain other entities other than tax-qualified trusts),
the contract will generally not be treated as an annuity for tax purposes.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the contract as an individual and not under any pension plan,
specially sponsored program or an individual retirement annuity, your contract
is referred to as a non-qualified contract.
If you purchase the contract under a pension plan, specially sponsored
program, or an individual retirement annuity, your contract is referred to as
a qualified contract. Examples of qualified plans are: Individual Retirement
Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b)
contracts), H.R. 10 Plans (sometimes referred to as Keogh Plans), and pension
and profit-sharing plans, which include 401(k) plans.
WITHDRAWALS - NON-QUALIFIED CONTRACTS
If you make a withdrawal from your contract, the Code treats such a withdrawal
as first coming from earnings and then from your purchase payments. Such
withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract
which is included in income may be subject to a penalty. The amount of the
penalty is equal to 10% of the amount that is includible in income. Some
withdrawals will be exempt from the penalty. They include any amounts: (1)
paid on or after the taxpayer reaches age 59 1/2; (2) paid after you die; (3)
paid if the taxpayer becomes totally disabled (as that term is defined in the
Code); (4) paid in a series of substantially equal payments made annually (or
more frequently) under a lifetime annuity; (5) paid under an immediate
annuity; or (6) which come from purchase payments made prior to August 14,
1982.
WITHDRAWALS - QUALIFIED CONTRACTS
The above information describing the taxation of non-qualified contracts does
not apply to qualified contracts. There are special rules that govern with
respect to qualified contracts. We have provided a more complete discussion in
the Statement of Additional Information.
WITHDRAWALS - TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of purchase payments made by owners from
certain Tax-Sheltered Annuities. Withdrawals can only be made when an owner:
(1) reaches age 59 1/2; (2) leaves his/her job; (3) dies; (4) becomes disabled
(as that term is defined in the Code); or (5) in the case of hardship.
However, in the case of hardship, the owner can only withdraw the purchase
payments and not any earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Cova believes that the investment portfolios are being
managed so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the
degree of control you exercise over the underlying investments, and not Cova
would be considered the owner of the shares of the investment portfolios. If
this occurs, it will result in the loss of the favorable tax treatment for the
contract. It is unknown to what extent owners are permitted to select
investment portfolios, to make transfers among the investment portfolios or
the number and type of investment portfolios owners may select from. If any
guidance is provided which is considered a new position, then the guidance
would generally be applied prospectively. However, if such guidance is
considered not to be a new position, it may be applied retroactively. This
would mean that you, as the owner of the contract, could be treated as the
owner of the investment portfolios.
Due to the uncertainty in this area, Cova reserves the right to modify the
contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
You can have access to the money in your contract:
(1) by making a withdrawal (either a partial or a complete withdrawal); (2) by
electing to receive annuity payments; or (3) when a death benefit is paid to
your beneficiary. Under most circumstances, withdrawals can only be made
during the accumulation phase.
When you make a complete withdrawal you will receive the value of the contract
on the day you made the withdrawal less any applicable withdrawal charge, less
any premium tax and less any contract maintenance charge. (See Section 5.
Expenses for a discussion of the charges.)
Unless you instruct Cova otherwise, any partial withdrawal will be made
pro-rata from all the investment portfolios and the fixed account you
selected. Under most circumstances the amount of any partial withdrawal must
be for at least $500. Cova requires that after a partial withdrawal is made
you keep at least $500 in any selected investment portfolio.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
WITHDRAWAL YOU MAKE.
There are limits to the amount you can withdraw from a qualified plan referred
to as a 403(b) plan. For a more complete explanation see Section 6. Taxes and
the discussion in the Statement of Additional Information.
SYSTEMATIC WITHDRAWAL PROGRAM
If you are 59 1/2 or older, you may use the Systematic Withdrawal Program.
This program provides an automatic monthly payment to you of up to 10% of your
total purchase payments each year. No withdrawal charge will be made for these
payments. Cova does not have any charge for this program, but reserves the
right to charge in the future. If you use this program, you may not also make
a single 10% free withdrawal. For a discussion of the withdrawal charge and
the 10% free withdrawal, see Section 5. Expenses.
INCOME TAXES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
8. PERFORMANCE
Cova periodically advertises performance of the various investment portfolios.
Cova will calculate performance by determining the percentage change in the
value of an accumulation unit by dividing the increase (decrease) for that
unit by the value of the accumulation unit at the beginning of the period.
This performance number reflects the deduction of the insurance charges and
the investment portfolio expenses. It does not reflect the deduction of any
applicable contract maintenance charge and withdrawal charge. The deduction
of any applicable contract maintenance charge and withdrawal charges would
reduce the percentage increase or make greater any percentage decrease.
Any advertisement will also include total return figures which reflect the
deduction of the insurance charges, contract maintenance charge, withdrawal
charges and the investment portfolio expenses.
For periods starting prior to the date the contracts were first offered, the
performance will be based on the historical performance of the corresponding
investment portfolios for the periods commencing from the date on which the
particular investment portfolio was made available through the Separate
Account. In addition, for certain investment portfolios performance may be
shown for the period commencing from the inception date of the investment
portfolio. These figures should not be interpreted to reflect actual
historic performance.
Cova may, from time to time, include in its advertising and sales materials,
tax deferred compounding charts and other hypothetical illustrations, which
may include comparisons of currently taxable and tax deferred investment
programs, based on selected tax brackets.
The Appendix contains performance information that you may find informative.
Future performance will vary and results shown are not necessarily
representative of future results.
9. DEATH BENEFIT
UPON YOUR DEATH
If you die before annuity payments begin, Cova will pay a death benefit to
your beneficiary (see below). If you have a joint owner, the death benefit
will be paid when the first of you dies. Joint owners must be spouses. The
surviving joint owner will be treated as the beneficiary.
The amount of the death benefit depends on how old you or your joint owner is.
Prior to you, or your joint owner, reaching age 80, the death benefit will be
the greater of:
1. Total purchase payments, less withdrawals (and any withdrawal charges paid
on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent five year anniversary before
the date of death, plus any subsequent purchase payments, less any withdrawals
(and any withdrawal charges paid on the withdrawals).
After you, or your joint owner, reaches age 80, the death benefit will be the
greater of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent five year anniversary on or
before you or your joint owner reaches age 80, plus any subsequent purchase
payments, less any withdrawals (and any withdrawal charges paid on the
withdrawals).
The entire death benefit must be paid within 5 years of the date of death
unless the beneficiary elects to have the death benefit payable under an
annuity option. The death benefit payable under an annuity option must be paid
over the beneficiary's lifetime or for a period not extending beyond the
beneficiary's life expectancy. Payment must begin within one year of the date
of death. If the beneficiary is the spouse of the owner, he/she can continue
the contract in his/her own name at the then current value. If a lump sum
payment is elected and all the necessary requirements are met, the payment
will be made within 7 days.
DEATH OF ANNUITANT
If the annuitant, not an owner or joint owner, dies before annuity payments
begin, you can name a new annuitant. If no annuitant is named within 30 days
of the death of the annuitant, you will become the annuitant. However, if the
owner is a non-natural person (for example, a corporation), then the death or
change of annuitant will be treated as the death of the owner, and a new
annuitant may not be named.
Upon the death of the annuitant after annuity payments begin, the death
benefit, if any, will be as provided for in the annuity option selected.
10. OTHER INFORMATION
COVA
Cova Financial Services Life Insurance Company (Cova) was 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
purchased Cova which on that date changed its name to Cova Financial Services
Life Insurance Company.
Cova is licensed to do business in the District of Columbia and all states
except California, Maine, New Hampshire, New York and Vermont.
THE SEPARATE ACCOUNT
Cova has established a separate account, Cova Variable Annuity Account One
(Separate Account), to hold the assets that underlie the contracts. The Board
of Directors of Cova adopted a resolution to establish the Separate Account
under Missouri insurance law on February 24, 1987. We have registered the
Separate Account with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940.
The assets of the Separate Account are held in Cova's name on behalf of the
Separate Account and legally belong to Cova. However, those assets that
underlie the contracts, are not chargeable with liabilities arising out of any
other business Cova may conduct. All the income, gains and losses (realized or
unrealized) resulting from these assets are credited to or charged against the
contracts and not against any other contracts Cova may issue.
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 Cova.
Commissions will be paid to broker-dealers who sell the contracts.
Broker-dealers will be paid commissions up to 5.75% of purchase payments but,
under certain circumstances, may be paid an additional .5% commission.
Sometimes, Cova enters into an agreement with the broker-dealer to pay the
broker-dealer persistency bonuses, in addition to the standard commissions. To
the extent that the withdrawal charge is insufficient to cover the actual cost
of distribution, Cova may use any of its corporate assets, including any profit
from the mortality and expense risk premium, to make up any difference.
OWNERSHIP
OWNER. You, as the owner of the contract, have all the rights under the
contract. Prior to the annuity date, the owner is as designated at the time
the contract is issued, unless changed. On and after the annuity date, the
annuitant is the owner. The beneficiary becomes the owner when a death benefit
is payable.
JOINT OWNER. The contract can be owned by joint owners. Any joint owner must
be the spouse of the other owner (except in Pennsylvania). Upon the death of
either joint owner, the surviving spouse will be the designated beneficiary.
Any other beneficiary designation at the time the contract was issued or as
may have been later changed will be treated as a contingent beneficiary unless
otherwise indicated.
BENEFICIARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued unless
changed at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before you die.
ASSIGNMENT
You can assign the contract at any time during your lifetime. Cova will not be
bound by the assignment until it receives the written notice of the
assignment. Cova will not be liable for any payment or other action we take in
accordance with the contract before we receive notice of the assignment. AN
ASSIGNMENT MAY BE A TAXABLE EVENT.
If the contract is issued pursuant to a qualified plan, there may be
limitations on your ability to assign the contract.
SUSPENSION OF PAYMENTS OR TRANSFERS
Cova may be required to suspend or postpone payments for withdrawals or
transfers 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 shares of the
investment portfolios is not reasonably practicable or Cova cannot reasonably
value the shares of the investment portfolios;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of owners.
Cova has reserved the right to defer payment for a withdrawal or transfer from
the fixed account for the period permitted by law but not for more than six
months.
FINANCIAL STATEMENTS
The consolidated financial statements of Cova and the Separate Account have
been included in the Statement of Additional Information.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Company
Experts
Legal Opinions
Distribution
Performance Information
Tax Status
Annuity Provisions
Financial Statements
APPENDIX
PERFORMANCE INFORMATION
FUTURE PERFORMANCE WILL VARY AND THE RESULTS SHOWN ARE NOT NECESSARILY
REPRESENTATIVE OF FUTURE RESULTS.
PART 1 - PERFORMANCE INFORMATION FOR EXISTING PORTFOLIOS IN THE SEPARATE ACCOUNT
The contracts are new and therefore have no performance history. However, the
Separate Account has invested in certain portfolios for some time and has an
investment performance history. In order to show how the historical performance
of the Separate Account affects the contract's accumulation unit values, the
following performance was developed. The information is based upon the
historical experience of the Separate Account and portfolios and is for the
periods shown. The chart below shows the investment performance of the Separate
Account and portfolios and the accumulation unit performance calculated by
assuming that the contracts were invested in the Separate Account for the same
periods.
The performance figures in Column A reflect the fees and expenses paid by each
portfolio. Column B presents performance figures for the accumulation units
which reflect the insurance charges and fees and expenses of each portfolio.
Column C presents performance figures for the accumulation units which reflect
the insurance charges, the contract maintenance charge, the fees and expenses of
each portfolio, and assumes that you make a withdrawal at the end of the period
and therefore the withdrawal charge is reflected.
TOTAL RETURN FOR THE PERIODS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Portfolio Performance Accumulation Unit Performance
Column A Column B Column C
(reflects insurance (reflects all charges
charges and portfolio and portfolio
expenses) expenses)
-------------------------- ----------------------- ------------------------
Separate Account
Inception Date Since Since Since
Portfolio in Portfolio 1 yr 5 yrs Inception 1 yr 5 yrs Inception 1 yr 5 yrs Inception
- --------- ----------------- ------------------------- ----------------------- ------------------------
COVA SERIES TRUST
Small Cap Stock 5/1/96 31.34% -- 22.38% 29.94% -- 20.98% 24.75% -- 17.80%
Large Cap Stock 5/1/96 41.52% -- 32.07% 40.12% -- 30.67% 34.92% -- 27.57%
Select Equity 5/1/96 42.02% -- 28.68% 40.62% -- 27.28% 35.42% -- 24.16%
International Equity 5/1/96 18.21% -- 14.08% 16.81% -- 12.68% 11.64% -- 9.43%
Quality Bond 5/1/96 9.02% -- 8.28% 7.62% -- 6.88% 2.47% -- 3.58%
Bond Debenture 5/1/96 18.18% -- 18.65% 16.78% -- 17.25% 11.60% -- 14.04%
GENERAL AMERICAN
CAPITAL COMPANY
Money Market 6/3/96 5.56% -- 5.54% 4.16% -- 4.14% (0.98)% -- 0.57%
LORD ABBETT SERIES
FUND, INC.
Growth and Income 12/11/89 33.52% 19.30% 16.96% 32.12% 17.90% 15.56% 26.69% 16.97% 14.93%
</TABLE>
PART 2 - PERFORMANCE INFORMATION FOR PORTFOLIOS WHICH THE SEPARATE ACCOUNT HAS
NOT PREVIOUSLY INVESTED IN
The contracts are new and therefore have no performance history. However,
certain portfolios have been in existence for some time and have an investment
performance history. In order to show how the historical performance of the
portfolios affects the contract's accumulation unit values, the following
performance was developed. The information is based upon the historical
experience of the portfolios and is for the periods shown. The chart below
shows the investment performance of the portfolios and the accumulation unit
performance calculated by assuming that the contracts were invested in the
portfolios for the same periods.
The performance figures in Column A reflect the fees and expenses paid by each
portfolio. Column B presents performance figures for the accumulation units
which reflect the insurance charges and the fees and expenses of each portfolio.
Column C presents performance figures for the accumulation units which reflect
the insurance charges, the contract maintenance charge, the fees and expenses
of each portfolio, and assumes that you make a withdrawal at the end of the
period and therefore the withdrawal charge is reflected.
TOTAL RETURN FOR THE PERIODS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Portfolio Performance Accumulation Unit Performance
Column A Column B Column C
(reflects insurance (reflects all charges
charges and and portfolio expenses)
portfolio expenses)
---------------------- ---------------------- ----------------------
Portfolio 10 yrs or 10 yrs or 10 yrs or
Inception since since since
Portfolio Date 1 yr 5 yrs inception 1 yr 5 yrs inception 1 yr 5 yrs inception
- ----------------- ------------ ---------------------- ---------------------- ----------------------
AIM VARIABLE INSURANCE
FUNDS, INC.
AIM V.I. Capital 5/5/93 25.01% -- 22.19% 23.61% -- 20.79% 18.51% -- 16.19%
Appreciation
AIM V.I. International 5/5/93 22.53% -- 15.73% 21.13% -- 14.33% 16.03% -- 9.73%
Equity
AIM V.I. Value 5/5/93 34.08% -- 21.43% 32.68% -- 20.03% 27.58% -- 15.43%
ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.
Premier Growth 6/26/92 49.83% 23.61% 23.06% 48.43% 22.21% 21.66% 43.33% 17.61% 21.56%
Real Estate Investment 1/9/97 -- -- 31.75% -- -- 30.35% -- -- 25.75%
LIBERTY VARIABLE INVESTMENT
TRUST
Newport Tiger, Variable
Series 5/1/95 (5.11)% -- 6.62% (6.51)% -- 5.22% (11.61)% -- 0.62%
INVESTORS FUND SERIES
Kemper Small Cap Value 5/1/96 35.63% -- 19.88% 34.23% -- 18.48% 29.13% -- 13.88%
Kemper Government
Securities 9/3/87 9.33% 6.16% 7.77% 7.93% 4.76% 6.37% 2.83% 0.16% 6.27%
Kemper Small Cap Growth 5/2/94 37.10% -- 28.28% 35.70% -- 26.88% 30.60% -- 22.28%
MFS VARIABLE INSURANCE TRUST
MFS Emerging Growth 7/24/95 23.87% -- 28.49% 22.47% -- 27.09% 17.37% -- 22.49%
MFS Research 7/26/95 28.99% -- 26.18% 27.59% -- 24.78% 22.49% -- 20.18%
MFS Growth with Income 10/9/95 33.88% -- 29.23% 32.48% -- 27.83% 27.38% -- 23.23%
MFS High Income 7/26/95 14.74% -- 13.24% 13.34% -- 11.84% 8.24% -- 7.24%
MFS World Governments 6/14/94 2.06% -- 5.58% 0.66% -- 4.18% (4.44)% -- (0.42)%
OPPENHEIMER VARIABLE ACCOUNT
FUNDS
Oppenheimer High Income 4/30/86 14.94% 13.60% 13.84% 13.54% 12.20% 12.44% 8.44% 7.60% 12.34%
Oppenheimer Bond 4/3/85 9.43% 7.66% 9.60% 8.03% 6.26% 8.20% 2.93% 1.66% 8.10%
Oppenheimer Growth 4/3/85 36.89% 22.27% 13.85% 35.49% 20.87% 12.45% 30.39% 16.27% 12.35%
Oppenheimer Growth & Income 7/5/95 38.08% -- 40.56% 36.68% -- 39.16% 31.58% -- 34.56%
Oppenheimer Strategic Bond 5/3/93 11.32% -- 7.81% 9.92% -- 6.41% 4.82% -- 1.81%
PUTNAM VARIABLE TRUST
Putnam VT Growth and Income 2/1/88 33.94% 19.07% 17.06% 32.54% 17.67% 15.66% 27.44% 13.07% 15.56%
Putnam VT New Value 1/2/97 -- -- 29.63% -- -- 28.23% -- -- 23.63%
Putnam VT Vista 1/2/97 -- -- 31.52% -- -- 30.12% -- -- 25.52%
Putnam VT International
Growth 1/2/97 -- -- 29.90% -- -- 28.50% -- -- 23.90%
Putnam VT International New
Opportunities 1/2/97 -- -- 13.06% -- -- 11.66% -- -- 7.06%
</TABLE>
================================================================================
Attn: Variable Products
One Tower Lane
Suite 3000
Oakbrook Terrace, Illinois 60181-4644
Please send me, at no charge, the Statement of Additional Information
dated January ____, 1998 for The Annuity Contract issued by Cova.
(Please print or type and fill in all information)
---------------------------------------------------------------------------
Name
---------------------------------------------------------------------------
Address
---------------------------------------------------------------------------
City State Zip Code
CL-___(_/97) COVA VA
================================================================================
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT
issued by
COVA VARIABLE ANNUITY ACCOUNT ONE
AND
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED January ____, 1998, FOR THE
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT WHICH IS DESCRIBED
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) 831-5433.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED January ____, 1998.
TABLE OF CONTENTS
Page
COMPANY
EXPERTS
LEGAL OPINIONS
DISTRIBUTION
Reduction or Elimination of the Withdrawal Charge
PERFORMANCE INFORMATION
Total Return
Historical Unit Values
Reporting Agencies
TAX STATUS
General
Diversification
Multiple Contracts
Contracts Owned by Other than Natural Persons
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
ANNUITY PROVISIONS
Variable Annuity
Fixed Annuity
Annuity Unit
Net Investment Factor
Mortality and Expense Guarantee
FINANCIAL STATEMENTS
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. 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 $275
billion of life insurance in force and approximately $19 billion in assets.
It provides life and health insurance, retirement plans, and related financial
services to individuals and groups.
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
December 31, 1996, the capital contributed to the Large Cap Stock Sub-Account
represented approximately 75% of the total assets of such Sub-Account and the
capital contributed to the Quality Bond Sub-Account represented approximately
36% of the total assets of such Sub-Account. The Company currently intends to
remove these assets from the Sub-Accounts on a pro rata basis in proportion to
money invested in the Sub-Accounts by Contract Owners.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996 and
1995 and the related consolidated statements of income, shareholder's equity and
cash flows for the year ended December 31, 1996 and the periods from June 1,
1995 through December 31, 1995 and January 1, 1995 through May 31, 1995 and for
the year ended December 31, 1994 and the statement of assets and liabilities of
the Separate Account as of December 31, 1996 and the related statement of
operations for the year then ended and the statement of changes in contract
owners' equity for the years ended December 31, 1996 and 1995, 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.
DISTRIBUTION
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.
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 any reduction or elimination of the Withdrawal Charge be permitted
where the reduction or elimination will be unfairly discriminatory to any
person.
PERFORMANCE INFORMATION
Total Return
From time to time, the Company may advertise performance data. Such data will
show the percentage change in the value of an Accumulation Unit based on the
performance of an investment portfolio 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.
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 expenses for the underlying investment 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 Charges 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
Where:
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.
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 contract maintenance charge and withdrawal charge. The deduction of any
contract maintenance charge and withdrawal charge would reduce any percentage
increase or make greater any percentage decrease.
Owners should note that the investment results of each investment portfolio
will fluctuate over time, and any presentation of the investment portfolio's
total return for any period should not be considered as a representation of
what an investment may earn or what an Owner's total return may be in any
future period.
The Contracts are new and therefore have no performance history. However, the
Separate Account and certain Portfolios have been in existence for sometime
and consequently have an investment performance history. In order to show how
the historical investment performance of the Separate Account and the
Portfolios affect accumulation unit values, performance information was
developed. The information is based upon the historical experience of the
Separate Account and the Portfolios and is for the periods shown. The prospectus
contains a chart of performance information.
Future performance of the Portfolios will vary and the results shown are not
necessarily representative of future results. Performance for periods ending
after those shown may vary substantially from the examples shown. The
performance for a Portfolio is calculated for a specified period of time by
assuming an initial Purchase Payment of $1,000 allocated to the Portfolio.
There are performance figures for the Accumulation Units which reflect the
insurance charges as well as the Portfolio expenses. There are also
performance figures for the Accumulation Units which reflect the insurance
charges, the contract maintenance charge, the Portfolio expenses, and
assume that you make a withdrawal at the end of the period and therefore the
withdrawal charge is reflected. The percentage increases (decreases) are
determined by subtracting the initial Purchase Payment from the ending
value and dividing the remainder by the beginning value. The performance
may also show figures when no withdrawal is assumed.
Historical Unit Values
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 investment
portfolios against established market indices such as the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average or other
management investment companies which have investment objectives similar to
the investment portfolio being compared. The Standard & Poor's 500 Composite
Stock Price 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 Composite Stock Price Index and the Dow Jones Industrial
Average assume quarterly reinvestment of dividends.
Reporting Agencies
The Company may also distribute sales literature which compares the
performance of the Accumulation Unit values of the Contracts with the
unit values of variable annuities issued by other insurance companies. Such
information will be derived from the Lipper Variable Insurance Products
Performance Analysis Service, the VARDS Report or from Morningstar.
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. In addition, VARDS prepares
risk adjusted rankings, which consider the effects of market risk on total
return performance. This type of ranking may address the question as to which
funds provide the highest total return with the least amount of risk. Other
ranking services may be used as sources of performance comparison, such as
CDA/Weisenberger.
Morningstar rates a variable annuity against its peers with similar investment
objectives. Morningstar does not rate any variable annuity that has less than
three years of performance data.
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 LAWS. IT SHOULD BE
FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT
SPECIAL RULES NOT DESCRIBED HEREIN 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. An 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 (adjusted for any period or
refund feature) 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 (adjusted for any period certain or
refund guarantee) 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 excludable amount equals the
investment in the Contract) are fully taxable. The taxable portion is taxed
at ordinary income tax 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. 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 Separate 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 the imposition of
federal income tax to the 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 Contract 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 consist 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 Contract. 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 investment portfolios underlying the Contracts
will be managed in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be
contained in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available,
would cause the Owner to be considered as the owner of the assets of the
Separate Account resulting in the imposition of federal income tax to the
Owner with respect to earnings allocable to the Contract prior to receipt of
payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owners
being retroactively determined to be the owners of the assets of the Separate
Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
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. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the 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 a Contract held by a trust or other
entity as an agent for a natural person nor to Contracts held by Qualified
Plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. 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 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 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 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 adviser regarding withholding requirements.
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 premature 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 Owner; (c) if the taxpayer is totally disabled (for this
purpose disability is as defined in Section 72(m)(7) of the Code); (d) 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" below.)
QUALIFIED PLANS
The Contracts offered herein 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. 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. Some retirement plans are subject to distribution and
other requirements that are not incorporated into the Company's administrative
procedures. Owners, participants and Beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. 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
herein. 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" below.)
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;
transferability of benefits; 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" and "Tax-Sheltered Annuities - Withdrawal Limitations"
below.) Employee loans are not allowable under the Contracts. 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; transferability of benefits; 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
In the case of a withdrawal under a Qualified Contract, a ratable portion of
the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under
the retirement plan. Special tax rules may be available for certain
distributions from a Qualified Contract. 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
Owner or Annuitant (as applicable) reaches age 59 1/2; (b)
distributions following the death or disability of the 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 Owner or Annuitant
(as applicable) or the joint lives (or joint life expectancies) of such Owner
or Annuitant (as applicable) and his or her designated Beneficiary; (d)
distributions to an Owner or Annuitant (as applicable) who has separated
from service after he has attained age 55; (e) distributions made to
the 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 Owner or Annuitant (as applicable) for amounts paid during the
taxable year for medical care; (f) distributions made to an alternate payee
pursuant to a qualified domestic relations order;(g) distributions from
an Individual Retirement Annuity for the purchase of medical insurance (as
described in Section 213(d)(1)(D) of the Code) for the Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Owner or Annuitant
(as applicable) has received unemployment compensation for at least 12 weeks
(this exception will no longer apply after the Owner or Annuitant (as
applicable) has been re-employed for at least 60 days); (h) distributions from
an Individual Retirement Annuity made to the Owner to the extent such
distributions do not exceed the qualified higher education expenses (as
defined in Section 72(t)(7) of the Code) of the Owner for the taxable year;
and (i) distributions from an Individual Retirement Annuity made to the Owner
which are qualified first-time home buyer distributions (as defined in
Section 72(t)(8) of the Code). The exceptions stated in (d) 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 begin no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual
Retirement Annuity. 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 minimum 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 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 Owner's Contract
Value which represents contributions made by the 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 and transfers between certain Qualified
Plans. Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
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 investment portfolio(s) of the Separate
Account. At the Annuity Date, the Contract Value in each investment portfolio
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:
<TABLE>
<CAPTION>
<S> <C>
(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.
</TABLE>
The total dollar amount of each Variable Annuity Payment is the sum of all
investment portfolios' Variable Annuity Payments reduced by the applicable
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 Separate 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 investment portfolio was arbitrarily
set initially at $10. This was done when the first investment portfolio shares
were purchased. The investment portfolio Annuity Unit value at the end of any
subsequent Valuation Period is determined by multiplying the investment
portfolio 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 investment portfolio for any Valuation
Period is determined by dividing:
<TABLE>
<CAPTION>
<S> <C>
(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.
</TABLE>
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
Financial Statements
(UNAUDITED)
September 30, 1997
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997 (Unaudited)
(In thousands of dollars)
ASSETS
INVESTMENTS:
<TABLE>
<CAPTION>
<S> <C>
COVA SERIES TRUST:
Quality Income Portfolio - 3,933,677 shares at a net asset value of $10.73 per share (cost $41,496) $ 42,207
High Yield Portfolio - 3,028,141 shares at a net asset value of $11.13 per share (cost $32,096 ) 33,697
Growth and Income Portfolio - 2,686,458 shares at a net asset value of $17.24 per share (cost $34,476) 46,325
Money Market Portfolio - 52,103,875 shares at a net asset value of $1.00 per share (cost $52,104) 52,104
Stock Index Portfolio - 4,172,727 shares at a net asset value of $20.60 per share (cost $58,709 ) 85,942
Bond Debenture Portfolio - 3,185,066 shares at a net asset value of $12.15 per share (cost $36,502) 38,707
Quality Bond Portfolio - 1,067,007 shares at a net asset value of $10.38 per share (cost $10,843) 11,071
Small Cap Stock Portfolio - 3,278,475 shares at a net asset value of $13.36 per share (cost $36,370) 43,794
Large Cap Stock Portfolio - 884,997 shares at a net asset value of $14.34 per share (cost $8,934) 12,694
Select Equity Portfolio - 5,534,428 shares at a net asset value of $14.11 per share (cost $63,844) 78,075
International Equity Portfolio - 4,388,348 shares at a net asset value of $12.11 per share (cost $48,963) 53,130
Balanced Portfolio - 20,767 shares at a net asset value of $10.51 per share (cost $213) 218
Growth & Income Equity Portfolio - 55,385 shares at a net asset value of $10.77 per share (cost $580) 597
Small Cap Equity Portfolio - 15,097 shares at a net asset value of $11.19 per share (cost $161) 169
Equity Income Portfolio - 24,159 shares at a net asset value of $10.90 per share (cost $254) 263
Mid-Cap Value Portfolio - 10,000 shares at a net asset value of $10.44 per share (cost $100 ) 104
Large Cap Research Portfolio - 10,000 shares at a net asset value of $10.04 per share (cost $100) 100
Developing Growth Portfolio - 10,000 shares at a net asset value of $11.19 per share (cost $100) 112
LORD ABBETT SERIES FUND, INC:
Growth and Income Portfolio - 21,136,644 shares at a net asset value of $21.22 per share (cost $322,534) 448,429
GENERAL AMERICAN CAPITAL COMPANY:
Money Market Portfolio - 90,467 shares at a net asset value of $17.97 per share (cost $1,590 ) 1,626
Total Assets $949,364
</TABLE>
See accompanying notes to unaudited financial statements
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES (Continued)
September 30, 1997 (Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND CONTRACT OWNERS EQUITY
Contract Owners' Equity:
Accumulation Phase:
Trust Quality Income - 2,586,950 accumulation units at $16.290615 per unit $ 42,143
Trust High Yield - 1,458,818 accumulation units at $23.069578 per unit 33,654
Trust Growth and Income - 2,187,652 accumulation units at $21.166476 per unit 46,304
Trust Money Market - 4,255,070 accumulation units at $12.244078 per unit 52,100
Trust Stock Index 3,529,378 accumulation units at $24.342237 per unit 85,913
Trust Bond Debenture - 3,058,369 accumulation units at $12.656085 per unit 38,707
Trust Quality Bond - 1,017,806 accumulation units at $10.877551 per unit 11,071
Trust Small Cap Stock - 3,179,176 accumulation units at $13.775226 per unit 43,794
Trust Large Cap Stock - 865,130 accumulation units at $14.621557 per unit 12,649
Trust Select Equity - 5,494,928 accumulation units at $14.200213 per unit 78,029
Trust International Equity - 4,390,462 accumulation units at $12.101316 per unit 53,130
Trust Balanced - 20,827 accumulation units at $10.478753 per unit 218
Trust Growth and Income Equity - 55,548 accumulation units at $10.741146 per unit 597
Trust Small Cap Equity - 15,141 accumulation units at $11.156281 per unit 169
Trust Equity Income - 24,231 accumulation units at $10.870351 per unit 263
Trust Mid Cap - 10,000 accumulation units at $10.436222 per unit 104
Trust Large Cap Research - 100,000 accumulation units at $10.041286 per unit 100
Trust Developing Growth - 10,000 accumulation units at $11.192242 per unit 112
Fund Growth and Income - 14,473,804 accumulation units at $30.940092 per unit 447,820
GACC Money Market - 154,036 accumulation units at $10.553104 per unit 1,626
ANNUITIZATION PHASE:
Trust Quality Income - 4,955 annuity units at 12.934418 per unit 64
Trust High Yield - 2,351 annuity units at 18.316777 per unit 43
Trust Growth and Income - 1,142 annuity units at 18.032832 per unit 21
Trust Money Market - 440 annuity units at 10.178462 per unit 4
Trust Stock Index - 1,429 annuity units at 20.438245 per unit 29
Trust Large Cap Stock - 3,182 annuity units at 13.984438 per unit 45
Trust Select Equity - 3,402 annuity units at 13.581454 per unit 46
Fund Growth and Income - 24,773 annuity units at 24.565806 per unit 609
Total Contract Owners' Equity 949,364
Total Liabilities and Contract Owners' Equity $949,364
</TABLE>
See accompanying notes to unaudited financial statements
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1997 (Unaudited)
(In thousands of dollars)
COVA
SERIES TRUST
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
QUALITY HIGH GROWTH & MONEY STOCK BOND QUALITY SMALL CAP LARGE CAP
INCOME YIELD INCOME MARKET INDEX DEBENTURE BOND STOCK EQUITY
--------- ------ --------- ------- -------- ---------- -------- ----------- -----------
STOCK
-----------
INVESTMENT INCOME:
- -------------------------------
INCOME:
- -------------------------------
Dividends and Capital Gains $ 2,647 $1,652 $ 778 $ 1,994 $ 793 $ 385 $ 221 $ 165 $ 139
- ------------------------------- --------- ------ --------- ------- -------- ---------- -------- ----------- -----------
Total Income 2,647 1,652 778 1,994 793 385 221 165 139
- ------------------------------- --------- ------ --------- ------- -------- ---------- -------- ----------- -----------
EXPENSES:
- -------------------------------
Mortality and Expense
- -------------------------------
Risk Fee 497 378 361 456 710 162 67 235 135
- ------------------------------- --------- ------ --------- ------- -------- ---------- -------- ----------- -----------
Administrative Fee 60 45 43 55 85 19 8 28 16
- ------------------------------- --------- ------ --------- ------- -------- ---------- -------- ----------- -----------
Total Expenses 557 423 404 511 795 181 75 263 151
- ------------------------------- --------- ------ --------- ------- -------- ---------- -------- ----------- -----------
Net Investment Income 2,090 1,229 374 1,483 (2) 204 146 (98) (12)
- ------------------------------- --------- ------ --------- ------- -------- ---------- -------- ----------- -----------
NET REALIZED GAIN
- -------------------------------
ON INVESTMENTS 300 726 475 -- 11,332 25 32 14 1,517
- ------------------------------- --------- ------ --------- ------- -------- ---------- -------- ----------- -----------
NET CHANGE IN UNREALIZED
- -------------------------------
GAIN/(LOSS) ON INVESTMENTS (224) 1,111 7,648 -- 6,962 1,934 198 6,890 2,229
- ------------------------------- --------- ------ --------- ------- -------- ---------- -------- ----------- -----------
NET REALIZED AND UNREALIZED
- -------------------------------
GAIN/(LOSS) ON INVESTMENTS 76 1,837 8,123 -- 18,294 1,959 230 6,904 3,746
- ------------------------------- --------- ------ --------- ------- -------- ---------- -------- ----------- -----------
NET INCREASE INCONTRACT
- -------------------------------
OWNERS' EQUITYRESULTING
- -------------------------------
FROM OPERATIONS $ 2,166 $3,066 $ 8,497 $ 1,483 $18,292 $ 2,163 $ 376 $ 6,806 $ 3,734
- ------------------------------- --------- ------ --------- ------- -------- ---------- -------- ----------- -----------
<S> <C> <C>
SELECT INTL
EQUITY EQUITY
-------- -------
INVESTMENT INCOME:
- -------------------------------
INCOME:
- -------------------------------
Dividends and Capital Gains $ 436 $ 346
- ------------------------------- -------- -------
Total Income 436 346
- ------------------------------- -------- -------
EXPENSES:
- -------------------------------
Mortality and Expense
- -------------------------------
Risk Fee 433 293
- ------------------------------- -------- -------
Administrative Fee 51,917 35
- ------------------------------- -------- -------
Total Expenses 485 328
- ------------------------------- -------- -------
Net Investment Income (49) 18
- ------------------------------- -------- -------
NET REALIZED GAIN
- -------------------------------
ON INVESTMENTS 23 11
- ------------------------------- -------- -------
NET CHANGE IN UNREALIZED
- -------------------------------
GAIN/(LOSS) ON INVESTMENTS 13,021 3,371
- ------------------------------- -------- -------
NET REALIZED AND UNREALIZED
- -------------------------------
GAIN/(LOSS) ON INVESTMENTS 13,044 3,382
- ------------------------------- -------- -------
NET INCREASE INCONTRACT
- -------------------------------
OWNERS' EQUITYRESULTING
- -------------------------------
FROM OPERATIONS $12,995 $ 3,400
- ------------------------------- -------- -------
</TABLE>
See accompanying notes to unaudited financial statements
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1997 (Unaudited) (Continued)
(In thousands of dollars)
COVA
LORD ABBETT
SERIES TRUST
SERIES FUND, INC. GACC
__________________________________________________ _____________ ______
<TABLE>
<CAPTION>
Growth & Income Growth &
----------------- ----------
Small Cap Equity Mid-Cap Large Cap Developing
---------- ------- -------- --------- -----------
Balanced Equity Equity Income Value Research Growth INCOME
--------- ----------------- ---------- ------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends and Capital Gains -- -- -- -- -- -- --
Distributions $ 0
Total Income -- -- -- -- -- -- -- 0
EXPENSES:
Mortality and Expense
Risk Fee -- 1 -- -- -- -- -- 3,387
Administrative Fee -- -- -- -- -- -- -- 406
Total Expenses -- 1 -- -- -- -- -- 3,793
Net Investment Income -- (1) -- -- -- -- -- (3,793)
NET REALIZED GAIN/(LOSS)
ON INVESTMENTS -- -- -- -- -- -- -- 572
NET CHANGE IN UNREALIZED
GAIN/(LOSS) ON INVESTMENTS 5 17 8 10 4 -- 12 79,407
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS 5 17 8 10 4 -- 12 79,979
NET INCREASE IN CONTRACT
OWNERS' EQUITY RESULTING
FROM OPERATIONS $ 5 $ 16 $ 8 $ 10 $ 4 -- $ 12 $ 76,186
Global Money
-------- --------
EQUITY MARKET TOTAL
-------- -------- --------
<S> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends and Capital Gains
Distributions $ 0 $ 0 $ 9,556
Total Income 0 0 9,556
EXPENSES:
Mortality and Expense
Risk Fee 8 14 7,137
Administrative Fee 1 2 855
Total Expenses 9 16 7,992
Net Investment Income (9) (16) 1,564
NET REALIZED GAIN/(LOSS)
ON INVESTMENTS (36) 32 15,023
NET CHANGE IN UNREALIZED
GAIN/(LOSS) ON INVESTMENTS (1) 30 122,632
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS (37) 62 137,655
NET INCREASE IN CONTRACT
OWNERS' EQUITY RESULTING
FROM OPERATIONS ($46) $ 46 $139,219
</TABLE>
See accompanying notes to unaudited financial statements
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF CHANGES IN CONTRACT OWNERS EQUITY
For the Nine Months Ended September 30, 1997 (Unaudited)
(In thousands of dollars)
COVA
SERIES TRUST
_____________________________________________________________________________
_________________________________
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quality High Growth & Money Stock Bond Quality Small Cap
INCOME YIELD INCOME MARKET INDEX DEBENTURE BOND STOCK
--------- --------- ---------- --------- --------- ----------- --------- -----------
FROM OPERATIONS:
- ----------------------------
Net Investment Income $ 2,090 $ 1,229 $ 374 $ 1,483 ($2) $ 204 $ 146 ($98)
- ---------------------------- --------- --------- ---------- --------- --------- ----------- --------- -----------
Net Realized Gain
- ----------------------------
on Investments 300 726 475 -- 11,332 25 32 14
- ---------------------------- --------- --------- ---------- --------- --------- ----------- --------- -----------
Net Unrealized Gain/(Loss)
- ----------------------------
on Investments (224) 1,111 7,648 -- 6,962 1,934 198 6,890
- ---------------------------- --------- --------- ---------- --------- --------- ----------- --------- -----------
Net Increase in Contract
- ----------------------------
Owners' Equity Resulting
- ----------------------------
from Operations
- ----------------------------
2,166 3,066 8,497 1,483 18,292 2,163 376 6,806
--------- --------- ---------- --------- --------- ----------- --------- -----------
From Account Unit
- ----------------------------
Transactions:
- ----------------------------
Contributions by Cova -- -- -- -- -- -- -- --
- ---------------------------- --------- --------- ---------- --------- --------- ----------- --------- -----------
Redemptions by Cova -- -- -- -- -- -- (2,144) --
- ---------------------------- --------- --------- ---------- --------- --------- ----------- --------- -----------
Proceeds from Units of
- ----------------------------
the Account Sold 398 647 1,955 40,202 2,075 5,814 1,742 6,435
- ---------------------------- --------- --------- ---------- --------- --------- ----------- --------- -----------
Payments for Units of the
- ----------------------------
Account Redeemed (5,916) (1,874) (1,379) (5,412) (8,323) (491) (257) (584)
- ---------------------------- --------- --------- ---------- --------- --------- ----------- --------- -----------
Account Transfers (6,267) (11,013) 4,836 (14,877) (15,211) 23,770 6,078 17,144
- ---------------------------- --------- --------- ---------- --------- --------- ----------- --------- -----------
Net Increase/(Decrease) in
- ----------------------------
Contract Owners' Equity
- ----------------------------
From Account Unit
- ----------------------------
Transactions (11,785) (12,240) 5,412 19,913 (21,459) 29,093 5,419 22,995
- ---------------------------- --------- --------- ---------- --------- --------- ----------- --------- -----------
Net Increase/(Decrease) in
- ----------------------------
Contract Owners' Equity (9,619) (9,174) 13,909 21,396 (3,167) 31,256 5,795 29,801
- ---------------------------- --------- --------- ---------- --------- --------- ----------- --------- -----------
Contract Owners' Equity:
- ----------------------------
Beginning of Period 51,826 42,871 32,416 30,708 89,109 7,451 5,276 13,993
- ---------------------------- --------- --------- ---------- --------- --------- ----------- --------- -----------
End of Period $ 42,207 $ 33,697 $ 46,325 $ 52,104 $ 85,942 $ 38,707 $ 11,071 $ 43,794
- ---------------------------- --------- --------- ---------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C>
Large Cap Select Intl
STOCK EQUITY EQUITY
----------- -------- --------
FROM OPERATIONS:
- ----------------------------
Net Investment Income ($12) ($49) $ 18
- ---------------------------- ----------- -------- --------
Net Realized Gain
- ----------------------------
on Investments 1,517 23 11
- ---------------------------- ----------- -------- --------
Net Unrealized Gain/(Loss)
- ----------------------------
on Investments 2,229 13,021 3,371
- ---------------------------- ----------- -------- --------
Net Increase in Contract
- ----------------------------
Owners' Equity Resulting
- ----------------------------
from Operations
- ----------------------------
3,734 12,995 3,400
----------- -------- --------
From Account Unit
- ----------------------------
Transactions:
- ----------------------------
Contributions by Cova -- -- --
- ---------------------------- ----------- -------- --------
Redemptions by Cova (14,430) -- --
- ---------------------------- ----------- -------- --------
Proceeds from Units of
- ----------------------------
the Account Sold 3,444 14,115 8,828
- ---------------------------- ----------- -------- --------
Payments for Units of the
- ----------------------------
Account Redeemed (293) (847) (734)
- ---------------------------- ----------- -------- --------
Account Transfers 4,488 29,653 27,303
- ---------------------------- ----------- -------- --------
Net Increase/(Decrease) in
- ----------------------------
Contract Owners' Equity
- ----------------------------
From Account Unit
- ----------------------------
Transactions (6,791) 42,921 35,397
- ---------------------------- ----------- -------- --------
Net Increase/(Decrease) in
- ----------------------------
Contract Owners' Equity (3,057) 55,916 38,797
- ---------------------------- ----------- -------- --------
Contract Owners' Equity:
- ----------------------------
Beginning of Period 15,751 22,159 14,333
- ---------------------------- ----------- -------- --------
End of Period $ 12,694 $78,075 $53,130
- ---------------------------- ----------- -------- --------
</TABLE>
See accompanying notes to unaudited financial statements
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF CHANGES IN CONTRACT OWNERS EQUITY
For the Nine Months Ended September 30, 1997 (Unaudited) (Continued)
(In thousands of dollars)
COVA
LORD ABBETT
SERIES TRUST
SERIES FUND, INC. GACC
____________________________________________________________________
________________ ________
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth & Income Small Cap Large Cap Growth &
----------------- ----------- ---------- ----------
Equity Mid-Cap Developing
-------- -------- -----------
Balanced Equity Equity Income Value Research Growth Income
---------- ----------------- ----------- -------- -------- ---------- ----------- ----------
FROM OPERATIONS:
Net Investment Income -- ($1) -- -- -- -- -- (3,793)
Net Realized Gain/(Loss)
on Investments -- -- -- -- -- -- -- 572
Net Unrealized Gain/(Loss)
on Investments 5 17 8 10 4 -- 12 79,407
Net Increase in Contract
Owners' Equity Resulting
from Operations 5 16 8 10 4 -- 12 76,186
From Account Unit
Transactions:
Contributions by Cova 1 1 1 1 100 100 100 --
Redemptions by Cova (1) (1) (1) (1) -- -- -- --
Proceeds from Units of
the Account Sold 78 291 52 91 -- -- -- 32,390
Payments for Units of the
Account Redeemed (1) (1) -- (2) -- -- -- (15,417)
Account Transfers 136 291 109 164 -- -- -- 60,912
Net Increase/(Decrease) in
Contract Owners' Equity
From Account Unit
Transactions 212 580 160 252 100 100 100 77,885
Net Increase/(Decrease) in
Contract Owners' Equity 218 597 169 263 104 100 112 154,071
Contract Owners' Equity:
Beginning of Period 0 0 0 0 0 0 0 294,358
End of Period $ 218 $ 597 $ 169 $ 263 $ 104 $ 100 $ 112 $ 448,429
<S> <C> <C> <C>
Global Money
-------- --------
Equity Market Total
-------- -------- ---------
FROM OPERATIONS:
Net Investment Income (9) (16) 1,564
Net Realized Gain/(Loss)
on Investments (36) 32 15,023
Net Unrealized Gain/(Loss)
on Investments (1) 30 122,632
Net Increase in Contract
Owners' Equity Resulting
from Operations (46) 46 139,219
From Account Unit
Transactions:
Contributions by Cova -- -- 304
Redemptions by Cova -- -- (16,578)
Proceeds from Units of
the Account Sold 5 1,531 120,093
Payments for Units of the
Account Redeemed (114) (51) (41,696)
Account Transfers (2,228) (258) 125,030
Net Increase/(Decrease) in
Contract Owners' Equity
From Account Unit
Transactions (2,337) 1,222 187,153
Net Increase/(Decrease) in
Contract Owners' Equity (2,383) 1,268 326,372
Contract Owners' Equity:
Beginning of Period 2,383 358 622,992
End of Period $ 0 $ 1,626 $949,364
</TABLE>
See accompanying notes to unaudited financial statements
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF CHANGES IN CONTRACT OWNERS EQUITY
For the Year Ended December 31, 1996
(In thousands of dollars)
COVA LORD ABBETT SERIES TRUST
SERIES FUND, INC. GACC
<TABLE>
<CAPTION>
QUALITY HIGH GROWTH & MONEY STOCK BOND QUALITY SMALL LARGE
Income Yield Income Market Index Debenture Bond Cap Stock
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 1,465 $ 2,924 $ 1,322 $ 1,284 $ 3,048 $ 200 $ 143 $ 509 $ 310
Net Realized Gain/(Loss)
on Investments 44 (169) 164 -- 3,892 13 44 47 85
Net Unrealized Gain/(Loss)
on Investments (534) 952 2,566 -- 9,295 271 30 533 1,531
Net Increase in Contract
Owners' Equity Resulting
from Operations 975 3,707 4,052 1,284 16,235 484 217 1,089 1,926
From Account Unit
Transactions:
Contributions by Cova -- -- -- -- -- 500 5,000 5,000 15,000
Redemptions by Cova -- -- -- -- -- (508) (3,000) (5,135) (3,846)
Proceeds from Units of
the Account Sold 1,603 1,989 2,777 43,943 3,731 3,795 995 6,112 800
Payments for Units of the
Account Redeemed (4,251) (2,299) (866) (3,044) (4,891) (164) (19) (71) --
Account Transfers 12,246 2,962 6,836 45,603 (11,728) 3,344 2,083 6,998 1,871
Net Increase/(Decrease) in
Contract Owners' Equity
From Account Unit
Transactions 9,598 2,652 8,747 (4,704) (12,888) 6,967 5,059 12,904 13,825
Net Increase/(Decrease) in
Contract Owners' Equity 10,573 6,359 12,799 (3,420) 3,347 7,451 5,276 13,993 15,751
Contract Owners' Equity:
Beginning of Period 41,253 36,512 19,617 34,128 85,762 -- -- -- --
End of Period $ 51,826 $42,871 $ 32,416 $30,708 $ 89,109 $ 7,451 $ 5,276 $ 13,993 $15,751
SELECT INTL GROWTH & GLOBAL Money
Cap Stock Equity Equity INCOME EQUITY Market TOTAL
--------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 228 $ 25 $ 15,839 $ 262 ($1) $ 27,558
Net Realized Gain/(Loss)
on Investments (17) 72 532 43 -- 4,750
Net Unrealized Gain/(Loss)
on Investments 1,210 796 24,020 (151) 6 40,525
Net Increase in Contract
Owners' Equity Resulting
from Operations 1,421 893 40,391 154 5 72,833
From Account Unit
Transactions:
Contributions by Cova 5,000 5,000 -- -- -- 35,500
Redemptions by Cova (4,922) (5,128) -- -- -- (22,539)
Proceeds from Units of
the Account Sold 10,306 5,710 31,434 231 88 113,514
Payments for Units of the
Account Redeemed (115) (60) (13,615) (328) -- (29,723)
Account Transfers 10,469 7,918 45,518 (174) 265 43,005
Net Increase/(Decrease) in
Contract Owners' Equity
From Account Unit
Transactions 20,738 13,440 63,337 (271) 353 139,757
Net Increase/(Decrease) in
Contract Owners' Equity 22,159 14,333 103,728 (117) 358 212,590
Contract Owners' Equity:
Beginning of Period -- -- 190,630 2,500 -- 410,402
End of Period $ 22,159 $14,333 $ 294,358 $ 2,383 $ 358 $622,992
</TABLE>
See accompanying notes to unaudited financial statements
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO UNAUDITED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1997
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"). 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 ("Trust"), the Lord Abbett
Series Fund, Inc. ("Fund") or General American Capital Company (GACC). The
Trust consists of eighteen portfolios of which five portfolios are managed by
Van Kampen American Capital Investment Advisory Corp., five are managed by
J.P. Morgan Investment Management, Inc., four are managed by Mississippi
Valley Advisors, Inc. and four portfolios are managed by Lord, Abbett & Co.
The Trust portfolios available for investment are the Quality Income, High
Yield, Growth and Income, Money Market, Stock Index, Select Equity, Large Cap
Stock, Small Cap Stock, International Equity, Quality Bond, Bond Debenture,
Balanced, Small Cap Equity, Equity Income, Growth & Income Equity, Mid-Cap
Value, Large Cap Research and Developing Growth Portfolios. The Fund has one
portfolio available for investment: the Growth and Income Portfolio. GACC
has the Money Market Portfolio available for investment. 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.
In order to satisfy diversification requirements and provide for optimum
policyholder returns, Cova has made periodic contributions to the Trust and
Fund to provide for the initial purchases of investments. In return, Cova has
been credited with accumulation units of the Separate Account. As additional
funds are received through policyholder deposits, Cova 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. Cova contributed approximately $35.5 million and $0.3
million in 1996 and 1997, respectively, to the separate account of which,
after subsequent redemptions, net of realized and unrealized gains and losses
on investments, approximately $1.3 million remains as of September 30, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES:
A. INVESTMENT VALUATION
Investments in shares of the Trust, Fund and GACC are carried in the statement
of assets and liabilities at the underlying net asset value of the Trust, Fund
and GACC. The net asset value of the Trust, Fund and GACC has been determined
on the market value basis and is valued daily by the Trust, Fund and GACC
investment managers. Realized gains and losses are calculated by the average
cost method.
B. REINVESTMENT OF DIVIDENDS
With the exception of GACC, 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.
GACC follows the Federal income tax practice known as consent dividending,
whereby substantially all of its net investment income and net realized
capital gains are deemed to be passed through to the Separate Account. As a
result, GACC does not distribute any dividends or capital gains. During
December of each year, accumulated investment income and capital gains of the
underlying GACC fund are allocated to the Separate Account by increasing the
cost basis and recognizing a capital gain in the Separate Account.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO UNAUDITED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1997
C. FEDERAL INCOME TAXES
Operations of the Separate Account form a part of Cova, 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
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 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. GENERAL:
The accompanying unaudited financial statements include all adjustments,
consisting of normal recurring accruals, that management considers necessary
for fair presentation of the Separate Accounts financial position and results
of operations as of and for the interim periods presented. Certain footnote
disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, although the Separate Account believes the disclosures in
these financial statements are adequate to present fairly the information
contained herein. The results of operations for the nine months ended
September 30, 1997, are not necessarily indicative of the results to be
expected for the full year.
COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Statements
December 31, 1996
(With Independent Auditors' Report Thereon)
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
(In thousands of dollars)
ASSETS
INVESTMENTS:
<TABLE>
<CAPTION>
<S> <C>
COVA SERIES TRUST:
Quality Income Portfolio - 4,773,562 shares at a net asset value of $10.69 per share (cost $50,095) $ 51,030
High Yield Portfolio - 3,864,501 shares at a net asset value of $10.63 per share (cost $40,574) 41,065
Growth and Income Portfolio - 2,212,069 shares at a net asset value of $13.99 per share (cost $26,737) 30,939
Money Market Portfolio - 30,708,197 shares at a net asset value of $1.00 per share (cost $30,708) 30,708
Stock Index Portfolio - 5,310,381 shares at a net asset value of $16.13 per share (cost $65,367) 85,638
Bond Debenture Portfolio - 659,052 shares at a net asset value of $10.97 per share (cost $6,959) 7,230
Quality Bond Portfolio - 510,720 shares at a net asset value of $10.08 per share (cost $5,119) 5,149
Small Cap Stock Portfolio - 1,229,042 shares at a net asset value of $10.92 per share (cost 12,890) 13,424
Large Cap Stock Portfolio - 1,383,680 shares at a net asset value of $11.11 per share (cost $13,844) 15,375
Select Equity Portfolio - 2,034,176 shares at a net asset value of $10.74 per share (cost $20,641) 21,851
International Equity Portfolio - 1,301,665 shares at a net asset value of $10.96 per share (cost $13,470) 14,265
LORD ABBETT SERIES FUND, INC:
Growth and Income Portfolio - 17,288,936 shares at a net asset value of $17.03 per share (cost $247,869) 294,358
Global Equity Portfolio - 220,660 shares at a net asset value of $10.80 per share (cost $2,382) 2,383
GENERAL AMERICAN CAPITAL COMPANY:
Money Market Portfolio - 20,751 shares at a net asset value of $17.24 per share (cost $352) 358
DIVIDENDS RECEIVABLE:
COVA SERIES TRUST
Quality Income Portfolio 796
High Yield Portfolio 1,806
Growth and Income Portfolio 1,477
Stock Index Portfolio 3,471
Bond Debenture Portfolio 221
Quality Bond Portfolio 127
Small Cap Portfolio 569
Large Cap Portfolio 376
Select Equity Portfolio 308
International Equity Portfolio 68
--------
TOTAL DIVIDENDS RECEIVABLE 9,219
TOTAL ASSETS $622,992
========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND CONTRACT OWNERS' EQUITY
CONTRACT OWNERS' EQUITY:
Trust Quality Income - 3,334,960 accumulation units at $15.540273 per unit $ 51,826
Trust High Yield - 2,001,184 accumulation units at $21.422784 per unit 42,871
Trust Growth and Income - 1,905,896 accumulation units at $17.008151 per unit 32,416
Trust Money Market - 2,584,926 accumulation units at $11.879722 per unit 30,708
Trust Stock Index - 4,680,855 accumulation units at $19.036956 per unit 89,109
Trust Bond Debenture Portfolio - 659,663 accumulation units at $11.294930 per unit 7,451
Trust Quality Bond Portfolio - 508,830 accumulation units at $10.368764 per unit 5,276
Trust Small Cap Stock Portfolio - 1,237,405 accumulation units at $11.308419 per unit 13,993
Trust Large Cap Stock Portfolio - 1,389,606 accumulation units at $11.334979 per unit 15,751
Trust Select Equity Portfolio - 2,044,523 accumulation units at $10.838053 per unit 22,159
Trust International Equity Portfolio - 1,306,892 accumulation units at $10.967004 per unit 14,333
Fund Growth and Income - 11,732,301 accumulation units at $25.089525 per unit 294,358
Fund Global Equity - 154,609 accumulation units at $15.414356 per unit 2,383
GACC Money Market Portfolio - 34,964 accumulation units at $10.233546 per unit 358
TOTAL CONTRACT OWNERS' EQUITY $622,992
--------
TOTAL LIABILITIES AND CONTRACT OWNERS' EQUITY $622,992
</TABLE>
See accompanying notes to financial statements.
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(In thousands of dollars)
COVA
LORD ABBETT
SERIES TRUST
SERIES FUND, INC. GACC
<TABLE>
<CAPTION>
QUALITY HIGH GROWTH & MONEY STOCK BOND QUALITY SMALL
INCOME YIELD INCOME MARKET INDEX DEBENTURE BOND CAP STOCK STOCK
--------- ------- --------- ------- ------- ---------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends and Capital Gains
Distributions $ 2,167 $3,473 $ 1,684 $ 1,749 $ 4,267 $ 236 $ 195 $ 583
Total Income 2,167 3,473 1,684 1,749 4,267 236 195 583
EXPENSES:
Mortality and Expense
Risk Fee 627 490 323 415 1,088 32 46 66
Administrative Fee 75 59 39 50 131 4 6 8
Total Expenses 702 549 362 465 1,219 36 52 74
Net Investment Income 1,465 2,924 1,322 1,284 3,048 200 143 509
NET REALIZED GAIN/(LOSS)
ON INVESTMENTS 44 (169) 164 -- 3,892 13 44 47
NET CHANGE IN UNREALIZED
GAIN/(LOSS) ON INVESTMENTS (534) 952 2,566 -- 9,295 271 30 533
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS (490) 783 2,730 -- 13,187 284 74 580
NET INCREASE IN CONTRACT
OWNERS' EQUITY RESULTING
FROM OPERATIONS $ 975 $3,707 $ 4,052 $ 1,284 $16,235 $ 484 $ 217 $ 1,089
LARGE SELECT INTL GROWTH & GLOBAL Money
CAP STOCK STOCK EQUITY EQUITY INCOME EQUITY Market Total
---------------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends and Capital Gains
Distributions $ 445 $ 330 $ 103 $ 19,230 $ 298 -- $34,760
Total Income 445 330 103 19,230 298 -- 34,760
EXPENSES:
Mortality and Expense
Risk Fee 120 91 69 3,028 32 1 6,428
Administrative Fee 15 11 9 363 4 -- 774
Total Expenses 135 102 78 3,391 36 1 7,202
Net Investment Income 310 228 25 15,839 262 (1) 27,558
NET REALIZED GAIN/(LOSS)
ON INVESTMENTS 85 (17) 72 532 43 -- 4,750
NET CHANGE IN UNREALIZED
GAIN/(LOSS) ON INVESTMENTS 1,531 1,210 796 24,020 (151) 6 40,525
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS 1,616 1,193 868 24,552 (108) 6 45,275
NET INCREASE IN CONTRACT
OWNERS' EQUITY RESULTING
FROM OPERATIONS $ 1,926 $ 1,421 $ 893 $ 40,391 $ 154 $ 5 $72,833
</TABLE>
See accompanying notes to financial statements.
COVA VARIABLE ANNUITY ACCOUNT ONE
STATEMENT OF CHANGES IN CONTRACT OWNERS' EQUITY
For the Year Ended December 31, 1996
(In thousands of dollars)
COVA
LORD ABBETT
SERIES TRUST
SERIES FUND, INC. GACC
_________
<TABLE>
<CAPTION>
QUALITY HIGH GROWTH & MONEY STOCK BOND QUALITY SMALL LARGE
INCOME YIELD INCOME MARKET INDEX DEBENTURE BOND CAP STOCK
--------- -------- ---------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 1,465 $ 2,924 $ 1,322 $ 1,284 $ 3,048 $ 200 $ 143 $ 509 $ 310
Net Realized Gain/(Loss)
on Investments 44 (169) 164 -- 3,892 13 44 47 85
Net Unrealized Gain/(Loss)
on Investments (534) 952 2,566 -- 9,295 271 30 533 1,531
Net Increase in Contract
Owners' Equity Resulting
from Operations 975 3,707 4,052 1,284 16,235 484 217 1,089 1,926
From Account Unit
Transactions:
Contributions by Cova -- -- -- -- -- 500 5,000 5,000 15,000
Redemptions by Cova -- -- -- -- -- (508) (3,000) (5,135) (3,846)
Proceeds from Units of
the Account Sold 1,603 1,989 2,777 43,943 3,731 3,795 995 6,112 800
Payments for Units of the
Account Redeemed (4,251) (2,299) (866) (3,044) (4,891) (164) (19) (71) --
Account Transfers 12,246 2,962 6,836 (45,603) (11,728) 3,344 2,083 6,998 1,871
Net Increase/(Decrease) in
Contract Owners' Equity
From Account Unit 9,598 2,652 8,747 (4,704) (12,888) 6,967 5,059 12,904 13,825
Transactions
Net Increase/(Decrease) in
Contract Owners' Equity 10,573 6,359 12,799 (3,420) 3,347 7,451 5,276 13,993 15,751
Contract Owners' Equity:
Beginning of Period 41,253 36,512 19,617 34,128 85,762 -- -- -- --
End of Period $ 51,826 $42,871 $ 32,416 $ 30,708 $ 89,109 $ 7,451 $ 5,276 $13,993 $ 15,751
SELECT INTL GROWTH & GLOBAL Money
CAP STOCK EQUITY EQUITY INCOME EQUITY MARKET TOTAL
----------- -------- ---------- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 228 $ 25 $ 15,839 $ 262 ($1) $ 27,558
Net Realized Gain/(Loss)
on Investments (17) 72 532 43 -- 4,750
Net Unrealized Gain/(Loss)
on Investments 1,210 796 24,020 (151) 6 40,525
Net Increase in Contract
Owners' Equity Resulting
from Operations 1,421 893 40,391 154 5 72,833
From Account Unit
Transactions:
Contributions by Cova 5,000 5,000 -- -- -- 35,500
Redemptions by Cova (4,922) (5,128) -- -- -- (22,539)
Proceeds from Units of
the Account Sold 10,306 5,710 31,434 231 88 113,514
Payments for Units of the
Account Redeemed (115) (60) (13,615) (328) -- (29,723)
Account Transfers 10,469 7,918 45,518 (174) 265 43,005
Net Increase/(Decrease) in
Contract Owners' Equity
From Account Unit 20,738 13,440 63,337 (271) 353 139,757
Transactions
Net Increase/(Decrease) in
Contract Owners' Equity 22,159 14,333 103,728 (117) 358 212,590
Contract Owners' Equity:
Beginning of Period -- -- 190,630 2,500 -- 410,402
End of Period $ 22,159 $14,333 $ 294,358 $ 2,383 $ 358 $622,992
</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
(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 $ 12,502 $ 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 _ _ _ _ _ _ _ _ _ _ _ _ (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.
<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>
COVA SERIES TRUST - QUALITY INCOME PORTFOLIO
(MANAGED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.)
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94
-------------- -------------- --------------
<S> <C> <C> <C>
ACCUMULATION UNIT VALUE,
BEGINNING OF PERIOD $ 15.33 $ 13.17 $ 13.97
NET INVESTMENT INCOME .45 .72 .60
NET REALIZED AND UNREALIZED
GAIN/(LOSS) FROM SECURITY
TRANSACTIONS (.24) 1.44 (1.40)
TOTAL FROM INVESTMENT OPERATIONS OPERATIONS1.38(.80)1.22.73.140 O .21 2.16 (.80)
- -------------------------------------------------------------------
ACCUMULATION UNIT VALUE,
END OF PERIOD $ 15.54 $ 15.33 $ 13.17
============== ============== ==============
TOTAL RETURN* 1.36% 16.41% (5.70)%
CONTRACT OWNERS EQUITY,
END OF PERIOD (IN THOUSANDS) $ 51,826 $ 41,253 $ 33,933
RATIO OF EXPENSES TO AVERAGE
CONTRACT OWNERS' EQUITY 1.40% 1.40% 1.40%
RATIO OF NET INVESTMENT INCOME
TO AVERAGE CONTRACT
OWNERS' EQUITY 2.94% 4.99% 4.48%
NUMBER OF UNITS OUTSTANDING
AT END OF PERIOD 3,334,960 2,690,633 2,576,412
FOR THE YEAR FOR THE YEAR
ENDED ENDED
12/31/93 12/31/92
-------------- --------------
<S> <C> <C>
ACCUMULATION UNIT VALUE,
BEGINNING OF PERIOD $ 12.75 $ 12.02
NET INVESTMENT INCOME 1.00 .64
NET REALIZED AND UNREALIZED
GAIN/(LOSS) FROM SECURITY
TRANSACTIONS .22 .09
TOTAL FROM INVESTMENT OPERATIONS OPERATIONS1.38(.80)1.22.73.140 O 1.22 .73
- -------------------------------------------------------------------
ACCUMULATION UNIT VALUE,
END OF PERIOD $ 13.97 $ 12.75
============== ==============
TOTAL RETURN* 9.50% 6.10%
CONTRACT OWNERS EQUITY,
END OF PERIOD (IN THOUSANDS) $ 51,111 $ 24,124
RATIO OF EXPENSES TO AVERAGE
CONTRACT OWNERS' EQUITY 1.40% 1.40%
RATIO OF NET INVESTMENT INCOME
TO AVERAGE CONTRACT
OWNERS' EQUITY 8.30% 5.45%
NUMBER OF UNITS OUTSTANDING
AT END OF PERIOD 3,659,656 1,891,499
<FN>
* INVESTMENT RETURNS DO NOT REFLECT ANY CONTRACT BASED CHARGES (WITHDRAWAL CHARGES, CONTRACT MAINTENANCE FEES OR
ACCOUNT TRANSFER CHARGES),
BUT DO REFLECT MORTALITY AND EXPENSE CHARGES, ADMINISTRATION EXPENSE CHARGES AS WELL AS ALL EXPENSES OF THE
UNDERLYING PORTFOLIOS
(INVESTMENT ADVISORY FEES AND PORTFOLIO OPERATING EXPENSES).
</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>
COVA SERIES TRUST - HIGH YIELD PORTFOLIO
(MANAGED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.)
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 19.52 $ 16.98 $ 18.02 $ 14.99 $ 12.75
-------------- -------------- -------------- -------------- --------------
Net Investment Income 1.55 1.44 1.38 1.80 2.26
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions .35 1.10 (2.42) 1.23 (.02)
Total from Investment Operations 1.90 2.54 (1.04) 3.03 2.24
Accumulation Unit Value,
End of Period $ 21.42 $ 19.52 $ 16.98 $ 18.02 $ 14.99
============== ============== ============== ============== ==============
Total Return* 9.73% 14.99% (5.79)% 20.21% 17.53%
Contract Owners Equity,
End of Period (in thousands) $ 42,871 $ 36,512 $ 19,653 $ 18,846 $ 5,416
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 7.52% 7.98% 7.92% 13.05% 16.04%
Number of Units Outstanding
at End of Period 2,001,184 1,870,232 1,157,642 1,045,815 361,296
<FN>
* Investment returns do not reflect any contract based charges (withdrawal charges, contract maintenance fees or
account transfer charges),
but do reflect mortality and expense charges, administration expense charges as well as all expenses of the
underlying portfolios
(investment advisory fees and portfolio operating expenses).
</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>
COVA SERIES TRUST - GROWTH & INCOME PORTFOLIO
(MANAGED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.)
FOR THE PERIOD FROM
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 5/1/92 (COMMENCEMENT
ENDED ENDED ENDED ENDED OF OPERATIONS)
12/31/96 12/31/95 12/31/94 12/31/93 THROUGH 12/31/92
--------------
<S> <C> <C> <C> <C> <C>
ACCUMULATION UNIT VALUE,
BEGINNING OF PERIOD $ 14.61 $ 11.20 $ 11.92 $ 10.47 $ 10.00
-------------- -------------- -------------- -------------- ----------------------
NET INVESTMENT INCOME .68 1.02 .19 .54 .19
NET REALIZED AND UNREALIZED
GAIN/(LOSS) FROM SECURITY
TRANSACTIONS 1.72 2.39 (.91) .91 .28
TOTAL FROM INVESTMENT OPERATIONS 2.40 3.41 (.72) 1.45 .47
ACCUMULATION UNIT VALUE,
END OF PERIOD $ 17.01 $ 14.61 $ 11.20 $ 11.92 $ 10.47
============== ============== ============== ============== ======================
TOTAL RETURN** 16.42% 30.49% (6.07)% 13.84% 7.09%*
CONTRACT OWNERS EQUITY,
END OF PERIOD (IN THOUSANDS) $ 32,416 $ 19,617 $ 10,941 $ 6,528 $ 2,627
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 5.16% 9.92% 2.05% 7.54% 3.82%*
NUMBER OF UNITS OUTSTANDING
AT END OF PERIOD 1,905,896 1,342,833 977,209 574,643 250,919
<FN>
* ANNUALIZED
** INVESTMENT RETURNS DO NOT REFLECT ANY CONTRACT BASED CHARGES (WITHDRAWAL CHARGES, CONTRACT MAINTENANCE FEES OR
ACCOUNT TRANSFER CHARGES),
BUT DO REFLECT MORTALITY AND EXPENSE CHARGES, ADMINISTRATION EXPENSE CHARGES AS WELL AS ALL EXPENSES OF THE
UNDERLYING PORTFOLIOS
(INVESTMENT ADVISORY FEES AND PORTFOLIO OPERATING EXPENSES).
</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>
COVA SERIES TRUST - MONEY MARKET PORTFOLIO
(MANAGED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.)
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 11.43 $ 10.90 $ 10.61 $ 10.46 $ 10.21
-------------- -------------- -------------- -------------- --------------
Net Investment Income .45 .50 .30 .19 .25
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions -- .03 (.01) (.04) --
Total from Investment Operations .45 .53 .29 .15 .25
Accumulation Unit Value,
End of Period $ 11.88 $ 11.43 $ 10.90 $ 10.61 $ 10.46
============== ============== ============== ============== ==============
Total Return* 3.98% 4.85% 2.70% 1.45% 2.44%
Contract Owners Equity,
End of Period (in thousands) $ 30,708 $ 34,128 $ 75,878 $ 6,552 $ 4,031
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 3.90% 4.48% 2.90% 1.78% 2.46%
Number of Units Outstanding
at End of Period 2,584,926 2,987,132 6,963,421 617,575 385,448
<FN>
* Investment returns do not reflect any contract based charges (withdrawal charges, contract maintenance fees or
account transfer charges),
but do reflect mortality and expense charges, administration expense charges as well as all expenses of the
underlying portfolios
(investment advisory fees and portfolio operating expenses).
</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>
COVA SERIES TRUST - STOCK INDEX PORTFOLIO
(MANAGED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.)
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 15.77 $ 11.68 $ 11.87 $ 11.05 $ 10.55
-------------- -------------- -------------- -------------- --------------
Net Investment Income .67 .51 .37 .22 .52
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions 2.60 3.58 (.56) .60 (.02)
Total from Investment Operations 3.27 4.09 (.19) .82 .50
Accumulation Unit Value,
End of Period $ 19.04 $ 15.77 $ 11.68 $ 11.87 $ 11.05
============== ============== ============== ============== ==============
Total Return* 20.69% 35.06% (1.58)% 7.35% 4.75%
Contract Owners Equity,
End of Period (in thousands) $ 89,109 $ 85,762 $ 36,807 $ 91,269 $ 34,979
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 3.53% 4.85% 2.10% 2.99% 10.02%
Number of Units Outstanding
at End of Period 4,680,855 5,436,980 3,151,443 7,691,151 3,164,251
<FN>
* Investment returns do not reflect any contract based charges (withdrawal charges, contract maintenance fees or
account transfer charges),
but do reflect mortality and expense charges, administration expense charges as well as all expenses of the
underlying portfolios
(investment advisory fees and portfolio operating expenses).
</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>
COVA SERIES TRUST - BOND DEBENTURE PORTFOLIO (MANAGED BY LORD, ABBETT & CO.)
For the Period From 5/01/96
Through 12/31/96
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 10.10
----------------------------
Net Investment Income .32
Net Realized and Unrealized
Gain from Security
Transactions .87
Total from Investment Operations 1.19
Accumulation Unit Value,
End of Period $ 11.29
============================
Total Return** 18.17%*
Contract Owners Equity,
End of Period (in thousands) $ 7,451
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 7.76%*
Number of Units Outstanding
at End of Period 659,663
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance fees or account transfer charges),
but do reflect mortality and expense charges, administration expense
charges as well as all expenses of the underlying portfolios
(investment advisory fees and portfolio operating expenses).
</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>
COVA SERIES TRUST - QUALITY BOND PORTFOLIO (MANAGED BY J.P. MORGAN INVESTMENT
MANAGEMENT, INC.)
For the Period From 5/01/96
Through 12/31/96
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 9.90
----------------------------
Net Investment Income .28
Net Realized and Unrealized
Gain from Security
Transactions .19
Total from Investment Operations .47
Accumulation Unit Value,
End of Period $ 10.37
============================
Total Return** 7.18%*
Contract Owners Equity,
End of Period (in thousands) $ 5,276
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 3.75%*
Number of Units Outstanding
at End of Period 508,830
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance fees or account transfer charges),
but do reflect mortality and expense charges, administration expense
charges as well as all expenses of the underlying portfolios
(investment advisory fees and portfolio operating expenses).
</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>
COVA SERIES TRUST - SMALL CAP STOCK PORTFOLIO (MANAGED BY J.P. MORGAN
INVESTMENT MANAGEMENT, INC.)
For the Period From 5/01/96
Through 12/31/96
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 10.51
----------------------------
Net Investment Income .39
Net Realized and Unrealized
Gain from Security
Transactions .41
Total from Investment Operations .80
Accumulation Unit Value,
End of Period $ 11.31
============================
Total Return** 11.49%*
Contract Owners Equity,
End of Period (in thousands) $ 13,993
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 9.65%*
Number of Units Outstanding
at End of Period 1,237,405
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance fees or account transfer charges),
but do reflect mortality and expense charges, administration expense
charges as well as all expenses of the underlying portfolios
(investment advisory fees and portfolio operating expenses)..
</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>
COVA SERIES TRUST - LARGE CAP STOCK PORFOLIO (MANAGED BY J.P. MORGAN
INVESTMENT MANAGEMENT, INC.)
For the Period From 5/01/96
Through 12/31/96
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 10.00
----------------------------
Net Investment Income .22
Net Realized and Unrealized
Gain from Security
Transactions 1.11
Total from Investment Operations 1.33
Accumulation Unit Value,
End of Period $ 11.33
============================
Total Return** 20.47%*
Contract Owners Equity,
End of Period (in thousands) $ 15,751
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 3.02%*
Number of Units Outstanding
at End of Period 1,389,606
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance fees or account transfer charges),
but do reflect mortality and expense charges, administration expense
charges as well as all expenses of the underlying portfolios
(investment advisory fees and portfolio operating expenses).
</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>
COVA SERIES TRUST - SELECT EQUITY PORTFOLIO (MANAGED BY J.P. MORGAN INVESTMENT
MANAGEMENT, INC.)
FOR THE PERIOD FROM 5/01/96
THROUGH 12/31/96
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 10.08
----------------------------
Net Investment Income .10
Net Realized and Unrealized
Gain from Security
Transactions .66
Total from Investment Operations .76
Accumulation Unit Value,
End of Period $ 10.84
Total Return** 11.34%*
Contract Owners Equity,
End of Period (in thousands) $ 22,159
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 3.12%*
Number of Units Outstanding
at End of Period 2,044,523
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance fees or account transfer charges),
but do reflect mortality and expense charges, administration expense
charges as well as all expenses of the underlying portfolios
(investment advisory fees and portfolio operating expenses).
</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>
COVA SERIES TRUST - INTERNATIONAL EQUITY PORTFOLIO (MANAGED BY J.P. MORGAN
INVESTMENT MANAGEMENT, INC.)
For the Period From 5/01/96
Through 12/31/96
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 10.21
----------------------------
Net Investment Income .02
Net Realized and Unrealized
Gain from Security
Transactions .74
Total from Investment Operations .76
Accumulation Unit Value,
End of Period $ 10.97
============================
Total Return** 11.16%*
Contract Owners Equity,
End of Period (in thousands) $ 14,333
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 0.46%*
Number of Units Outstanding
at End of Period 1,306,892
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance fees or account transfer charges),
but do reflect mortality and expense charges, administration expense
charges as well as all expenses of the underlying portfolios
(investment advisory fees and portfolio operating expenses).
</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
<S> <C> <C> <C> <C> <C>
For the Year For theYear For the Year For the Year For the Year
Ended Ended Ended Ended Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
Accumulation Unit Value,
Beginning of Period $ 21.31 $ 16.64 $ 16.42 $ 14.50 $ 12.73
-------------- ------------- -------------- -------------- --------------
Net Investment Income 1.32 1.37 .76 .88 1.06
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions 2.46 3.30 (.54) 1.04 .71
Total from Investment Operations 3.78 4.67 .22 1.92 1.77
-------------- ------------- -------------- -------------- --------------
Accumulation Unit Value,
- ---------------------------------
End of Period $ 25.09 $ 21.31 $ 16.64 $ 16.42 $ 14.50
- --------------------------------- ============== ============= ============== ============== ==============
Total Return* 17.76% 28.03% 1.32% 13.24% 13.98%
- --------------------------------- -------------- ------------- -------------- -------------- --------------
Contract Owners Equity,
- ---------------------------------
End of Period (in thousands) $ 294,358 $ 190,630 $ 114,416 $ 82,033 $ 37,146
- --------------------------------- -------------- ------------- -------------- -------------- --------------
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 6.59% 8.57% 5.40% 8.12% 10.59%
- --------------------------------- -------------- ------------- -------------- -------------- --------------
Number of Units Outstanding
- ---------------------------------
at End of Period 11,732,301 8,947,108 6,875,139 4,994,582 2,560,999
- --------------------------------- -------------- ------------- -------------- -------------- --------------
<FN>
* Investment returns do not reflect any contract based charges (withdrawal charges, contract maintenance fees
or account transfer charges), but do reflect mortality and expense charges, administration expense charges as well as
all expenses of the underlying portfolio (investment advisory fees and portfolio operating expenses)
</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 For the Year For the Year For the Year For the Year
-------------- -------------- -------------- -------------- --------------
Ended Ended Ended Ended Ended
-------------- -------------- -------------- -------------- --------------
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
- ---------------------------------
Beginning of Period $ 14.52 $ 13.33 $ 13.29 $ 10.64 $ 10.97
- --------------------------------- -------------- -------------- -------------- -------------- --------------
Net Investment Income 1.70 .91 1.45 .24 .18
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions (.81) .28 (1.41) 2.41 (.51)
Total from Investment Operations .89 1.19 .04 2.65 (.33)
-------------- -------------- -------------- -------------- --------------
Accumulation Unit Value,
- ---------------------------------
End of Period $ 15.41 $ 14.52 $ 13.33 $ 13.29 $ 10.64
- --------------------------------- ============== ============== ============== ============== ==============
Total Return* 6.18% 8.91% .27% 24.91% (2.98)%
- --------------------------------- -------------- -------------- -------------- -------------- --------------
Contract Owners Equity,
- ---------------------------------
End of Period (in thousands) $ 2,383 $ 2,500 $ 3,108 $ 3,635 $ 3,249
- --------------------------------- -------------- -------------- -------------- -------------- --------------
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 10.33% 5.36% 9.78% 1.88% 1.38%
- --------------------------------- -------------- -------------- -------------- -------------- --------------
Number of Units Outstanding
- ---------------------------------
at End of Period 154,609 172,206 233,186 273,399 305,314
- --------------------------------- -------------- -------------- -------------- -------------- --------------
<FN>
* Investment returns do not reflect any contract based charges (withdrawal charges, contract maintenance fees
or account transfer charges), but do reflect mortality and expense charges, administration expense charges as well
as all expenses of the underlying portfolios (investment advisory fees and portfolio operating expenses).
</TABLE>
See accompanying notes to financial statements.
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>
GENERAL AMERICAN CAPITAL COMPANY - MONEY MARKET PORTFOLIO
For the Period From 6/03/96
-----------------------------
Through 12/31/96
-----------------------------
<S> <C>
Accumulation Unit Value,
- ---------------------------------
Beginning of Period $ 10.00
- --------------------------------- -----------------------------
Net Investment Income (.08)
Net Realized and Unrealized
Gain from Security
Transactions .31
Total from Investment Operations .23
Accumulation Unit Value,
End of Period $ 10.23
=============================
Total Return** 4.05%*
Contract Owners Equity,
End of Period (in thousands) $ 358
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity (1.40)%*
Number of Units Outstanding
at End of Period 34,964
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance fees or account transfer charges), but do reflect mortality and expense charges, administration
expense charges as well as all expenses of the underlying portfolios (investment advisory fees and portfolio operating expenses).
</TABLE>
See accompanying notes to financial statements.
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1996
and for the year ended December 31, 1995
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"). 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 ("Trust"), the Lord Abbett
Series Fund, Inc. ("Fund") or General American Capital Company (GACC). The
Trust consists of eleven portfolios of which five portfolios are managed by
Van Kampen American Capital Investment Advisory Corp., five are managed by
J.P. Morgan Investment Management, Inc. and one portfolio is managed by Lord,
Abbett & Co. The Trust portfolios available for investment are 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 has two portfolios available for
investment: the Growth and Income, and Global Equity Portfolios. GACC has
the Money Market Portfolio available for investment. 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. 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
invests primarily in higher grade debt securities. 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 has made periodic contributions to the Trust and
Fund to provide for the initial purchases of investments. In return, Cova has
been credited with accumulation units of the Separate Account. As additional
funds are received through policyholder deposits, Cova 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. In 1996, Cova contributed approximately $35.5 million to
the Separate Account of which, after subsequent redemptions, net of realized
and unrealized gains and losses on investments, approximately $15.0 million
remains as of December 31, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES:
A. INVESTMENT VALUATION
Investments in shares of the Trust, Fund and GACC are carried in the statement
of assets and liabilities at the underlying net asset value of the Trust, Fund
and GACC. The net asset value of the Trust, Fund and GACC has been determined
on the market value basis and is valued daily by the Trust, Fund and GACC
investment managers. Realized gains and losses are calculated by the average
cost method.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1996
and for the year ended December 31, 1995
B. REINVESTMENT OF DIVIDENDS
With the exception of GACC, 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.
GACC follows the Federal income tax practice known as consent dividending,
whereby substantially all of its net investment income and net realized
capital gains are deemed to be passed through to the Separate Account. As a
result, GACC does not distribute any dividends or capital gains. During
December of each year, accumulated investment income and capital gains of the
underlying GACC fund are allocated to the Separate Account by increasing the
cost basis and recognizing a capital gain in the Separate Account.
C. FEDERAL INCOME TAXES
Operations of the Separate Account form a part of Cova, 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
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 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.
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. 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.
For the year ended December 31, 1996, withdrawal and account transfer charges
of approximately $280 thousand and contract maintenance charges of
approximately $240 thousand were deducted from the contract values in the
Separate Account.
Mortality and expense risks assumed by Cova 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 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.
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1996
and for the year ended December 31, 1995
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 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 is unable to obtain a
refund. Cova, however, reserves the right to deduct premium taxes when
incurred.
4. GAIN/(LOSS) ON INVESTMENTS:
The table below summarizes realized and unrealized gains and losses on
investments:
<TABLE>
<CAPTION>
REALIZED GAIN/(LOSS) ON INVESTMENTS (IN THOUSANDS OF DOLLARS):
For the Year For the Year
-------------- --------------
Ended Ended
-------------- --------------
12/31/96 12/31/95
-------------- --------------
<S> <C> <C>
Trust Quality Income Portfolio:
- ------------------------------------------
Aggregate Proceeds From Sales $ 13,850 $ 21,223
- ------------------------------------------ -------------- --------------
Aggregate Cost 13,806 21,207
- ------------------------------------------ -------------- --------------
Net Realized Gain on Investments $ 44 $ 16
- ------------------------------------------ -------------- ==============
Trust High Yield Portfolio:
- ------------------------------------------
Aggregate Proceeds From Sales $ 22,909 $ 1,957
- ------------------------------------------ -------------- --------------
Aggregate Cost 23,078 2,074
- ------------------------------------------ -------------- --------------
Net Realized Loss on Investments $ (169) $ (117)
- ------------------------------------------ ============== ==============
Trust Growth and Income Portfolio:
- ------------------------------------------
Aggregate Proceeds From Sales $ 1,508 $ 1,127
- ------------------------------------------ -------------- --------------
Aggregate Cost 1,344 1,082
- ------------------------------------------ -------------- --------------
Net Realized Gain on Investments $ 164 $ 46
- ------------------------------------------ ============== ==============
Trust Money Market Portfolio:
- ------------------------------------------
Aggregate Proceeds From Sales $ 36,177 $ 71,027
- ------------------------------------------ -------------- --------------
Aggregate Cost 36,177 71,027
- ------------------------------------------ -------------- --------------
Net Realized Gain/(Loss) on Investments -- --
- ------------------------------------------ ============== ==============
Trust Stock Index Portfolio:
- ------------------------------------------
Aggregate Proceeds From Sales $ 21,062 $ 19,097
- ------------------------------------------ -------------- --------------
Aggregate Cost 17,170 16,508
- ------------------------------------------ -------------- --------------
Net Realized Gain on Investments $ 3,892 $ 2,589
- ------------------------------------------ ============== ==============
Trust Bond Debenture Portfolio
- ------------------------------------------
Aggregate Proceeds From Sales $ 635
- ------------------------------------------ --------------
Aggregate Cost 622 N/A
- ------------------------------------------ -------------- --------------
Net Realized Gain on Investments $ 13
- ------------------------------------------ ==============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1996
and for the year ended December 31, 1995
4. GAIN/(LOSS) ON INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
REALIZED GAIN/(LOSS) ON INVESTMENTS (IN THOUSANDS OF DOLLARS):
For the Year For the Year
-------------- -------------
Ended Ended
-------------- -------------
12/31/96 12/31/95
-------------- -------------
<S> <C> <C>
Trust Quality Bond Portfolio
- ------------------------------------
Aggregate Proceeds From Sales $ 2,991
- ------------------------------------ --------------
Aggregate Cost 2,947 N/A
- ------------------------------------ --------------
Net Realized Gain on Investments $ 44
==============
Trust Small Cap Stock Portfolio $ 1,882
Aggregate Proceeds From Sales 1,835 N/A
--------------
Aggregate Cost $ 47
==============
Net Realized Gain on Investments
Trust Large Cap Stock Portfolio
Aggregate Proceeds From Sale $ 1,423
Aggregate Cost 1,338 N/A
--------------
Net Realized Gain on Investments $ 85
==============
Trust Select Equity Portfolio
Aggregate Proceeds From Sales $ 1,680
Aggregate Cost 1,697 N/A
--------------
Net Realized Loss on Investments $ (17)
==============
Trust International Equity Portfolio
Aggregate Proceeds From Sales $ 4,568
Aggregate Cost 4,496 N/A
--------------
Net Realized Gain on Investments $ 72
==============
Fund Growth and Income Portfolio:
Aggregate Proceeds From Sales $ 2,696 $ 4,043
Aggregate Cost 2,164 3,660
Net Realized Gain on Investments $ 532 $ 383
============== =============
Fund Global Equity Portfolio:
Aggregate Proceeds From Sales $ 372 $ 946
Aggregate Cost 329 883
Net Realized Gain on Investments $ 43 $ 63
============== =============
</TABLE>
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1996
and for the year ended December 31, 1995
4. GAIN/(LOSS) ON INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
REALIZED GAIN/(LOSS) ON INVESTMENTS (IN THOUSANDS OF DOLLARS):
For the Year For the Year
-------------- --------------
Ended Ended
-------------- --------------
12/31/96 12/31/95
-------------- --------------
<S> <C> <C>
GACC Money Market Portfolio
- ----------------------------------------------------------------
Aggregate Proceeds From Sales $ 6
- ---------------------------------------------------------------- --------------
Aggregate Cost 6 N/A
- ---------------------------------------------------------------- --------------
Net Realized Gainon Investments --
==============
UNREALIZED GAIN/(LOSS) ON INVESTMENTS (IN THOUSANDS OF DOLLARS):
- ----------------------------------------------------------------
Trust Quality Income Portfolio:
End of Period $ 935 $ 1,469
Beginning of Period 1,469 (2,131)
Net Change in Unrealized Gain/(Loss) on Investments $ (534) $ 3,600
==============
Trust High Yield Portfolio:
End of Period $ 491 $ (461)
Beginning of Period (461) (2,247)
Net Change in Unrealized Gain on Investments $ 952 $ 1,786
==============
Trust Growth and Income Portfolio:
End of Period $ 4,202 $ 1,636
Beginning of Period 1,636 (612)
Net Change in Unrealized Gain on Investments $ 2,566 $ 2,248
============== ==============
Trust Money Market Portfolio:
End of Period -- --
Beginning of Period -- (110)
Net Change in Unrealized Gain on Investments -- $ 110
============== ==============
Trust Stock Index Portfolio:
End of Period $ 20,271 $ 10,976
Beginning of Period 10,976 (862)
Net Change in Unrealized Gain on Investments $ 9,295 $ 11,838
============== ==============
Trust Bond Debenture Portfolio:
End of Period $ 271
Beginning of Period -- N/A
Net Change in Unrealized Gain on Investments $ 271
==============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1996
and for the year ended December 31, 1995
4. GAIN/(LOSS) ON INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
UNREALIZED GAIN/(LOSS) ON INVESTMENT (IN THOUSANDS OF DOLLARS):
For the Year For the Year
Ended Ended
12/31/96 12/31/95
<S> <C> <C>
Trust Quality Bond Portfolio:
End of Period $ 30
Beginning of Period -- N/A
Net Change in Unrealized Gain on Investments $ 30
==============
Trust Small Cap Portfolio:
End of Period $ 533
Beginning of Period -- N/A
Net Change in Unrealized Gain on Investments $ 533
==============
Trust Large Cap Portfolio:
End of Period $ 1,531
Beginning of Period -- N/A
Net Change in Unrealized Gain on Investments $ 1,531
==============
Trust Select Equity Portfolio:
End of Period $ 1,210
Beginning of Period -- N/A
Net Change in Unrealized Gain on Investments $ 1,210
==============
Trust International Equity Portfolio:
End of Period $ 796
Beginning of Period -- N/A
Net Change in Unrealized Gain on Investments $ 796
==============
Fund Growth and Income Portfolio:
End of Period $ 46,489 $ 22,469
Beginning of Period 22,469 285
Net Change in Unrealized Gain on Investments $ 24,020 $ 22,184
============== =============
Fund Global Equity Portfolio:
End of Period $ 1 $ 152
Beginning of Period 152 147
Net Change in Unrealized Gain/(Loss) on Investments ($151) $ 5
============== =============
GACC Money Market Portfolio
End of Period $ 6 N/A
Beginning of Period --
Net Change in Unrealized Gain on Investments $ 6
==============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1996
and for the year ended December 31, 1995
5. ACCOUNT UNIT TRANSACTIONS:
The change in the number of accumulation units resulting from account unit
transactions is as follows:
COVA
LORD ABBETT
SERIES TRUST
SERIES FUND, INC. GACC
_____________________________________________________________________________
_______________ ______________ _______
<TABLE>
__
<CAPTION>
QUALITY HIGH GROWTH & MONEY STOCK BOND QUALITY SMALL
INCOME YIELD INCOME MARKET INDEX DEBENTURE BOND CAP STOCK
---------- ---------- ---------- ----------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1994 2,576,412 1,157,642 977,209 6,963,421 3,151,443 N/A N/A N/A
Redemptions by Cova -- -- -- -- -- -- -- --
Units Sold 181,275 195,356 162,687 2,450,650 163,890 -- -- --
Units Redeemed (362,175) (114,778) (55,487) (405,521) (300,704) -- -- --
Units Transferred 295,120 632,013 258,424 (6,021,418) 2,422,351 -- -- --
Balance at
December 31, 1995 2,690,633 1,870,232 1,342,833 2,987,132 5,436,980 N/A N/A N/A
Contributions by Cova Life -- -- -- -- -- 50,000 500,000 500,000
Redemptions by Cova -- -- -- -- -- (50,000) (294,154) (500,000)
Units Sold 106,671 98,690 180,267 3,772,567 216,989 360,638 98,567 580,659
Units Redeemed (280,149) (113,437) (59,321) (259,281) (283,639) (10,552) (2,065) (6,730)
Units Transferred 817,805 145,699 442,117 (3,915,492) (689,475) 309,577 206,482 663,476
Balance at
December 31, 1996 3,334,960 2,001,184 1,905,896 2,584,926 4,680,855 659,663 508,830 1,237,405
LARGE SELECT INTL GROWTH & GLOBAL MONEY
CAP STOCK EQUITY EQUITY INCOME EQUITY MARKET TOTAL
---------- ---------- ---------- ----------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1994 N/A N/A N/A 6,875,139 233,186 N/A 21,934,453
Redemptions by Cova -- -- -- -- (10,000) (10,000)
Units Sold -- -- -- 1,505,688 50,282 4,709,829
Units Redeemed -- -- -- (940,462) (91,135) (2,270,262)
Units Transferred -- -- -- 1,506,743 (10,127) (916,893)
Balance at
December 31, 1995 N/A N/A N/A 8,947,108 172,206 N/A 23,447,125
Contributions by Cova Life 1,500,000 500,000 500,000 -- -- -- 3,550,000
Redemptions by Cova (367,586) (500,000) (500,000) -- -- -- (2,211,740)
Units Sold 76,199 1,024,461 550,620 1,374,562 15,160 8,787 8,464,837
Units Redeemed (522) (11,729) (5,835) (587,874) (21,479) (96) (1,642,709)
Units Transferred 181,515 1,031,791 762,107 1,998,505 (11,278) 26,273 1,969,102
Balance at
December 31, 1996 1,389,606 2,044,523 1,306,892 11,732,301 154,609 34,964 33,576,614
</TABLE>
COVA FINANCIAL SERVICES
LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Financial Statements (Unaudited)
September 30, 1997 and 1996
<TABLE>
<CAPTION>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Balance Sheets (Unaudited)
(In thousands of dollars)
AS OF AS OF
ASSETS 9/30/97 12/31/96
------ ------- --------
<S> <C> <C>
Investments:
Debt securities available for sale at market
(cost of $1,213,430 in 1997 and $952,817 in 1996) $1,226,191 $949,611
Mortgage loans (net) 336,964 244,103
Policy loans 23,667 22,336
Short-term investments at cost which approximates
market 6,718 4,404
----- ---------
Total investments 1,593,540 1,220,454
--------- ---------
Cash and cash equivalents - interest bearing 31,050 38,322
Cash - non-interest bearing 8,169 5,501
Receivable from sale of securities 1,814 1,064
Accrued investment income 20,116 15,011
Deferred policy acquisition costs 74,063 49,833
Present value of future profits 41,480 46,389
Goodwill 20,000 20,849
Federal and state income taxes recoverable 551 1,461
Deferred tax benefits (net) 8,834 13,537
Receivable from OakRe 1,673,365 1,973,813
Reinsurance receivables 12,594 3,504
Other assets 1,667 2,205
Separate account assets 1,005,776 641,871
--------- ---------
Total Assets $4,493,019 $4,033,814
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(continued)
<TABLE>
<CAPTION>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Balance Sheets (Unaudited)(Continued)
(In thousands of dollars)
AS OF AS OF
LIABILITIES AND SHAREHOLDER'S EQUITY 9/30/97 12/31/96
- ------------------------------------ ------- --------
<S> <C> <C>
Policyholder deposits $3,202,107 $3,135,325
Future policy benefits 35,689 32,342
Payable on purchase of securities 362 15,978
Accounts payable and other liabilities 19,544 19,764
Future purchase price payable to OakRe 13,359 16,051
Guaranty fund assessments 12,329 12,409
Federal income taxes payables 770 0
Separate account liabilities 1,004,455 626,901
--------- -------
Total Liabilities 4,288,615 3,858,770
--------- ---------
Shareholder's equity:
Common stock, $2 par value. (Authorized
5,000,000 shares; issued and outstanding
2,899,446 shares in 1997 and 1996) 5,799 5,799
Additional paid-in capital 186,491 166,491
Retained earnings 8,928 3,538
Net unrealized appreciation/(depreciation)
on securities, net of tax 3,186 (784)
----- -----
Total Shareholder's Equity 204,404 175,044
------- -------
Total Liabilities and Shareholder's Equity $4,493,019 $4,033,814
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<TABLE>
<CAPTION>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Income (Unaudited)
Nine months ended September 30, 1997 and 1996
(In thousands of dollars)
For the Periods ended:
9/30/97 9/30/96
------- -------
<S> <C> <C>
Revenues:
Premiums $5,880 $2,675
Net investment income 81,717 49,861
Net realized gain on sale of 1,161 366
investments
Separate Account charges 8,641 5,092
Other income 781 1,016
--- -----
Total revenues 98,180 59,010
------ ------
Benefits and expenses:
Interest on policyholder deposits 59,265 34,807
Current and future policy benefits 7,434 3,930
Operating and other expenses 13,641 9,400
Amortization of purchased intangible
assets 3,576 5,479
Amortization of deferred acquisition costs 5,302 902
----- ---
Total Benefits and Expenses 89,218 54,518
------ ------
Income before income taxes 8,962 4,492
Income Taxes:
Current 1,007 2,748
Deferred 2,565 (805)
----- -----
Total income tax expense 3,572 1,943
----- -----
Net Income $5,390 $2,549
====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<TABLE>
<CAPTION>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Shareholder's Equity (Unaudited)
(In thousands of dollars)
For the Periods ended:
9/30/97 12/31/96
------- -------
<S> <C> <C>
Common stock ($2 par value common stock;
Authorized 5,000,000 shares; issued and
outstanding 2,899,446 in 1997 and 1996)
Balance at beg. of period $5,799 $5,799
------ ------
Balance at end of period 5,799 5,799
----- -----
Additional paid-in capital:
Balance at beginning of period 166,491 129,586
Capital contribution 20,000 36,905
------ ------
Balance at end of period 186,491 166,491
------- -------
Retained earnings/(deficit):
Balance at beginning of period 3,538 (63)
Net income 5,390 3,601
----- -----
Balance at end of period 8,928 $3,538
===== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(Continued)
<TABLE>
<CAPTION>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Shareholder's Equity (Unaudited)(Continued)
(In thousands of dollars)
For the Periods ended:
9/30/97 12/31/96
------- -------
<S> <C> <C>
Net unrealized appreciation/(depreciation):
securities:
Balance at beginning of period ($784) $2,764
Change in unrealized appreciation/(depreciation)
of debt and equity securities 16,315 (13,915)
Change in deferred Federal income taxes (2,138) 1,910
Change in deferred acquisition costs
attributable to unrealized losses/(gains) (5,717) 1,561
Change in present value of future profits
attributable to unrealized losses/(gains) (4,490) 6,896
------- -----
Balance at end of period 3,186 (784)
----- -----
Total Shareholder's Equity $204,404 $175,044
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<TABLE>
<CAPTION>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1997 and 1996
(In thousands of dollars)
For the Periods ended:
9/30/97 9/30/96
------- -------
<S> <C> <C>
Cash flows from operating activities:
Interest and dividend receipts $77,861 $47,879
Premiums received 5,880 2,675
Insurance and annuity benefit payments (3,857) (2,731)
Operating disbursements (16,210) (11,702)
Taxes on income refunded (paid) 644 (2,387)
Commissions and acquisition costs paid (41,873) (29,650)
Other 6,457 2,839
----- -----
Net cash provided by operating
activities 28,902 6,923
------ -----
Cash flows from investing activities:
Cash used for the purchase of investment
securities (660,287) (505,570)
Proceeds from investment securities sold
and matured 288,286 123,076
Other 14,902 (17,446)
------ --------
Net cash(used in) investing
activities (357,099) (399,940)
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(Continued)
<TABLE>
<CAPTION>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Cash Flows (Unaudited)(Continued)
Nine months ended September 30, 1997 and 1996
(In thousands of dollars)
For the Periods ended:
9/30/97 9/30/96
------- -------
<S> <C> <C>
Cash flows from financing activities:
Policyholder deposits 486,269 352,123
Transfers from OakRe 222,507 495,962
Transfer to Separate Accounts (234,010) (91,050)
Return of policyholder deposits (171,173)
Capital contributions received 20,000 0
------ -
Net cash provided by financing
activities 323,593 355,252
------- -------
Decrease in cash and cash (4,604) (37,765)
equivalents
Cash and cash equivalents at beginning 43,823 62,256
of period ------ ------
Cash and cash equivalents at end of $39,219 $24,491
period ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(Continued)
<TABLE>
<CAPTION>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Cash Flows (Unaudited)(Continued)
Nine months ended September 30, 1997 and 1996
(In thousands of dollars)
For the Periods ended:
9/30/97 9/30/96
------- -------
<S> <C> <C>
Reconciliation of net income to net cash provided by operating activities:
Net income $5,390 2,549
Adjustments to reconcile net income
to net cash provided by operating activities:
Increase in future policy
benefits (net of reinsurance) 3,347 996
Increase/(decrease) in payables and accrued
liabilities (2,733) 2,801
Increase in accrued investment
income (5,105) (5,050)
Amortization of intangible assets 8,878 6,381
Amortization and accretion of securities
premiums and discounts 3,068 1,964
Net realized gain on sale of
investments (1,161) (366)
Interest accumulated on policyholder
deposits 59,265 34,807
Investment expenses paid 1,412 844
Increase/(decrease) in current and deferred
Federal income taxes 4,216 (444)
Separate account net income (2,624) (802)
Deferral of acquisition costs (41,873) (29,650)
Other (3,178) (7,107)
------- -------
Net cash provided by operating activities $28,902 $6,923
======= ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Unaudited Interim Consolidated Financial Statements
September 30, 1997 and 1996
(1)
The interim consolidated financial statements for Cova Financial Services Life
Insurance Company (CFSLIC) and subsidiaries (the Company) have been prepared on
the basis of generally accepted accounting principles and, in the opinion of
management, reflect all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of results for such periods. The results of
operations and cash flows for any interim period are not necessarily indicative
of results for the full year. These financial statements should be read in
conjunction with the financial statements as of December 31, 1996 and December
31, 1995, and for each of the years in the three-year period ended December 31,
1996 and related notes thereto, presented elsewhere herein.
Interim financial data presented herein are unaudited.
(2) 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
September 30, 1997 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
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 $7,685 $83 ($20) $7,685 $7,622
Collateralized mortgage 393,992 3,257 (582) 393,992 391,317
obligations
Corporate, state,
municipalities, and
political subdivisions 824,514 11,951 (1,928) 824,514 814,491
------- ------ ------- ------- -------
Total debt securities 1,226,191 15,291 (2,530) 1,226,191 1,213,430
--------- ------ ------- --------- ---------
Mortgage loans 336,964 194 0 337,158 336,964
Policy loans 23,667 0 0 23,667 23,667
Short term investments 6,718 0 0 6,718 6,718
----- - - ----- -----
Total investments $1,593,540 $15,485 ($2,530) $1,593,734 $1,580,779
========== ======= ======== ========== ==========
Company's beneficial interest in $1,321 $0 $0 $1,321 $0
separate accounts
</TABLE>
As of September 30, 1997, the Company had no impaired investments. The Company
did establish a valuation allowance for potential losses on mortgage loans of
193,495 as of September 30, 1997.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Unaudited Interim Consolidated Financial Statements
The amortized cost and estimated market value of debt securities at September
30, 1997, 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>
SEPTEMBER 31, 1997
ESTIMATED
AMORTIZED MARKET
COST VALUE
---- -----
(in thousands of dollars)
<S> <C> <C>
Due after one year through five years $342,736 $346,368
Due after five years through ten years 386,152 391,352
Due after ten years 93,225 94,479
Mortgage-backed securities 391,317 393,992
------- -------
Total $1,213,430 $1,226,191
========== ==========
</TABLE>
At September 30, 1997, approximately 94.59% of the Company's debt securities are
investment grade or are non-rated but considered to be of investment grade. Of
the 5.41% non-investment grade debt securities, 2.89% are rated as BB+, 1.94%
are rated as BB and 0.58% are rated as B.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Unaudited Interim Consolidated Financial Statements
The components of net investment income, realized capital gains/(losses) and
unrealized gains/(losses) were as follows:
<TABLE>
<CAPTION>
For the Periods ended:
9/30/97 9/30/96
------- -------
<S> <C> <C>
Income on debt securities $61,658 $38,499
Income on short-term investments 1,843 1,577
Income on policy loans 1,373 1,124
Interest on mortgage loans 18,010 8,816
Income on separate account investments 2,624 801
Miscellaneous interest (2,274) (152)
Mortgage Loan loss Reserve (105) -
----- -
Total investment income 83,129 50,665
Investment expenses (1,412) (804)
------- -----
Net investment income $81,717 $49,861
======= =======
Realized capital gains/(losses) were as follows:
Debt securities 1,134 425
Mortgage loans 27 (59)
-- ----
Net realized gains on investments $1,161 $366
====== ====
</TABLE>
<TABLE>
<CAPTION>
For the Periods ended:
9/30/97 9/30/96
------- -------
(In thousands of dollars)
<S> <C> <C>
Unrealized gains/(losses) were as follows:
Debt securities $13,124 ($13,037)
Short-term investments 0 (34)
Effects on deferred acquisition costs
amortization (5,717) 0
Effects on present value of future profits (2,504) 8,154
------- -----
Unrealized gains/(losses) before income tax 4,903 (4,917)
Unrealized income tax benefit/(expense) (1,717) 1,721
------- -----
Net unrealized gains (losses) on $3,186 ($3,196)
investments ====== ========
</TABLE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Unaudited Interim Consolidated Financial Statements
(3) SECURITIES GREATER THAN 10% OF SHAREHOLDER'S EQUITY
As of September 30, 1997, the Company had no individual securities which
exceeded 10% of shareholder's equity.
(4) STATUTORY SURPLUS
Statutory capital and surplus as of September 30, 1997 was $86,892,356 Statutory
net losses for CFSLIC for the periods ended September 30, 1997 and 1996 were
$7,468,793 and $12,611,810, respectively.
COVA FINANCIAL SERVICES
LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(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 sheets of Cova Financial
Services Life Insurance Company and subsidiaries (a wholly owned subsidiary of
Cova Corporation) as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders equity and cash flows for the
year ended December 31, 1996 and the period from June 1, 1995 to December 31,
1995 (Successor periods), and from January 1, 1995 to May 31, 1995, and for
the year ended December 31, 1994 (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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cova
Financial Services Life Insurance Company and subsidiaries as of December 31,
1996 and 1995, and the results of their operations and their cash flows for
the Successor periods, in conformity with generally accepted accounting
principles. Also, in our opinion, the aforementioned Predecessor consolidated
financial statements present fairly, in all material respects, the results of
their operations and their cash flows for the Predecessor periods presented,
in conformity with generally accepted accounting principles.
St. Louis, Missouri
March 7, 1997
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
ASSETS 1996
1995
<S> <C> <C>
Investments:
Debt securities available for sale at market
(cost of $952,817 in 1996 and $583,868 in 1995) $ 949,611 $ 594,556
Mortgage loans (net) 244,103 77,472
Policy loans 22,336 19,125
Short-term investments at cost which approximates
market 4,404 7,859
---------- ----------
Total investments 1,220,454 699,012
---------- ----------
Cash and cash equivalents - interest bearing 38,322 59,312
Cash - non-interest bearing 5,501 2,944
Receivable from sale of securities 1,064 --
Accrued investment income 15,011 9,116
Deferred policy acquisition costs 49,833 14,468
Present value of future profits 46,389 38,155
Goodwill 20,849 23,358
Federal and state income taxes recoverable 1,461 397
Deferred tax benefits (net) 13,537 13,556
Receivable from OakRe 1,973,813 2,391,982
Reinsurance receivables 3,504 8,891
Other assets 2,205 2,425
Separate account assets 641,871 410,449
---------- ----------
Total Assets $4,033,814 $3,674,065
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
(continued)
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Balance Sheets (Continued)
December 31, 1996 and 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS EQUITY 1996 1995
<S> <C> <C>
Policyholder deposits $3,135,325 $3,033,763
Future policy benefits 32,342 28,071
Payable on purchase of securities 15,978 5,327
Accounts payable and other liabilities 19,764 20,143
Future purchase price payable to OakRe 16,051 23,967
Guaranty fund assessments 12,409 14,259
Separate account liabilities 626,901 410,449
----------- -----------
Total Liabilities 3,858,770 3,535,979
----------- -----------
Shareholders equity:
Common stock, $2 par value. (Authorized
5,000,000 shares; issued and outstanding
2,899,446 shares in 1996 and 1995) 5,799 5,799
Additional paid-in capital 166,491 129,586
Retained earnings 3,538 (63)
Net unrealized appreciation/(depreciation)
on securities, net of tax (784) 2,764
----------- -----------
Total Shareholders Equity 175,044 138,086
----------- -----------
Total Liabilities and Shareholders Equity $4,033,814 $3,674,065
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Income
Years ended December 31, 1996, 1995, and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Revenues:
Premiums $ 3,154 $ 921 $ 1,097 $ 2,787
Net investment income 70,629 24,188 92,486 277,616
Net realized gain (loss) on sale of investments 472 1,324 (12,414) (101,361)
Separate Account charges 7,205 2,957 1,818 3,992
Other income 1,320 725 1,037 2,713
------- -------- ---------- -----------
Total revenues 82,780 30,115 84,024 185,747
------- -------- ---------- -----------
Benefits and expenses:
Interest on policyholder deposits 50,100 17,706 97,867 249,905
Current and future policy benefits 5,130 1,785 1,830 5,259
Operating and other expenses 14,573 7,126 12,777 24,479
Amortization of purchased intangible assets 2,332 3,030 -- --
Amortization of deferred acquisition costs 4,389 100 11,157 125,357
------- -------- ---------- -----------
Total Benefits and Expenses 76,524 29,747 123,631 405,000
------- -------- ---------- -----------
Income/(loss) before income taxes 6,256 368 (39,607) (219,253)
------- -------- ---------- -----------
Income Taxes:
Current 1,740 1,011 (16,404) (46,882)
Deferred 915 (580) 6,340 (30,118)
------- -------- ---------- -----------
Total income tax expense/(benefit) 2,655 431 (10,064) (77,000)
------- -------- ---------- -----------
Net Income/(Loss) $ 3,601 $ (63) $ (29,543) $(142,253))
======= ======== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Shareholders Equity
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Common stock ($2 par value common stock;
Authorized 5,000,000 shares; issued and
outstanding 2,899,446 in 1996, 1995 and 1994
Balance at beg. of period) $ 5,799 $ 5,799 $ 5,799 $ 5,632
Par value of additional shares issued -- -- -- 167
--------- --------- ----------
Balance at end of period 5,799 5,799 5,799 5,799
--------- --------- --------- ----------
Additional paid-in capital:
Balance at beginning of period 129,586 137,749 136,534 120,763
Adjustment to reflect purchase acquisition
indicated in note 2 -- (52,163) -- --
Capital contribution 36,905 44,000 1,215 15,771
--------- --------- --------- ----------
Balance at end of period 166,491 129,586 137,749 136,534
--------- --------- --------- ----------
Retained earnings/(deficit):
Balance at beginning of period (63) (36,441) 1,506 143,759
Adjustment to reflect purchase acquisition -- 36,441 -- --
indicated in note 2
Net income/(loss) 3,601 (63) (29,543) (142,253)
Dividends to shareholder -- -- (8,404) --
--------- --------- --------- ----------
Balance at end of period $ 3,538 $ (63) $(36,441) $ 1,506
--------- --------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Shareholders Equity (Continued)
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Net unrealized appreciation/(depreciation)of securities:
Balance at beginning of period 2,764 $(28,837) $ (65,228) $ (321)
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 (13,915) 10,724 178,010 (357,502)
Change in deferred Federal income taxes 1,910 (1,489) (18,458) 53,324
Change in deferred acquisition costs attributable
to unrealized losses/(gains) 1,561 -- (123,161) 205,146
Change in present value of future profits
attributable to unrealized losses/(gains) 6,896 (6,471) -- --
--------- --------- ----------
Balance at end of period (784) 2,764 (28,837) (65,228)
--------- --------- ---------- ----------
Total Shareholders Equity $175,044 $138,086 $ 78,270 $ 78,611
========= ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Interest and dividend receipts $ 68,622 $ 18,744 $ 131,439 $ 309,856
Premiums received 3,154 921 1,097 2,787
Insurance and annuity benefit payments (3,729) (2,799) (1,809) (3,755)
Operating disbursements (17,158) (10,480) (9,689) (26,023)
Taxes on income refunded (paid) (3,016) 60 48,987 17,032
Commissions and acquisition costs paid (36,735) (17,456) (23,872) (26,454)
Other 937 529 1,120 836
---------- ---------- ----------- ------------
Net cash provided by/(used in) operating
activities 12,075 (10,481) 147,273 274,279
---------- ---------- ----------- ------------
Cash flows from investing activities:
Cash used for the purchase of investment
securities (715,274) (875,994) (575,891) (1,935,353)
Proceeds from investment securities sold and
matured 262,083 253,814 2,885,053 3,040,474
Other (14,166) 179 (8,557) (8,185)
---------- ---------- ----------- ------------
Net cash provided by/(used in) investing
activities $(467,357) $(622,003) $2,300,605 $ 1,096,936
---------- ---------- ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Cash Flows (Continued)
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Policyholder deposits $ 446,784 $ 132,752 $ 130,660 $ 274,960
Transfers from/(to) OakRe 574,010 628,481 (3,048,531) --
Transfer to Separate Accounts (119,592) (37,946) (4,835) (33,548)
Return of policyholder deposits (491,025) (436,271) (290,586) (608,868)
Dividends to Shareholder -- -- (8,404) --
Capital contributions received 20,000 44,000 1,215 15,938
---------- ---------- ------------- -----------
Net cash provided by/(used in) financing
activities 430,177 331,016 (3,220,481) (351,518)
---------- ---------- ------------- -----------
Increase/(decrease) in cash and cash
equivalents (25,105) (301,468) (772,603) 1,019,697
Cash and cash equivalents at beginning of
period 62,256 363,724 1,136,327 116,630
CFLIC contributed cash (Note 9) 6,672 -- -- --
Cash and cash equivalents at end of period $ 43,823 $ 62,256 $ 363,724 $1,136,327
========== ========== ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(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
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Reconciliation of net income/(loss)to net cash
provided by operating activities:
Net income/(loss) $ 3,601 $ (63) $(29,543) $(142,253)
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities:
Increase/(decrease) in future policy
benefits (net of reinsurance) 680 (1,013) 11 1,494
Increase/(decrease) in payables and accrued
liabilities 2,900 (392) (10,645) 3,830
Decrease/(increase) in accrued investment
income (4,778) (7,904) 32,010 21,393
Amortization of intangible assets 6,721 3,831 11,309 125,722
Amortization and accretion of securities
premiums and discounts 2,751 307 2,410 3,635
Recapture commissions paid to OakRe (4,483) (4,777) -- --
Net realized losson sale of
investments (472) (1,324) 12,414 101,361
Interest accumulated on policyholder
deposits 50,100 17,706 97,867 249,905
Investment expenses paid 1,151 642 2,373 7,296
Decrease/(Increase)in guaranty assessments -- (104) 5,070 (935)
Increase/(decrease) in current and deferred
Federal income taxes (351) 491 38,923 (59,263)
Separate account net loss (2,008) 1 1 2
Deferral of acquisition costs (34,803) (14,568) (13,354) (30,024)
Other (8,934) (3,314) (1,573) (7,884)
--------- ----------
Net cash provided by operating activities $ 12,075 $(10,481) $147,273 $ 274,279
========= ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) NATURE OF BUSINESS AND ORGANIZATION
NATURE OF THE BUSINESS
Cova Financial Services Life Insurance Company (CFSLIC) and subsidiaries (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 47 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 66%, 59% and 57% of the companies sales have been through two
specific brokerage firms, A.G. Edwards & Sons, Incorporated. and Edward Jones
& Company in 1996, 1995 and 1994, 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 $22.7 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 economic
benefits and risks of 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 was
retained by XFSI subsequent to the sale of the Predecessor and other
affiliates. 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 expired in four 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 thereafter assume the benefits and risks of
those deposits.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
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 periods ending December 31, 1996 and 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.
The Company owns 100% of the outstanding shares of First Cova Life Insurance
Company (a New York domiciled insurance company) (FCLIC) and Cova Financial
Life Insurance Company (a California domiciled insurance company) (CFLIC).
Ownership of Cova Financial Life Insurance Company was obtained on December
31, 1996 as the result of a capital contribution by Cova Corporation. The
Company has presented the consolidated financial position and results of
operations for its subsidiaries from the dates of actual ownership (see note
9).
(2) CHANGE IN ACCOUNTING
Upon closing 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 then sole subsidiary FCLIC 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, however, these allocations were not finalized until 1996. The
table below summarizes the final allocation of purchase price:
<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 47.4
Goodwill 20.5
Deferred tax benefit 24.9
Receivable from OakRe 2,969.0
Other assets 5.9
Separate account assets 332.7
--------------
3,814.8
--------------
Liabilities assumed:
Policyholder deposits 3,299.2
Future policy benefits 27.2
Future purchase price payable 22.7
Deferred Federal income taxes 12.6
Other liabilities 29.0
Separate account liabilities 332.7
--------------
3,723.4
--------------
Adjusted purchase price $ 91.4
==============
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
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 predecessor historical costs. The periods ending on or after
such date are labeled The Company, and are based on the new cost basis of the
Company or fair values at June 1, 1995 and subsequent results of operations.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES
Investments in all debt securities and those equity securities with readily
determinable market values are 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, 1996 and 1995 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").
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.
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
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.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
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 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.
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, but did establish
a valuation allowance for potential losses on mortgage loans of $88 thousand
at December 31, 1996.
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 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.
SEPARATE ACCOUNT ASSETS
The separate account investments are 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 market value.
In order to provide for optimum policyholder returns, and to allow for the
replication of the investment performance of existing cloned mutual funds, the
Company has periodically transferred capital to the separate account to
provide for the initial purchase of investments in new portfolios. As
additional funds have been received through policyholder deposits, the Company
has periodically reduced its capital investment in the separate accounts. As
of December 31, 1996, approximately $15.0 million of capital investments
remained within the separate accounts.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
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, 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 acquisition costs are shown below. The
effects on deferred policy acquisition costs of the consolidation of CFLIC
(see note 9) with the Company are presented separately.
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
(In Thousands) 1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Deferred policy acquisition costs,
beginning of period $14,468 $ 92,398 $ 213,362 $ 146,504
Effects of push down purchase
accounting -- (92,398) -- --
Commissions and expenses deferred 34,803 14,568 13,354 30,025
Amortization (4,389) (100) (11,157) (125,357)
Deferred policy acquisition costs
attributable to unrealized gains/(losses) 1,561 -- (123,161) 162,190
Effects on deferred policy acquisition
costs of CFLIC consolidation 3,390 -- -- --
--------
Deferred policy acquistion costs,
end of period $49,833 $ 14,468 $ 92,398 $ 213,362
======== ========= ========== ==========
</TABLE>
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 at a pre-tax
rate of 18% (12% net after tax).
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
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 in proportion to estimated
future gross profits derived from investment income, realized gains and losses
on sales of securities, unrealized securities gains and losses, 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 present value of future profits will be adjusted to
the amount that would have existed had the actual experience and revised
estimates been known and applied from the inception. 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 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 6.8%, 5.8%, 4.6%, 4.5% and 4.7% for the years ended December 31, 1997
through 2001, respectively. Actual amortization incurred during these years
may be more or less as assumptions are modified to incorporate actual results.
During 1996, the Company adjusted its original purchase accounting to include
a revised estimate of the ultimate renewal (recapture) rate. This adjustment
resulted in a re-allocation of the net purchased intangible asset between
present value of future profits, goodwill and the future payable. This final
allocation and the resulting impact on inception to date amortization was
recorded, in its entirety, in 1996. No restatement of the June 1, 1995
opening Balance Sheet was made.
The components of present value of future profits are below. The effects on
present value of future profits of the consolidation of CFLIC (see note 9)
with the Company are presented separately.
<TABLE>
<CAPTION>
The Company
7 Months
Ended
(In Thousands) 1996
12/31/95
<S> <C> <C>
Present value of future profits - beginning of period 38,155 46,709
Interest added 3,274 1,941
Net amortization (3,747) (4,024)
Present value of future profits attributable to unrealized gains 6,896 (6,471)
Adjustment due to revised push down purchase accounting 698 --
Effects on present value of future profits of CFLIC consolidation 1,113 --
Present value of future profits - end of period $46,389 $38,155
</TABLE>
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%.
(continued)
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
The Company has recorded a future payable that represents the present value
ofthe 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 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 by the year 2000.
The components of this future payable are below. The effects on the future
payable of the consolidation of CFLIC (see note 9) with the Company are
presented separately.
<TABLE>
<CAPTION>
The Company
7 Months
Ended
(In Thousands) 1996 12/31/95
<S> <C> <C>
Future payable - beginning of period $23,967 $27,797
Interest added 943 947
Payments to OakRe (4,483) (4,777)
Adjustment due to revised push down purchase accounting (5,059) --
Effects on future payable of CFLIC consolidation 683 --
--------
Future payable - end of period $16,051 $23,967
======== ========
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
Goodwill
Under the push down method of purchase accounting, the excess of purchase
price over the fair value of tangible and intangible assets and liabilities
acquired is established as an asset and referred to as Goodwill. The Company
has elected to amortize goodwill on the straight line basis over a 20 year
period. The components of goodwill are below. The effects on goodwill of the
consolidation of CFLIC (see note 9) with the Company are presented separately.
<TABLE>
<CAPTION>
<S> <C> <C>
(In Thousands) The Company
--------------------
7 Months Ended
1996 12/31/95
----------------
Goodwill - beginning of period $ 23,358 $ 24,060
Amortization (916) (702)
Adjustment due to revised push down purchase accounting
(3,626) --
Effects on goodwill of CFLIC consolidation 2,033 --
--------------------
Goodwill - end of period $ 20,849 $ 23,358
</TABLE>
Deferred Tax Assets and Liabilities
XFSI and GALIC 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 over ten
to fifteen years.
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. The average weighted interest crediting rate on the Companys
policyholder deposits as of December 31, 1996 was 5.77%.
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 5.50% 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.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
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 as the amounts are not
material to the financial statements.
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.
Subsequent to June 1, 1995, the Company filed its own separate income tax
return, independent from its ultimate parent, GALIC.
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 those temporary differences are expected
to be recovered or settled. 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
- Amortization of present value of future profits
- Recoverability of Goodwill
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.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
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.
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, 1996.
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.
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
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."
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
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, 1996, fair value of the Companys mortgage loans
are equivalent to their 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, 1996 and 1995 the cash surrender value of
policyholder funds on deposit were approximately $29.1 million and $2.2
million less than their stated carrying value, respectively. 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.
REINSURANCE:
The impact of reinsurance on the December 31, 1996 financial statements is not
considered material.
The financing reinsurance agreement entered into with OakRe does not meet the
conditions for reinsurance accounting under Generally Accepted Accounting
Principles (GAAP). 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 1994 and 1995 amounts have been reclassified to conform to the 1996
presentation.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
(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, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996
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 $ 7,175 $ 29 ($50) $ 7,175 $ 7,196
Collateralized mortgage obligations 382,335 985 (2,721) 382,335 384,071
Corporate, state, municipalities, and
political subdivisions 560,101 3,971 (5,427) 560,101 561,557
Total debt securities 949,611 4,985 (8,198) 949,611 952,824
Mortgage loans 244,103 -- -- 244,103 244,103
Policy loans 22,336 -- -- 22,336 22,336
Short term investments 4,404 21 -- 4,404 4,383
Total investments $1,220,454 $5,006 ($8,198) $1,220,454 $1,223,646
Companys beneficial interest in
separate accounts $ 14,970 -- -- $ 14,970 --
</TABLE>
<TABLE>
<CAPTION>
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
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, 1996, the Company had no impaired investments. The Company did
establish a valuation allowance for potential losses on mortgage loans of $88 thousand as
of December 31, 1996.
</TABLE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(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, 1996, 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>
1996
ESTIMATED
AMORTIZED MARKET
COST VALUE
<S> <C> <C>
(in thousands of dollars)
Due after one year through five years $233,232 $234,493
Due after five years through ten years 283,884 281,155
Due after ten years 51,630 51,628
Mortgage-backed securities 384,078 382,335
Total $952,824 $949,611
<FN>
At December 31, 1996, approximately 98.7% of the Company's debt securities are
investment grade or are non-rated but considered to be of investment grade.
Of the 1.3% 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 EITF 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 $3,341,163 were recorded in 1994. No IOs
or IOettes were held by the Company at December 31, 1996 or 1995. The
weighted average of the effective yield that was used to accrue interest
income in 1994 was 11.88%.
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, 1996
had market values totaling $16,612,411. Cash, letters of credit, and
government securities of $17,251,070 was held by the custodian bank as
collateral to secure this agreement. Income on the Companys security lending
program in 1996 was immaterial.
No debt securities were non-income producing during the years ended December
31, 1996 and 1995.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
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>
The components of net investment income, realized capital gains/(losses) and
unrealized gains/(losses) were as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
(in thousands of dollars)
<S> <C> <C> <C> <C>
Income on debt securities $53,632 $19,629 $ 63,581 $ 267,958
Income on equity securities -- -- 302 645
Income on short-term investments 2,156 2,778 28,060 11,705
Income on cash on deposit -- -- -- 316
Income on interest rate swaps -- -- 377 (244)
Income on policy loans 1,454 868 624 1,376
Interest on mortgage loans 13,633 1,444 248 1,162
Income on foreign exchange -- -- 184 (433)
Income of real estate -- -- 1,508 3,278
Income on separate account investments 772 -- (1) 2
Miscellaneous interest 133 109 (24) (853)
-------- --------- -----------------
Total investment income 71,780 24,828 94,859 284,912
---------
Investment expenses (1,151) (640) (2,373) (7,296)
-------- -------- ---------
Net investment income $70,629 $24,188 $ 92,486 $ 277,616
======== ======== ========= =================
Realized capital gains/(losses) were as follows:
Debt securities 469 $ 1,344 $(16,749) $ (79,300)
Mortgage loans 4 -- 1,431 (3,452)
Equity securities -- -- (423) (76)
Real estate -- -- (124) --
Short-term investments (1) (20) (1,933) (282)
Other assets -- -- (76) 147
Interest rate swaps -- -- 5,460 -- (18,398)
--------- -----------------
Net realized gains/(losses) on investments $ 472 $ 1,324 $(12,414) $ (101,361)
======== ======== ========= =================
</TABLE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
(In thousands
of dollars)
<S> <C> <C> <C> <C>
Unrealized gains/(losses) were as follows:
Debt securities ($3,213) $10,688 $(85,410) $(261,947)
Short-term investments 21 36 879 (594)
Effects on deferred acquisition costs amortization 1,561 -- 39,030 162,190
Effects on present value of future profits 425 (6,471) -- --
Unrealized gains/(losses) before income tax (1,206) 4,253 (45,501) (100,351)
Unrealized income tax benefit/(expense) 422 (1,489) 16,664 35,123
Net unrealized gains (losses) on investments ($784) $ 2,764 $(28,837) ($65,228)
======== ========= ==========
</TABLE>
Proceeds from sales of investments in debt securities during 1996 were
$223,430,495. Gross gains of $1,158,518 and gross losses of $687,126 were
realized on those sales. Included in these amounts were $28,969 of gross
gains realized on the sale of non-investment grade securities.
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.
Unrealized appreciation/(depreciation) of debt securities for the Company in
1996 and 1995, and the Predecessor in 1995 and 1994 were $(13,900,000),
$10,688,000, $176,537,000, and $(357,401,000), 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 $7,032,267 at December 31, 1996
were deposited with government authorities as required by law.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
(5) SECURITIES GREATER THAN 10% OF SHAREHOLDERS EQUITY
As of December 31, 1996 the Company held the following individual securities
which exceeded 10% of shareholders equity:
<TABLE>
<CAPTION>
LONG-TERM DEBT CARRYING
SECURITIES VALUE
<S> <C>
Countrywide Mtg. 1993-12 A4 $19,347,536
FNMA Remic Tr 1996-50 A1 19,104,500
</TABLE>
As of December 31, 1995 the Company held the following individual securities
which exceeded 10% of shareholders equity:
<TABLE>
<CAPTION>
LONG-TERM DEBT CARRYING
SECURITIES VALUE
<S> <C>
Countrywide Mtg. 1993-12 A4 $18,726,875
American Airlines 15,080,392
</TABLE>
(6) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
FINANCIAL FUTURES CONTRACTS
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. Gains or losses are realized in daily cash settlements. 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
future 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.
The Company periodically enters into financial futures contracts in order to
hedge its short term investment spread risks encountered during occasional
periods of unusually large recapture activity. Gains and losses from these
anticipatory hedges are applied to the cost basis of the assets acquired with
recaptured funds. In 1996, $381,105 in net losses were recorded as basis
adjustments to hedged debt securities.
In order to limit its exposure to market fluctuations while it holds temporary
seed money investments within the separate account (see note 3), the Company
has adopted a hedging policy that involves holdings of futures contracts. As
of December 31, 1996, the Company held 35 S&P 500 index futures contracts, 5
5-year T-Note futures contracts and 10 10-year T-Note futures contracts with a
total notional face amount of $14,528,750 and a total fair market value of
$14,652,969. Collateral requirements set by the Chicago Board of Trade
averaged $9,800 per contract at December 31, 1996. At December 31, 1996, the
Company recorded as a component of net investment income, $1,639,717 of gross
losses from terminated contracts and $406,141 of gross gains from open
contracts. In 1996, the Company also recorded, as an offsetting component of
net investment income, a net gain of $2,007,720 from market appreciation on
the underlying hedged securities within the separate account.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
(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. In 1996 and 1995, the Company
was allocated a portion of benefit costs including severance pay, accumulated
vacations, and disability benefits. At December 31, 1996 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 with its
wholly-owned subsidiary, FCLIC. 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 tax recoveries.
Income taxes are recorded in the statements of earnings and directly in
certain shareholders equity accounts. Income tax expense (benefit) for the
years ended December 31 was allocated as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95
1994
(In thousands of dollars)
<S> <C> <C> <C> <C>
Statements of income:
Operating income (excluded realized
investment gains and losses) $ 2,493 $ (85) $ (5,038) $ (39,511)
Realized investment gains/(losses) 162 516 (5,026) (37,489)
-------- -------
Income tax expense/(benefit) included
in the statements of income 2,655 431 (10,064) (77,000)
Shareholders equity:
Unrealized gains/(losses) on securities
available for sale and intangible assets (1,910) 1,489 18,458 (53,324)
Total income tax expense/(benefit) $ 745 $1,920 $ 8,394 $(130,324)
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of COVA Corporation)
Notes to Consolidated Financial Statements
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:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
1996 1995 1995 1994
7 MONTHS 5 MONTHS
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computed expected tax expense $2,190 35.0% $129 35.0% $(13,862) 35.0% $(76,739) 35.0%
State income taxes, net 77 1.23 11 3.0 (306) 0.8 (1,552) 0.7
Tax-exempt bond interest -- -- (22) (6.0) (332) 0.8 (1,208) 0.6
Amortization of intangible assets 320 5.12 254 69.0 -- -- 111 (0.1)
Permanent difference due to derivative transfer
-- -- -- -- 4,399 (11.1) -- --
Other 68 1.09 59 16.1 37 (.1) 2,388 (1.1)
Total $2,655 42.44% $431 117.1% $(10,064) 25.4% $(77,000) 35.1%
====== ====== ===== ====== ========= ====== ========= =====
</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, 1996 &
1995 follows:
<TABLE>
<CAPTION>
1996 1995
(In thousands of dollars)
<S> <C> <C>
Deferred tax assets:
PVFP $ 1,639 --
Policy Reserves 19,237 $ 7,601
Liability for commissions on recapture 6,073 8,868
Tax basis of intangible assets purchased 6,230 13,141
DAC Proxy Tax 9,032 4,749
Unrealized losses on investments 422 --
Other deferred tax assets 827 2,860
Total assets $43,460 $37,219
------- -------
Deferred tax liabilities:
PVFP $19,169 $16,774
Unrealized gains on investments -- 1,489
Deferred Acquisition Costs 10,694 5,316
Other deferred tax liabilities 60 84
Total liabilities 29,923 23,663
-------
Net Deferred Tax Asset $13,537 $13,556
======= =======
</TABLE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(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 Conning Asset Management, 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 1996 and the 7 months of 1995 for the Company were
$6,618,303, and $7,139,525, respectively, and the five months of 1995 and the
year 1994 for the Predecessor were 6,364,609, and $8,553,028, respectively.
On December 31, 1996 Cova Corporation transferred its ownership of Cova
Financial Life Insurance Company (CFLIC), an affiliated life insurer domiciled
in the state of California, to the Company. The transfer of ownership was
recorded as additional paid in capital and increased Shareholders Equity on
the Companys December 31, 1996 Balance Sheet by approximately $16.9 million.
This change in direct ownership had no effect on the operations of either the
Company or CFLIC as both entities had existed under common management and
control prior to the December 31, 1996 transfer. Although CFLICs Balance
Sheet is fully consolidated with the Companys December 31, 1996 Balance Sheet,
CFLICs 1996 Income Statement and Cash Flow have not been consolidated with the
Companys 1996 Income Statement or Cash Flow Statement. However, CFLICs
year-end cash balance of $6.7 million is included in the Cash Flow Statement.
(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 recognition of deferred taxes under GAAP reporting, 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 SUBSIDIARIES
(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>
1996 1995
(in thousands of dollars)
<S> <C> <C>
Statutory Capital and Surplus $ 75,354 $ 59,682
Reconciling items:
GAAP investment valuation reserves (88) --
Statutory Asset Valuation Reserves 17,599 13,378
Interest Maintenance Reserve 2,301 1,892
GAAP investment adjustments to fair value (3,191) 10,724
Deferred policy acquisition costs 49,833 14,468
GAAP basis policy reserves (30,202) (11,233)
Deferred federal income taxes (net) 13,537 13,556
Modified coinsurance -- --
Goodwill 20,849 23,358
Present value of future profits 46,389 38,155
Future purchase price payable (16,051) (23,967)
Other (1,286) (1,927)
GAAP Shareholders' Equity $175,044 $138,086
========= =========
</TABLE>
Statutory net losses for CFSLIC for the years ended December 31, 1996, 1995
and 1994 were $(13,575,788), $(74,012,650), and $(92,952,989), 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 during 1997 will be $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, 1996 the Company's Total Adjusted
Capital and Authorized Control Level - RBC were, $92,953,237, and $21,058,220
respectively. This level of adjusted capital qualifies under all tests.
(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 1996, 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.
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
At December 31, 1996, 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 $12.4 million in
future assessments on insolvencies that occurred before December 31, 1996.
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 a receivable from Oakre for approximately $12.3
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
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
________________________________________________________________________
The following financial statements of the Separate Account are included
in Part B hereof:
1. Statement of Assets and Liabilities September 30, 1997
(unaudited).
2. Statement of Operations for the Nine Months Ended September
30, 1997 (unaudited).
3. Statement of Changes in Contract Owners Equity for the Nine
Months Ended September 30, 1997 (unaudited).
4. Statement of Changes in Contract Owners Equity for the Year
Ended December 31, 1996.
5. Notes to Unaudited Financial Statements for the Nine Months
Ended September 30, 1997.
6. Independent Auditors' Report.
7. Statement of Assets and Liabilities as of December 31, 1996.
8. Statement of Operations for the year ended December 31, 1996.
9. Statement of Changes in Contract Owners' Equity for the years
ended December 31, 1996 and 1995.
10. Financial Highlights for the five years in the period ended
December 31, 1996.
11. Notes to Financial Statements for the years ended December 31,
1996 and 1995.
The following consolidated financial statements of the Company are
included in Part B hereof:
1. Consolidated Balance Sheets (Unaudited) as of September 30,
1997 and December 31, 1996.
2. Consolidated Statements of Income (Unaudited) for the Nine
Months Ended September 30, 1997 and 1996.
3. Consolidated Statements of Shareholder's Equity (Unaudited)
for the Periods Ended September 30, 1997 and December 31,
1996.
4. Consolidated Statements of Cash Flows (Unaudited) for the
Nine Months Ended September 30, 1997 and 1996.
5. Notes to Unaudited Interim Consolidated Financial Statements -
September 30, 1997 and 1996.
6. Independent Auditors' Report.
7. Consolidated Balance Sheets of the Company as of December
31, 1996 and 1995.
8. Consolidated Statements of Income for the Company for the
years ended December 31, 1996, 1995 and 1994.
9. Consolidated Statements of Shareholder's Equity for the
years ended December 31, 1996, 1995 and 1994.
10. Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.
11. Notes to Consolidated Financial Statements, December 31,
1996, 1995 and 1994.
b. Exhibits
---------------------------------------------------------------
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account.*
2. Not Applicable.
3.(i) Form of Principal Underwriter's Agreement. +
(ii) Form of Selling Agreement. +
4.(i) Individual Flexible Purchase Payment Deferred Variable Annuity
Contract.***
(ii)Death Benefit Rider***
(iii)Rider - Nursing Home Waiver***
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.(i) Form of Fund Participation Agreement among MFS Variable Insurance
Trust, Cova Financial Services Life Insurance Company and
Massachusetts Financial Services Company+
(ii) Form of Fund Participation Agreement among Cova Financial
Services Life Insurance Company, Cova Life Sales Company,
Alliance Capital Management LP and Alliance Fund Distributors,
Inc.+
(iii) Form of Fund Participation Agreement among Oppenheimer Variable
Account Funds, OppenheimerFunds, Inc. and Cova Financial Services
Life Insurance Company
(iv) Form of Fund Participation Agreement among Putnam Variable Trust,
Putnam Mutual Funds Corp. and Cova Financial Services Life
Insurance Company
(v) Form of Fund Participation Agreement by and among AIM Variable
Insurance Funds, Inc., A I M Distributors, Inc., Cova Financial
Services Life Insurance Company, on behalf of itself and its
Separate Accounts, and Cova Life Sales Company
(vi) Form of Fund Participation Agreement among Investors Fund Series,
Zurich Kemper Investments, Inc., Zurich Kemper Distributors, Inc.
and Cova Financial Services Life Insurance Company
(vii) Form of Participation Agreement by and between Goldman Sachs
Variable Insurance Trust, Goldman, Sachs & Co. and Cova Financial
Services Life Insurance Company
(viii) Form of Participation Agreement among Russell Insurance Funds,
Russell Fund Distributors, Inc. and Cova Financial Services Life
Insurance Company
(ix) Form of Participation Agreement among Liberty Variable Investment
Trust, Liberty Financial Investments, Inc. and Cova Financial
Services Life Insurance Company
9. Opinion and Consent of Counsel.
10. Consent of Independent Accountants.
11. Not Applicable.
12. Agreement Governing Contribution.**
13. Calculation of Performance Information
14. Company Organizational Chart.***
27. Not Applicable
*Incorporated by reference to Registrant's initial filing on Form N-4
(File No. 811-5200) as filed on June 11, 1987.
**Incorporated by reference to Registrant's Amendment No. 5 (File No.
811-5200) as filed April 2, 1990.
***Incorporated by reference to Registrant's Form N-4 (File Nos. 333-34741
and 811-05200) electronically filed on August 29, 1997.
+Incorporated by reference to Registrants Pre-Effective Amendment No. 1
to Form N-4 electronically filed on November 19, 1997.
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 Positions and Offices
Business Address with Depositor
_______________________________ ____________________________________
Richard A. Liddy Chairman of the Board and Director
700 Market Street
St. Louis, MO 63101
Leonard Rubenstein Director
700 Market Street
St. Louis, MO 63101
Lorry J. Stensrud President and Director
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
Connie Doern Vice President
1776 West Lakes Pkwy
Des Moines, IA 50266
Judy M. Drew 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
J. Robert Hopson Vice President,
One Tower Lane, Suite 3000 Chief Actuary and Director
Oakbrook Terrace, IL 60181-4644
E. Thomas Hughes, Jr. Treasurer and Director
700 Market St.
St. Louis, MO 63101
Douglas E. Jacobs Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Lisa O. Kirchner Vice President
1776 West Lakes Pkwy
Des Moines, IA 50266
William C. Mair Vice President,
One Tower Lane, Suite 3000 Controller and Director
Oakbrook Terrace, IL 60181-4644
Matthew P. McCauley Assistant Secretary and Director
700 Market St.
St. Louis, MO 63101
Mark E. Reynolds Executive 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
Peter L. Witkewiz Vice President
1776 West Lakes Pkwy
Des Moines, IA 50266
Kent R. Zimmerman Assistant Treasurer
700 Market Street
St. Louis, MO 63101
Frances S. Cook Secretary
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 was filed in Registrant's Form N-4 (File Nos.
333-34741 and 811-05200) filed August 29, 1997 as Exhibit 14 and is
incorporated herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of December 31, 1997 there were no 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) Cova Life Sales Company is the principal underwriter for the
following investment companies (other than Registrant):
Cova Variable Annuity Account Five
First Cova Variable Annuity Account One
Cova Variable Life Account One
Cova Variable Life Account Five
(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
William C. Mair Director
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. Cova Financial Services Life Insurance Company ("Company") hereby
represents that the fees and charges deducted under the Contracts described
in the Prospectus, in the aggregate, are reasonable in relation to the
services rendered, the expenses 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) for effectiveness of this Registration Statement and has caused this
Registration Statement to be signed on its behalf, in the City of Oakbrook
Terrace, and State of Illinois on this 9th day of January, 1998.
<TABLE>
<CAPTION>
<S> <C>
COVA VARIABLE ANNUITY ACCOUNT ONE
(Registrant)
By: COVA FINANCIAL SERVICES LIFE
INSURANCE COMPANY
By: /s/ LORRY J. STENSRUD
____________________________________
COVA FINANCIAL SERVICES LIFE
INSURANCE COMPANY
Depositor
By: /s/ MARK E. REYNOLDS
____________________________________
</TABLE>
As required by the Securities Act of 1933, this 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 ------
Richard A. Liddy and Director Date
/s/ LORRY J. STENSRUD President and Director 1/9/98
- ---------------------- ------
Lorry J. Stensrud Date
- ---------------------- Director ------
Leonard M. Rubenstein Date
Director
- ---------------------- ------
J. Robert Hopson Date
William C. Mair* Controller and Director 1/9/98
- ---------------------- ------
William C. Mair Date
E. Thomas Hughes, Jr.* Treasurer and Director 1/9/98
- ---------------------- ------
E. Thomas Hughes, Jr. Date
Matthew P. McCauley* Director 1/9/98
- ---------------------- ------
Matthew P. McCauley Date
John W. Barber* Director 1/9/98
- ---------------------- ------
John W. Barber Date
/s/ MARK E. REYNOLDS Director 1/9/98
- ---------------------- ------
Mark E. Reynolds Date
</TABLE>
*By: /s/ LORRY J. STENSRUD
____________________________________
Lorry J. Stensrud, Attorney-in-Fact
INDEX TO EXHIBITS
EXHIBIT NO.
EX-99.B8(iii) Form of Fund Participation Agreement among Oppenheimer Variable
Account Funds, OppenheimerFunds, Inc. and Cova Financial Services
Life Insurance Company
EX-99.B8(iv) Form of Fund Participation Agreement among Putnam Variable Trust,
Putnam Mutual Funds Corp. and Cova Financial Services Life
Insurance Company
EX-99.B8(v) Form of Fund Participation Agreement by and among AIM Variable
Insurance Funds, Inc., A I M Distributors, Inc., Cova Financial
Services Life Insurance Company, on behalf of itself and its
Separate Accounts, and Cova Life Sales Company
EX-99.B8(vi) Form of Fund Participation Agreement among Investors Fund Series,
Zurich Kemper Investments, Inc., Zurich Kemper Distributors, Inc.
and Cova Financial Services Life Insurance Company
EX-99.B8(vii) Form of Participation Agreement by and between Goldman Sachs
Variable Insurance Trust, Goldman, Sachs & Co. and Cova Financial
Services Life Insurance Company
EX-99.B8(viii) Form of Participation Agreement among Russell Insurance Funds,
Russell Fund Distributors, Inc. and Cova Financial Services Life
Insurance Company
EX-99.B8(ix) Form of Participation Agreement among Liberty Variable Investment
Trust, Liberty Financial Investments, Inc. and Cova Financial
Services Life Insurance Company
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Consent of Independent Auditors
EX-99.B13 Calculation of Performance Information
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 1 (FILE NO. 333-34741)
TO
FORM N-4
FOR
COVA VARIABLE ANNUITY ACCOUNT ONE
PARTICIPATION AGREEMENT
Among
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
OPPENHEIMERFUNDS, INC.
and
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this ____th day of December, 1997 by
and among COVA Financial Services Life Insurance Company (hereinafter the
"Company"), on its own behalf and on behalf of one or more segregated asset
accounts of the Company (hereinafter the "Account"), Oppenheimer Variable
Account Funds (hereinafter the "Fund") and OppenheimerFunds, Inc. (hereinafter
the "Adviser").
WHEREAS, the Fund is an open-end management investment company and is
available to act as the investment vehicle for separate accounts now in
existence or to be established at any date hereafter for variable life insurance
policies and variable annuity contracts (collectively, the "Variable Insurance
Products") offered by insurance companies (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" (the Portfolios covered by this
Agreement are specified in Schedule A attached hereto as may be modified by
mutual consent from time to time), and each representing the interests in a
particular managed pool of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated July 16, 1986 (File No. 812-6324, granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
federal Investment Advisers Act of 1940;
WHEREAS, the Company has registered or will register certain variable
annuity and/or life insurance contracts under the 1933 Act (hereinafter
"Contracts"); and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable contracts
(the Contract(s) and the Account(s) covered by the Agreement are specified in
Schedule B attached hereto, as may be modified by mutual consent from time to
time); and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of the Account to fund the Contracts and the Fund is authorized to sell such
shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Fund, the
Adviser and the Company agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1 The Fund agrees to make available to the Separate Accounts of the
Company shares of the selected Portfolios as listed on Schedule A for investment
of purchase payments of variable Contracts allocated to the designated Separate
Accounts as provided in the Fund's Registration Statement.
1.2 The Fund agrees to sell to the Company those shares of the selected
Portfolios of the Fund which the Company orders on behalf of the Accounts,
executing such orders on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the order for the shares of the
Fund. For purposes of this Section 1.2, the Company shall be the designee of the
Fund for receipt of such orders from the designated Separate Account and receipt
by such designee shall constitute receipt by the Fund; provided that the Company
receives the order by 4:00 p.m. New York time and the Fund receives notice from
the Company by telephone or facsimile (or by such other means as the Fund and
the Company may agree in writing) of such order by 9:00 a.m. New York time on
the next following Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Fund calculates its
net asset value pursuant to the rules of the SEC.
1.3 The Fund agrees to redeem on the Company's request, any full or
fractional shares of the Fund held by the Company, executing such requests on a
daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption, in accordance with the provisions of
this agreement and the Fund's Registration Statement. For purposes of this
Section 1.3, the Company shall be the designee of the Fund for receipt of
requests for redemption from the designated Separate Account and receipt by such
designee shall constitute receipt by the Fund; provided that the Company
receives the request for redemption by 4:00 p.m. New York time and the Fund
receives notice from the Company by telephone or facsimile (or by such other
means as the Fund and the Company may agree in writing) of such request for
redemption by 9:00 a.m. New York time on the next following Business Day.
1.4 The Fund shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions payable on the
shares of any Portfolios of the Fund. The Company hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Fund shall notify
the Company or its designee of the number of shares so issued as payment of such
dividends and distributions.
1.5 The Fund shall make the net asset value per share for the selected
Portfolio(s) available to the Company on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30 p.m. New York time.
In the event that the Fund is unable to meet the 6:30 p.m. time stated herein,
it shall provide additional time for the Company to place orders for the
purchase and redemption of shares. Such additional time shall be equal to the
additional time which the Fund takes to make the net asset value available to
the Company. If the Fund provides the Company with materially incorrect share
net asset value information through no fault of the Company, the Company on
behalf of the Separate Accounts, shall be entitled to an adjustment to the
number of shares purchased or redeemed to reflect the correct share net asset
value. Any material error in the calculation of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company. If a Separate Account due to such error has received amounts in
excess of the amounts to which it is entitled, the Company, when requested by
the Fund, shall make adjustments to the Separate Account to reflect the change
in the values of the shares as reflected in the unit values of the affected
Variable Contract owners who still have values in the Portfolio. No adjustment
for an error shall be taken 'in any Separate Account until such time as the
parties hereto have agreed to a resolution of the error, but the parties shall
use all reasonable efforts to reach such agreement within two business days
after the discovery of the error.
1.6 At the end of each Business Day, the Company shall use the information
described in Section 1.5 to calculate Separate Account unit values for the day.
Using these unit values, the Company shall process each such Business Day's
Separate Account transactions based on requests and premiums received by it by
the close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m. New York time) to determine the net dollar amount of Fund shares which
shall be purchased or redeemed at that day's closing net asset value per share.
The net purchase or redemption orders so determined shall be transmitted to the
Fund by the Company by 9:00 a.m. New York Time on the Business Day next
following the Company's receipt of such requests and premiums in accordance with
the terms of Sections 1.2 and 1.3 hereof.
1.7 If the Company's order requests the purchase of Fund shares, the
Company shall pay for such purchase by wiring federal funds to the Fund or its
designated account on the day the order is transmitted by the Company. If the
Company's order requests a net redemption resulting in a payment of redemption
proceeds to the Company, the Fund shall use its best efforts to wire the
redemption proceeds to the Company by the next Business Day, unless doing so
would require the Fund to dispose of Portfolio securities or otherwise incur
additional costs. In any event, proceeds shall be wired to the Company within
the time period specified in the Fund's Prospectus or Statement of Additional
Information ("SAI") and the Fund shall notify the person designated in writing
by the Company as the recipient for such notice of such delay by 3:00 p.m. New
York Time the same Business Day that the Company transmits the redemption order
to the Fund. If the Company's order requests the application of redemption
proceeds from the redemption of shares to the purchase of shares of another
Portfolio advised by the Adviser, the Fund shall so apply such proceeds the same
Business Day that the Fund receives such order.
1.8 The Fund agrees that all shares of the Portfolios of the Fund will be
sold (directly or via other investment companies) only to Participating
Insurance Companies which have agreed to participate in the Fund to fund their
Separate Accounts and/or to Qualified Plans, all in accordance with the
requirements of Section 817(h)(4) of the Internal Revenue Code of 1986, as
amended ("Code") and Treasury Regulation 1.817-5. Shares of the Portfolios of
the Fund will not be sold directly to the general public.
1.9 The Fund may refuse to sell shares of any Portfolios to any person, or
suspend or terminate the offering of the shares of any Portfolios if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Board of Trustees of the Trust (the "Board"), acting
in good faith and in light of its duties under federal and any applicable state
laws, deemed necessary, desirable or appropriate and in the best interests of
the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to the Company or the Separate Accounts.
Shares ordered from Portfolios will be recorded in appropriate book entry titles
for the Separate Accounts.
1.11. The Company represents and warrants that it has reserved the right to
suspend or limit the rights of Contract Holders to transfer Variable Contract
values between Portfolios. The Company will not waive such right without prior
notice to the Fund. The Company agrees that it will consult with the Fund at the
Fund's request from time to time on problems arising from frequent or rapid
transfer among Portfolios and that the Company will impose reasonable
restrictions on transfers to or from the Portfolio as reasonably requested by
the Fund.
Article II. Representations and Warranties
------------------------------
2.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of Missouri and that it has
legally and validly established each Separate Account as a segregated asset
account under such laws.
2.2 The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the '40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the variable Contracts, unless an exemption from
registration is available.
2.3 The Company represents and warrants that the variable Contracts will be
registered under the Securities Act of 1933 (the "'33 Act") unless an exemption
from registration is available prior to any issuance or sale of the variable
Contracts and that the variable Contracts will be issued and sold in compliance
in all material respects with all applicable federal and state laws and further
that the sale of the variable Contracts shall comply in all material respects
with state insurance law suitability requirements.
2.4 The Company represents and warrants that the variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify the Fund immediately upon
having a reasonable basis for believing that the variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 The Fund represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the '33 Act and sold in
compliance in all material respects with all applicable federal and state laws,
and the Fund shall be registered under the '40 Act prior to and at the time of
any issuance or sale of such shares. The Fund, subject to Section 1.9 above,
shall amend its registration statement under the '33 Act and the '40 Act from
time to time as it or the Adviser determines is required in order to effect the
continuous offering of its shares. The Fund shall register and qualify its
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Fund or the Adviser.
2.6 The Fund represents and warrants that each Portfolio will comply with
the diversification requirements set forth in Section 817(h) of the Code, and
the rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5 and any amendments or other modifications to such Section or
Regulation for so long as such Section or Regulation is applicable to the Fund,
and will notify the Company immediately upon having a reasonable basis for
believing any Portfolio has ceased to comply or might not so comply and will
immediately take all reasonable steps to adequately diversify the Portfolio to
achieve compliance.
2.7 The Fund represents and warrants that each Portfolio invested in by the
Separate Account intends to elect to be treated as a "regulated investment
company" under Subchapter M of the Code and any amendments or other
modifications to such provision for so long as Subchapter M of the Code is
applicable to the Fund, and to qualify for such treatment for each taxable year
and will notify the Company immediately upon having a reasonable basis for
believing it has ceased to so qualify or might not so qualify in the future.
2.8 The Adviser represents and warrants that it is still and will remain
duly registered and licensed in all material respects under all applicable
federal and state securities laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and federal laws.
ARTICLE III. Sales Material and Prospectuses
-------------------------------
3.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or the Adviser is named, at least ten (10) Business Days prior to
its use. No such material shall be used if the Fund or its designee object to
such use within seven (7) Business Days after receipt of such material.
"Business Day" shall mean any day in which the New York Stock Exchange is open
for trading and in which the Fund calculates its net asset value pursuant to the
rules of the Securities and Exchange Commission.
3.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sale
literature or other promotional material approved by the Fund or its designee,
except with the permission of the Fund.
3.3 The Fund will furnish, or will cause to be furnished, to the Company,
each piece of sales literature or other promotional material in which the
Company or its Separate Accounts are named, at least ten (10) Business Days
prior to its intended use. No such material will be used if the Company objects
to its use in writing within seven (7) Business Days after receipt of such
material.
3.4 The Fund and its affiliates and agents shall not give any information
or make any representations on behalf of the Company or concerning the Company,
the Separate Accounts, or the variable Contracts issued by the Company, other
than the information or representations contained in a registration statement or
prospectus for such variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
variable Contracts, or in sales literature or other promotional material
approved by the Company or its designee, except with the written permission of
the Company or as may be required by applicable law or regulation.
3.5. For purposes of this Article II, the phrase "sales literature or other
promotional material" means advertisements (such as material published, or
designed for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display, signs, billboards or
electronic media), and sales literature (such as brochures, circulars, market
letters and form letters), distributed or made generally available to customers
or the public.
3.6. The Fund or the Adviser shall provide the Company with as many copies
of the Fund's prospectus, Statement of Additional Information, shareholder
reports and proxy materials as the Company may reasonably request. The Company
shall bear the expenses of printing and distributing the Fund's prospectus,
Statement of Additional Information and shareholder reports to prospective
Contract owners and of distributing the Fund's prospectus, Statement of
Additional Information and shareholder reports to existing and prospective
Contract owners, distributing proxy materials to existing Contract owners and
tabulation of proxy votes. The Fund or the Adviser shall bear the expenses of
printing the Fund's prospectus, Statement of Additional Information, shareholder
reports and proxy materials provided by the Company to existing Contract owners.
If requested by the Company in lieu thereof, the Fund or the Adviser shall
provide such documentation (including a "camera ready" copy of the new
prospectus as set in type or, at the request of the Company, as a diskette in
the form that can be sent to a financial printer) and other assistance as is
reasonably necessary in order for the parties hereto once a year (or more
frequently if the Fund's prospectus is supplemented or amended) to have the
prospectus for the variable Contracts and the prospectus for the Fund shares and
any other fund shares offered as investments for the variable Contracts printed
together in one document. The expenses of such printing will be apportioned
between (a) the Company and (b) the Fund or the Adviser in proportion to the
number of pages of the variable Contract, other fund shares prospectuses and the
Fund's prospectus, taking account of other relevant factors affecting the out of
pocket expenses of printing, such as covers, columns, graphs and charts; the
Fund or the Adviser to bear the cost of printing the Fund's prospectus portion
of such document for distribution only to owners of existing variable Contracts
funded by the Fund shares and the Company to bear the expense of printing the
portion of such documents relating to the Separate Account and the prospectuses
of other funds included in that document (unless such other funds arrange to
bear such cost); provided, however, the Company shall bear all printing expenses
of such combined documents where used for distribution to prospective purchasers
or to owners of existing variable Contracts not funded by the shares. If the
Company arranges to typeset the Fund's prospectus, Statement of Additional
Information or shareholder reports, the Adviser shall be permitted to review and
approve the typeset form of the Fund's Prospectus prior to such printing.
3.7 The Fund shall prepare and be responsible for filing with the SEC and
any state securities regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional information
of the Fund. The Fund shall bear the costs of registration and qualification of
shares of the Portfolios, preparation and filing of the documents listed in this
Section 3.7 and all taxes and filing fees to which an issuer is subject on the
issuance and transfer of its shares.
3.8 The Fund will provide the Company with at least one complete copy of
all prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. The
Company will provide the Fund with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to a Separate Account promptly after
the filing of each such document with the SEC or other regulatory authority.
ARTICLE IV. Fees and Expenses
-----------------
4.1. The Fund and Adviser shall pay no fee or other compensation to the
Company under this agreement, and the Company shall pay no fee or other
compensation to the Fund or Adviser, except as provided herein.
4.2. All expenses incident to performance by each party of its respective
duties under this Agreement shall be paid by that party. The Fund shall see to
it that all its shares are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, and the preparation of all statements
and notices required by any federal or state law.
4.3. The Company shall bear the expenses of typesetting, printing and
distributing the Fund's prospectus, proxy materials and reports to owners of
Contracts issued by the Company.
ARTICLE V. Potential Conflicts
-------------------
5.1. The Board of Trustees of the Fund (the "Board") will monitor the Fund
for the existence of any material irreconcilable conflict between the interests
of the Contract owners of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of Contract owners. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
5.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities in monitoring such conflicts by providing the Board in a timely
manner with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded and by confirming in writing, at the Fund's request, that the
Company is unaware of any such potential or existing material irreconcilable
conflicts.
5.3. If it is determined by a majority of the Board, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company shall, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested trustees), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to an
including: (1), withdrawing the assets allocable to some or all of the separate
accounts from the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio of
the Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Contract owners the option of making such a change; and
(2), establishing a new registered management investment company or managed
separate account.
5.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement; provided, however, that such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the end of the six month period the
Fund shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Fund.
5.5. For purposes of Sections 5.3 through 5.5 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 5.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
Article VI. Indemnification
---------------
6.1 Indemnification by the Company. The Company agrees to indemnify and
hold harmless the Fund and the Adviser and each of their trustees, directors,
principals, officers, partners, employees and agents and each person, if any,
who controls the Fund or the Adviser within the meaning of Section 15 of the '33
Act (collectively, the "Indemnified Parties" for purposes of this Article VI)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company, which consent shall not
be unreasonably withheld) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the variable Contracts and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement or prospectus for the variable Contracts or contained in the
variable Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Company
by or on behalf of an Indemnified Party for use in the registration
statement or prospectus for the variable Contracts or in the variable
Contracts or sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the variable Contracts or Fund
shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by the
Company, or persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution of
the variable Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
furnished to the Fund by or on behalf of the Company; or
(d) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company.
6.2 The Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement.
6.3 The Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim shall not
relieve the Company from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against an
Indemnified Party, the Company shall be entitled to participate at its own
expense in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
6.4 Indemnification by the Fund. The Fund agrees to indemnify and hold
harmless the Company and each of its directors, officers, employees, and agents
and each person, if any, who controls the Company within the meaning of Section
15 of the '33 Act (collectively, the "Indemnified Parties" for the purposes of
this Article VI) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser
which consent shall not be unreasonably withheld) or litigation (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute, or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the operation of the Fund and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus of the Fund (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Fund or the Adviser by or on behalf of the Company for use
in the registration statement or prospectus for the Fund (or any amendment
or supplement) or otherwise for use in connection with the sale of the
variable Contracts or Fund shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the variable Contracts not
supplied by the Fund or persons under its control) or wrongful conduct of
the Fund or persons under its control, with respect to the sale or
distribution of the variable Contracts or Fund shares, provided any such
statement or representation or wrongful conduct was not made in reliance
upon and in conformity with information furnished to the Adviser or the
Fund by or on behalf of the Company; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
the variable Contracts, or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
furnished to the Company for inclusion therein by or on behalf of the Fund;
or
(d) arise as a result of (i) a failure by a Portfolio(s) invested in
by the Separate Account to comply with the diversification requirements of
Section 817(h) of the Code; or (ii) a failure by a Portfolio(s) invested in
by the Separate Account to qualify as a "regulated investment company"
under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund.
6.5 Indemnification by the Adviser. To the extent not covered by any
applicable insurance coverage of the Fund and the Adviser, the Adviser agrees to
indemnify and hold harmless the Company and each of its directors, officers,
employees, and agents and each person, if any, who controls the Company within
the meaning of Section 15 of the '33 Act (collectively, the "Indemnified
Parties" for the purposes of this Article VI) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Adviser which consent shall not be unreasonably withheld)
or litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisitions of the Fund's shares or the variable Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or in sales literature of the Fund (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished to the Adviser or the Fund by or on behalf of
the Company for use in the registration statement or prospectus for the
Fund or in sales literature or other promotional material (or any amendment
or supplement) or otherwise for use in connection with the sale of the
variable Contracts or the Fund shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the variable Contracts not
supplied by the Adviser or persons under its control) or wrongful conduct
of the Adviser or persons under its control, with respect to the sale or
distribution of the variable Contracts or Fund shares, provided any such
statement or representation or wrongful conduct was not made in reliance
upon and in conformity with information furnished to the Adviser or the
Fund by or on behalf of the Company; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature covering the variable Contracts, or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished to the Company for inclusion therein by or on
behalf of the Fund; or
(d) arise as a result of (i) a failure by a Portfolio(s) invested in
by the Separate Account to comply with the diversification requirements of
Section 817(h) of the Code; or (ii) a failure by a Portfolio(s) invested in
by the Separate Account to qualify as a "regulated investment company"
under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any
representation an/or warranty made by the Fund or the Adviser in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Adviser.
6.6 The Fund or the Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
6.7 The Fund or the Adviser, as the case may be, shall not be liable under
this indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the Fund or
the Adviser, as the case may be, in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Fund or the Adviser of any such claim shall
not relieve the Fund or the Adviser from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is brought against
the Indemnified Parties, the Fund or the Adviser shall be entitled to
participate at its own expense in the defense thereof. The Fund or the Adviser
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Fund or the Adviser to
such party of the Fund's or the Adviser's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund or the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
ARTICLE VII. Applicable Law
--------------
7.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of New York.
7.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE VIII. Termination
-----------
8.1 This Agreement shall terminate with respect to some or all Portfolios:
(a) at the option of any party upon six month's advance written notice
to the other parties;
(b) at the option of the Company to the extent that shares of
Portfolios are not reasonably available to meet the requirements of the
Contracts or are not appropriate funding vehicles for the Contracts, as
determined by the Company reasonably and in good faith. Prompt notice of
the election to terminate for such cause and an explanation of such cause
shall be furnished by the Company; or
(c) as provided in Article V
(d) at the option of the Company, upon the institution of formal
proceedings against the Fund by the SEC, the National Association of
Securities Dealers, Inc., or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in the Company's
reasonable judgment, materially impair the Fund's ability to meet and
perform the Fund's obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by the Company with said
termination to be effective upon receipt of notice;
(e) at the option of the Fund, upon the institution of formal
proceedings against the Company by the SEC, the National Association of
Securities Dealers, Inc., or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in the Fund's
reasonable judgment, materially impair the Company's ability to meet and
perform its obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by the Fund with said termination to be
effective upon receipt of notice;
(f) in the event the Fund's shares are not registered, issued or sold
in accordance with applicable state or federal law, or such law precludes
the use of such shares as the underlying investment medium of variable
Contracts issued or to be issued by the Company. Termination shall be
effective upon receipt of notice;
(g) at the option of the Company, upon the Fund's or the Adviser's
breach of any material provision of this Agreement, which breach has not
been cured to the satisfaction of the Company within ten business days
after written notice of such breach is delivered to the Fund;
(h) at the option of the Fund or the Adviser, the Company's breach of
any material provision of this Agreement, which breach has not been cured
to the satisfaction of the Fund or the Adviser within ten business days
after written notice of such breach is delivered to the Company;
8.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 8.1(a) may be exercised for cause
or for no cause.
8.3 Notwithstanding any termination of this Agreement pursuant to Section
8.1 hereof and subject to Section 1.9 hereof, the Fund at the option of the
Company will continue to make available additional Fund shares, as provided
below, pursuant to the terms and conditions of this Agreement, for all variable
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts or the Company, whichever shall
have legal authority to do so, shall be permitted to reallocate investments in
the Fund, redeem investments in Fund and/or invest in the Fund upon the payment
of additional premiums under the Existing Contracts. The parties agree that this
Section 8.3 shall not apply to any terminations under Article V, and the effect
of such Article V terminations shall be governed by Article V of this Agreement.
ARTICLE IX. Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify to the other party.
If to the Fund;
Oppenheimer Variable Account Funds
c/o OppenheimerFunds, Inc.
Two World Trade Center
New York, NY 10048-0203
Attn: Legal Department
If to the Adviser:
OppenheimerFunds, Inc.
Two World Trade Center
New York, NY 10048-0203
Attn: General Counsel
If to the Company:
Cova Financial Services Life Insurance Company
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181
Attention: General Counsel
ARTICLE X. Miscellaneous
-------------
10.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as it may come into the public domain.
10.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
10.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.7. It is understood by the parties that this Agreement is not an
exclusive arrangement in any respect.
10.8. The Company and the Adviser each understand and agree that the
obligations of the Fund under this Agreement are not binding upon any
shareholder of the Fund personally, but bind only the Fund and the Fund's
property; the Company and the Adviser each represent that it has notice of the
provisions of the Declaration of Trust of the Fund disclaiming shareholder
liability for acts or obligations of the Fund.
10.9 In the event of termination of this Agreement, Articles V and VI and
Section 10.5 shall continue in effect after said termination.
10.10 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
Fund, the Adviser and the Company.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed as of the date specified below.
Company:
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
By its authorized officer,
By:___________________________________________
Title:________________________________________
Date:_________________________________________
Fund:
OPPENHEIMER VARIABLE ACCOUNT FUNDS
By its authorized officer,
By:___________________________________________
Title:________________________________________
Date:_________________________________________
Advisor:
OPPENHEIMERFUNDS, INC.
By its authorized officer,
By:___________________________________________
Title:________________________________________
Date:_________________________________________
SCHEDULE A
Portfolios of Oppenheimer Variable Account Funds:
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Strategic Bond Fund
SCHEDULE B
Cova Variable Annuity Account One
PARTICIPATION AGREEMENT
AMONG
PUTNAM VARIABLE TRUST
PUTNAM MUTUAL FUNDS CORP.
AND
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 12th day of December,
1997, among COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY (the "Company"), a
Missouri corporation, on its own behalf and on behalf of each separate account
of the Company set forth on Schedule A hereto, as such Schedule may be amended
from time to time (each such account hereinafter referred to as the "Account"),
PUTNAM VARIABLE TRUST (the "Trust"), a Massachusetts business trust, and PUTNAM
MUTUAL FUNDS CORP. (the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Trust is an open-end diversified management investment company
and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into Participation Agreements with the Trust and
the Underwriter (the "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Trust has obtained an order from the Securities and Exchange
Commission, dated December 29, 1993 (File No. 812-8612), granting the variable
annuity and variable life insurance separate accounts participating in the Trust
exemptions from the provisions of sections 9(a), 13(a), 15(a) and 15(b) of the
Investment Company Act of 1940, as amended (the "1940 Act"), and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Trust to be sold to and held by variable annuity and variable life
insurance separate accounts of the Participating Insurance Companies (the
"Shared Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and the sale of its shares is registered under the
Securities Act of 1933, as amended (the " 1933 Act"); and
WHEREAS, the Company has registered or will register certain variable life
and/or variable annuity contracts under the 1933 Act and any applicable state
securities and insurance law; and
WHEREAS, each Account is a duly organized, validly existing separate
account, established by resolution of the Board of Directors of the Company, on
the date shown for such Account on Schedule A hereto, to set aside and invest
assets attributable to one or more variable insurance contracts (the
"Contracts"); and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the " 1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in certain Funds
("Authorized Funds") on behalf of each Account to fund certain of the Contracts
and the Underwriter is authorized to sell such shares to unit investment trusts
such as each Account at net asset value;
NOW, THEREFORE, in consideration of the promises herein, the Company, the
Trust and the Underwriter agree as follows:
ARTICLE 1. SALE OF TRUST SHARES
--------------------
1.1 The Underwriter agrees, subject to the Trust's rights under
Section 1.2 and otherwise under this Agreement, to sell to the Company
those Trust shares representing interests in Authorized Funds which each
Account orders, executing such orders on a daily basis at the net asset
value next computed after receipt by the Trust or its designee of the order
for the shares of the Trust. For purposes of this Section 1. 1, the Company
shall be the designee of the Trust for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Trust;
provided that the Trust receives notice of such order by 9:30 a.m. eastern
time on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the
Trust calculates its net asset value pursuant to the rules of the
Securities and Exchange Commission. The initial Authorized Funds are set
forth in Schedule B, as such schedule is amended from time to time.
1.2 The Trust agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the Securities and Exchange Commission and the Trust
shall use reasonable efforts to calculate such net asset value on each day
on which the New York Stock Exchange is open for trading. Notwithstanding
the foregoing, the Trustees of the Trust (the "Trustees") may refuse to
sell shares of any Fund to the Company or any other person, or suspend or
terminate the offering of shares of any Fund if such action is required by
law or by regulatory authorities having jurisdiction over the Trust or if
the Trustees determine, in the exercise of their fiduciary
responsibilities, that to do so would be in the best interests of
shareholders.
1.3 The Trust and the Underwriter agree that shares of the Trust will
be sold only to Participating Insurance Companies and their separate
accounts in accordance with the requirements of Section 817(h)(4) of the
Internal Revenue Code of 1986, as amended (the "Code"), and Treasury
Regulation 1.817-5 No shares of any Fund will be sold to the general
public.
1.4 The Trust shall redeem its shares in accordance with the terms of
its then current prospectus. For purposes of this Section 1.4, the Company
shall be the designee of the Trust for receipt of requests for redemption
from each Account and receipt by such designee shall constitute receipt by
the Trust; provided that the Trust receives notice of such request for
redemption by 9:30 a.m., Eastern time, on the next following Business Day.
1.5 The Company shall purchase and redeem the shares of Authorized
Funds offered by the then current prospectus of the Trust in accordance
with the provisions of such prospectus.
1.6 The Company shall pay for Trust shares on the next Business Day
after an order to purchase Trust shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire.
1.7 Issuance and transfer of the Trust's shares will be by book entry
only. Share certificates will not be issued to the Company or any Account.
Shares ordered from the Trust will be recorded as instructed by the Company
to the Underwriter in an appropriate title for each Account or the
appropriate sub-account of each Account.
1.8 The Underwriter shall furnish prompt notice (by wire or telephone,
followed by written confirmation) to the Company of the declaration of any
income, dividends or capital gain distributions payable on the Trust's
shares. The Company hereby elects to receive all such income dividends and
capital gain distributions as are payable on the Fund shares in additional
shares of that Fund. The Company reserves the right to revoke this election
and to receive all such income dividends and capital gain distributions in
cash. The Underwriter shall notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.9 The Underwriter shall make the net asset value per share for each
Fund available to the Company on a daily basis as soon as reasonably
practical after the Trust calculates its net asset value per share and each
of the Trust and the Underwriter shall use its best efforts to make such
net asset value per share available by 7:00 p.m. Eastern time. To the
extent required by law, if the Underwriter provides materially inaccurate
information concerning the net asset value of per share, the Trust shall
adjust the number of shares purchased or redeemed with respect to the
Account.
1.10 The Company represents and warrants that it has reserved the
right to suspend or limit the rights of holders of Contracts to transfer
Contract values between Funds. The Company will not waive such right
without prior notice to the Trust. The Company agrees that it will consult
with the Trust at the Trust's request from time to time on problems arising
from frequent or rapid transfer among Funds and that the Company will
impose reasonable restrictions on transferees to or from the Funds as
reasonably requested by the Trust.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 The Company represents and warrants that
(a) at all times during the term of this Agreement the Contracts are
or will be registered under the 1933 Act; the Contracts will be issued and
sold in compliance in all material respects with all applicable laws and
the sale of the Contracts shall comply in all material respects with state
insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good
standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a
separate account under applicable law and has registered or, prior to any
issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts; and
(b) the Contracts are currently treated as endowment, annuity or life
insurance contracts, under applicable provisions of the Code and that it
will make every effort to maintain such treatment and that it will notify
the Trust and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.2 The Trust represents and warrants that
(a) at all times during the term of this Agreement Trust shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold by the Trust to the Company in compliance
with all applicable laws, subject to the terms of Section 2.4 below, and
the Trust is and shall remain registered under the 1940 Act. The Trust
shall amend the Registration Statement for its shares under the 1933 Act
and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and qualify the
shares for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by the Trust or the Underwriter in
connection with their sale by the Trust to the Company and only as required
by Section 2.4;
(b) it is currently qualified as a Regulated Investment Company under
Subchapter M of the Code, and that it will use every effort to maintain
such qualification (under Subchapter M or any successor provision) and that
it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify
in the future; and
(c) it is lawfully organized and validly existing under the laws of
Massachusetts and that it does and will comply in all material respects
with the 1940 Act.
2.3 The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the
SEC. The Underwriter further represents that it will sell and distribute
the Trust shares in accordance with all securities laws applicable to it,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.4 Notwithstanding any other provision of this Agreement, the Trust
shall be responsible for the registration and qualification of its shares
and of the Trust itself under the laws of any jurisdiction only in
connection with the sales of shares directly to the Company through the
Underwriter. The Trust shall not be responsible, and the Company shall take
full responsibility, for determining any jurisdiction in which any
qualification or registration of Trust shares or the Trust by the Trust may
be required in connection with the sale of the Contracts or the indirect
interest of any Contract in any shares of the Trust and advising the Trust
thereof at such time and in such manner as is necessary to permit the Trust
to comply.
2.5 The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states.
ARTICLE II. PROSPECTUSES AND PROXY STATEMENTS; VOTING
-----------------------------------------
3.1 The Trust shall provide such documentation (including a camera
ready copy of its prospectus) and other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if
the prospectus for the Trust is amended) to have the prospectus for the
Contracts and the Trust's prospectus (and, at the Company's option,
prospectuses for other funds underlying the Contract) printed together in
one or more documents (such printing to be at the Company's expense).
3.2 The Trust's Prospectus shall state that the Statement of
Additional Information for the Trust is available from the Underwriter or
its designee (or in the Trust's discretion, the Prospectus shall state that
such Statement is available from the Trust), and the Underwriter (or the
Trust), at its expense, shall print and provide such Statement free of
charge to the Company and to any owner of a Contract or prospective owner
who requests such Statement.
3.3 The Trust, at its expense, shall provide the Company with copies
of its reports to shareholders, proxy material and other Communications to
shareholders in such quantity as the Company shall reasonably require for
distribution to the Contract owners, such distribution to be at the expense
of the Company.
3.4 The Company shall vote all Trust shares as required by law and the
Shared Funding Exemptive Order. The Company reserves the right to vote
Trust shares held in any separate account in its own right, to the extent
permitted by law and the Shared Funding Exemptive Order. The Company shall
be responsible for assuring that each of its separate accounts
participating in the Trust calculates voting privileges in a manner
consistent with all legal requirements and the Shared Funding Exemptive
Order.
3.5 The Trust will comply with all applicable provisions of the 1940
Act requiring voting by shareholders, and in particular the Trust will
either provide for annual meetings or comply with Section 16(c) of the 1940
Act (although the Trust is not one of the trusts described in Section 16(c)
of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Trust will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
------------------------------
4.1 Without limiting the scope or effect of Section 4.2, the Company
shall furnish, or shall cause to be furnished, to the Underwriter each
piece of sales literature or other promotional material in which the Trust,
its investment adviser or the Underwriter is named at least 15 days prior
to its use. No such material shall be used if the Underwriter objects to
such use within five Business Days after receipt of such material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the
Trust in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or
prospectus for the Trust shares, as such registration statement and
prospectus may be amended or supplemented from time to time, or in annual
or semi-annual reports or proxy statements for the Trust, or in sales
literature or other promotional material approved by the Trust or its
designee or by the Underwriter, except with the written permission of the
Trust or the Underwriter or the designee of either or as is required by
law.
4.3 The Underwriter or its designee shall furnish, or shall cause to
be furnished, to the Company or its designee, each piece of sales
literature or other promotional material prepared by the Underwriter in
which the Company and/or its separate account(s) is named at least 15 days
prior to its use. No such material shall be used if the Company or its
designee objects to such use within five Business Days after receipt of
such material. The Company acknowledges that the Underwriter does not
currently intend to prepare sales literature naming the Company or its
separate account.
4.4 Neither the Trust nor the Underwriter shall give any information
or make any representations on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for each Account
which are in the public domain or approved by the Company for distribution
to Contract owners, or in sales literature or other promotional material
approved by the Company or its designee, except with the written permission
of the Company or as is required by law.
4.5 For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media), sales literature (i.e. any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other
communications distributed or made generally available to some or all
registered representatives.
ARTICLE V. FEES AND EXPENSES
-----------------
5.1 The Trust and Underwriter shall pay no fee or other compensation
to the Company under this agreement.
5.2 All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall bear the expenses for
the cost of registration and qualification of the Trust's shares,
preparation and filing of the Trust's prospectus and registration
statement, proxy materials and reports, setting the prospectus and
shareholder reports in type, setting in type and printing the proxy
materials, and the preparation of all statements and notices required by
any federal or state law, in each case as may reasonably be necessary for
the performance by it of its obligations under this Agreement.
5.3 The Company shall bear the expenses of (a) printing and
distributing the Trust's prospectus in connection with sales of the
Contracts and (b) distributing shareholder reports to Trust's Shareholders
and (c) of distributing the Trust's proxy materials to owners of the
Contracts.
ARTICLE VI. DIVERSIFICATION
---------------
6.1 The Trust shall cause each Authorized Fund to maintain a
diversified pool of investments that would, if such Fund were a segregated
asset account, satisfy the diversification provisions of Treas. Reg. ss.
1.817-5(b)(1) or (2). The Trust will notify the Company immediately upon
having a reasonable basis for believing any Fund has failed to so qualify.
ARTICLE VII. POTENTIAL CONFLICTS
-------------------
7.1 The Trustees will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the contract
owners of all separate accounts investing in the Trust. A material
irreconcilable conflict may arise for a variety of reasons, including: (a)
an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities law or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of any Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Trust shall promptly inform the
Company if the Trustees determine that a material irreconcilable conflict
exists and the implications thereof.
7.2 The Company will report any potential or existing conflicts of
which it is aware to the Trustees. The Company will assist the Trustees in
carrying out their responsibilities under the Shared Funding Exemptive
Order, by providing the Trustees with all information reasonably necessary
for the Trustees to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Trustees whenever
Contract owner voting instructions are disregarded.
7.3 If it is determined by a majority of the Trustees, or a majority
of the disinterested Trustees, that a material irreconcilable conflict
exists, the Company shall to the extent reasonably practicable (as
determined by a majority of the disinterested Trustees), take, at the
Company's expense, whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the separate accounts from the Trust or
any Fund and reinvesting such assets in a different investment medium,
including (but not limited to) another Fund of the Trust, or submitting the
question whether such segregation should be implemented to a vote of all
affected contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the
affected contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed
separate account.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Trust's election, to withdraw the
affected Account's investment in one or more portfolios of the Trust and
terminate this Agreement with respect to such Account; provided, however,
that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by
a majority of the disinterested Trustees. No charge or penalty shall be
imposed as a result of such withdrawal. Any such withdrawal and termination
must take place within six (6) months after the Trust gives written notice
that this provision is being implemented, and until the end of that six
month period the Underwriter and Trust shall, to the extent permitted by
law and any exemptive relief previously granted to the Trust, continue to
accept and implement orders by the Company for the purchase (or redemption)
of shares of the Trust.
7.5 If a material irreconcilable conflict arises because of a
particular state insurance regulator's decision applicable to the Company
to disregard Contract owner voting instructions and that decision
represents a minority position that would preclude a majority vote, then
the Company may be required, at the Trust's direction, to withdraw the
affected Account's investment in one or more Authorized Funds of the Trust;
provided, however, that such withdrawal and termination shall be limited to
the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented, unless a shorter
period is required by law, and until the end of the foregoing six month
period (or such shorter period if required by law), the Underwriter and
Trust shall, to the extent permitted by law and any exemptive relief
previously granted to the Trust, continue to accept and supplement orders
by the Company for the purchase (and redemption) of shares of the Trust. No
charge or penalty will be imposed as a result of such withdrawal.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict. Neither
the Trust nor the Underwriter shall be required to establish a new finding
medium for the Contracts, nor shall the Company be required to do so, if an
offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the material irreconcilable conflict. In
the event that the Trustees determine that any proposed action does not
adequately remedy any material irreconcilable conflict, then the Company
will withdraw the Account's investment in one or more Authorized Funds of
the Trust and terminate this Agreement within six (6) months (or such
shorter period as may be required by law or any exemptive relief previously
granted to the Trust) after the Trustees inform the Company in writing of
the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. No charge or penalty will be imposed as a result of such
withdrawal.
7.7 The responsibility to take remedial action in the event of the
Trustees' determination of a material irreconcilable conflict and to bear
the cost of such remedial action shall be the obligation of the Company,
and the obligation of the Company set forth in this Article VII shall be
carried out with a view only to the interests of Contract owners.
7.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Shared
Funding Exemptive Order, then (a) the Trust and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4,
3.5, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
7.9 The Company has reviewed the Shared Funding Exemption Order and
hereby assumes all obligations referred to therein which are required,
including, without limitation, the obligation to provide reports, material
or data as the Trustees may request as conditions to such Order, to be
assumed or undertaken by the Company.
ARTICLE VIII. INDEMNIFICATION
---------------
8.1. Indemnification by the Company
8. 1 (a). The Company shall indemnify and hold harmless the Trust and
the Underwriter and each of the Trustees, directors of the Underwriter,
officers, employees or agents of the Trust or the Underwriter and each
person, if any, who controls the Trust or the Underwriter within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8. 1) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Company which consent may not be unreasonably
withheld) or litigation (including reasonable legal and other expenses), to
which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Trust's shares or
the Contracts or the performance by the parties of their obligations
thereunder and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in a Registration Statement,
Prospectus or Statement of Additional Information for the Contracts or
contained in the Contracts or sales literature for the Contracts (or
any amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Company by or on behalf of the Trust for use in the Registration
Statement, Prospectus or Statement of Additional Information for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(ii) arise out of or as a result of written statements or representations
(other than statements or representations contained in the Trust's
Registration Statement or Prospectus, or in sales literature for Trust
shares not supplied by the Company, or persons under its control) or
wrongful conduct of the Company or persons under its control, with
respect to the sale or distribution of the Contracts or Trust shares;
or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, Prospectus, or
sales literature of the Trust or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Trust or the
Underwriter by or on behalf of the Company; or
(iv) arise out of or result from any breach of any representation and/or
warranty made by the Company in this Agreement or arise out of or
result from any other breach of this Agreement by the Company, as
limited by and in accordance with the provisions of Sections 8.1 (b)
and 8.1 (c) hereof.
8.1 (b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party to the extent
such may arise from such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to the Trust, whichever is
applicable.
8.1 (c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), on the basis of which the
Indemnified Party should reasonably know of the availability of indemnity
thereunder in respect of such claim but failure to notify the Company of
any such claim shall not relieve the Company from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Company shall
be entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the defense thereof,
with counsel satisfactory to the Indemnified Party named in the action.
After notice from the Company to such Indemnified Party of the Company's
election to assume the defense thereof the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company
will not be liable to such Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other than reasonable
costs of investigation.
8.1 (d) The Underwriter shall promptly notify the Company of the
commencement of any litigation or proceedings against the Trust or the
Underwriter in connection with the issuance or sale of the Trust Shares or
the Contracts or the operation of the Trust.
8. 1 (e) The provisions of this Section 8.1 shall survive any
termination of this Agreement.
8.2 Indemnification by the Underwriter
8.2 (a) The Underwriter shall indemnify and hold harmless the Company
and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act and any director, officer, employee or agent of
the foregoing (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Underwriter which consent may not be unreasonably withheld) or litigation
(including reasonable legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Trust's shares or the Contracts or the performance by
the parties of their obligations thereunder and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the sales literature of
the Trust prepared by or approved by the Trust or Underwriter (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to the
Underwriter or Trust by or on behalf of the Company for use in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(ii) arise out of or as a result of written statements or representations
(other than statements or representations contained in the
Registration Statement, Prospectus, Statement of Additional
Information or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) of the Underwriter or
persons under its control, with respect to the sale or distribution of
the Contracts or Trust shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, Prospectus,
Statement of Additional Information or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of
the Underwriter; or
(iv) arise out of or result from any breach of any representation and/or
warranty made by the Underwriter in this Agreement or arise out of or
result from any other breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of Sections 8.2(b)
and 8.2(c) hereof.
8.2 (b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or
by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to each Company or the Account, whichever is
applicable.
8.2 (c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent) on the basis
of which the Indemnified Party should reasonably know of the availability
of indemnity thereunder in respect of such claim, but failure to notify the
Underwriter of any such claim shall not relieve the Underwriter from any
liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified
Parties, the Underwriter will be entitled to participate, at its own
expense, in the defense thereof. The Underwriter also shall be entitled to
assume the defense thereof, with counsel satisfactory to the Indemnified
Party named in the action. After notice from the Underwriter to such
Indemnified Party of the Underwriter's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Underwriter will not be liable
to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2 (d) The Company shall promptly notify the Underwriter of the Trust
of the commencement of any litigation or proceedings against it or any of
its officers or directors, in connection with the issuance or sale of the
Contracts or the operation of each Account.
8.2 (e) The provisions of this Section 8.2 shall survive any
termination of this Agreement.
8.3 Indemnification by the Trust
8.3 (a) The Trust shall indemnify and hold harmless the Company, and
each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act and any director, officer, employee or agent of the
foregoing (collectively, the "Indemnified Parties" for purposes of this
Section 8.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Trust
which consent may not be unreasonably withheld) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the operations of the Trust
and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in a Registration Statement,
Prospectus and Statement of Additional Information of the Trust (or
any amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Underwriter or Trust by or on behalf of the Company for use in the
Registration Statement, Prospectus, or Statement of Additional
Information for the Trust (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Trust shares; or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Trust in this Agreement or arise out of or
result from any other material breach of this Agreement by the Trust,
as limited by and in accordance with the provisions of Sections 8.3(b)
and 8.3(c) hereof.
8.3 (b) The Trust shall not be liable under the indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party s willful misfeasance, bad faith, or
gross negligence or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to the Company,
the Trust, the Underwriter or each Account, whichever is applicable.
8.3 (c) The Trust shall not be liable under this indemnification
provision with respect to any claim made against any Indemnified Party
unless such Indemnified Party shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent) on the basis of which the
Indemnified Party should reasonably know of the availability of indemnity
thereunder in respect of such claim, but failure to notify the Trust of any
such claim shall not relieve the Trust from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Trust will be entitled to
participate, at its own expense, in the defense thereof. The Trust also
shall be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the Indemnified Party named in the action. After notice
from the Trust to such Indemnified Party of the Trust's election to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses
of any additional counsel retained by it, and the Trust will not be liable
to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3 (d) The Company agrees promptly to notify the Trust of the
commencement of any litigation or proceedings against it or any of its
officers or, directors, in connection with this Agreement, the issuance or
sale of the Contracts or the sale or acquisition of shares of the Trust.
8.3 (e) The provisions of this Section 8.3 shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
--------------
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2 This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited
to, the Shared Funding Exemptive Order) and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
-----------
10.1 This Agreement shall terminate:
(a) at the option of any party upon 120 days advance written notice to
the other parties; or
(b) at the option of the Trust or the Underwriter in the event that
formal administrative proceedings are instituted against the Company by the
NASD, the Securities and Exchange Commission, the Insurance Commissioner of
the State of Missouri or any other regulatory body regarding the Company's
duties under this Agreement or related to the sales of the Contracts, with
respect to the operation of any Account, or the purchase of the Trust
shares, provided, however, that the Trust or the Underwriter determines in
its sole judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of the
Company to perform its obligations under this Agreement; or
(c) at the option of the Company in the event that formal
administrative proceedings are instituted against the Trust or Underwriter
by the NASD, the Securities and Exchange Commission, or any state
securities or insurance department or any other regulatory body in respect
of the sale of shares of the Trust to the Company, provided, however, that
the Company determines in its sole judgment exercised in good faith, that
any such administrative proceedings will have a material adverse effect
upon the ability of the Trust or Underwriter to perform its obligations
under this Agreement; or
(d) with respect to any Account, upon requisite vote of the Contract
owners having an interest in such Account (or any subaccount) to substitute
the shares of another investment company for the corresponding Fund shares
of the Trust in accordance with the terms of the Contracts for which those
Fund shares had been selected to serve as the underlying investment media.
The Company will give 60 days' prior written notice to the Trust of the
date of any proposed vote to replace the Trust's shares; or
(e) with respect to any Authorized Fund, upon 60 days advance written
notice from the Underwriter to the Company, upon a decision by the
Underwriter to cease offering shares of the Fund for sale; or
(f) At the option of the Company, if the Trust shares are not
reasonably available to meet the requirements of the variable Contracts as
determined by the Company. Prompt notice of election to terminate shall be
furnished by the Company, said termination to be effective ten days after
receipt of notice unless the Trust makes available a sufficient number of
shares to reasonably meet the requirements of the variable Contracts within
said ten-day period; or
(g) At the option of the Company, upon the Trust's or Underwriter's
breach of any material provision of this Agreement, which breach has not
been cured to the satisfaction of the Company within ten days after written
notice of such breach is delivered to the Trust; or
(h) At the option of the Trust, upon the Company's breach of any
material provision of this Agreement, which breach has not been cured to
the satisfaction of the Trust within ten days after written notice of such
breach is delivered to the Company.
10.2. It is understood and agreed that the right of any party hereto
to terminate this Agreement pursuant to Section 10. I (a) may be exercised
for any reason or for no reason.
10.3 No termination of this Agreement shall be effective unless and
until the party terminating this Agreement gives prior written notice to
all other parties to this Agreement of its intent to terminate, which
notice shall set forth the basis for such termination. Such prior written
notice shall be given in advance of the effective date of termination as
required by this Article X.
10.4 Notwithstanding any termination of this Agreement, subject to
Section 1.2 of this Agreement, the Trust and the Underwriter shall, at the
option of the Company, continue to make available additional shares of the
Trust pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, subject to Section 1.2 of this Agreement, the owners of the
Existing Contracts shall be permitted to reallocate investments in the
Trust, redeem investments in the Trust and/or invest in the Trust upon the
making of additional purchase payments under the Existing Contracts. The
parties agree that this Section 10.4 shall not apply to any termination
under Article VII and the effect of such Article VII termination shall be
governed by Article VII of this Agreement.
10.5 The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets
held in either Account) except (i) as necessary to implement Contract owner
initiated transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application.
Furthermore, except in cases where permitted under the terms of the
Contracts, subject to Section 1.2 of this Agreement, the Company shall not
prevent Contract owners from allocating payments to an Authorized Fund that
was otherwise available under the Contracts without first giving the Trust
or the Underwriter 90 days notice of its intention to do.
ARTICLE XI. NOTICES
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Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Trust:
One Post Office Square
Boston, MA 02109
Attention: John R. Verani
If to the Underwriter:
One Post Office Square
Boston, MA 02109
Attention: General Counsel
If to the Company:
Cova Financial Life Insurance Company
One Tower Lane
Suite 3000
Oakland Terrace, IL 60181
Attention: General Counsel
ARTICLE XII. MISCELLANEOUS
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12.1 A copy of the Agreement and Declaration of Trust of the Trust is
on file with the Secretary of State of the Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed on behalf of
the Trustees of the Trust as Trustees and not individually and that the
obligations of or arising out of this instrument, including without
limitation Article VII, are not binding upon any of the Trustees or
shareholders individually but binding only upon the assets and property of
the Trust.
12.2 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
12.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument.
12.4 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.5 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance
regulators) and shall permit such authorities reasonable access to its
books and records in connection with any investigation or inquiry relating
to this Agreement or the transactions contemplated hereby.
12.6 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
12.7 Notwithstanding any other provision of this Agreement, the
obligations of the Trust and the Underwriter are several and, without
limiting in any way the generality of the foregoing, neither such party
shall have any liability for any action or failure to act by the other
party, or any person acting on such other party's behalf, provided that
this Section 12.7 shall not affect the express terms of Section 8.2(a)
pursuant to which the indemnity of the Underwriter is applicable to certain
of the Trust's documents.
12.8 This Agreement may not be assigned with the prior written consent
of the parties hereto.
12.9 No provision of this Agreement may be amended or modified in any
manner except by a written agreement executed by the parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be thereunder affixed hereto as of the date specified below.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
By its authorized officer,
______________________________________________
Name:
Title:
PUTNAM VARIABLE TRUST
By its authorized officer,
______________________________________________
Name:
Title:
PUTNAM MUTUAL FUNDS CORP.
By its authorized officer,
______________________________________________
Name:
Title:
SCHEDULE A
Cova Variable Annuity Account One
SCHEDULE B
Putnam VT Growth & Income Fund
Putnam VT International Growth Fund
Putnam VT International New Opportunities Fund
Putnam VT New Value Fund
Putnam VT Vista Fund
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
COVA LIFE SALES COMPANY
TABLE OF CONTENTS
DESCRIPTION PAGE
Section 1. Available Funds
1.1 Availability
1.2 Addition, Deletion or Modification of Funds
1.3 No Sales to the General Public
Section 2. Processing Transactions
2.1 Timely Pricing and Orders
2.2 Timely Payments
2.3 Applicable Price
2.4 Dividends and Distributions
2.5 Book Entry
Section 3. Costs and Expenses
3.1 General
3.2 Registration
3.3 Other (Non-Sales-Related)
3.4 Other (Sales-Related)
3.5 Parties To Cooperate
Section 4. Legal Compliance
4.1 Tax Laws
4.2 Insurance and Certain Other Laws
4.3 Securities Laws
4.4 Notice of Certain Proceedings and Other Circumstances
4.5 Cova To Provide Documents; Information About AVIF
4.6 AVIF To Provide Documents; Information About Cova
Section 5. Mixed and Shared Funding
5.1 General
5.2 Disinterested Directors
5.3 Monitoring for Material Irreconcilable Conflicts
5.4 Conflict Remedies
5.5 Notice to Cova
5.6 Information Requested by Board of Directors
5.7 Compliance with SEC Rules
5.8 Other Requirements
Section 6. Termination
6.1 Events of Termination
6.2 Notice Requirement for Termination
6.3 Funds To Remain Available
6.4 Survival of Warranties and Indemnifications
6.5 Continuance of Agreement for Certain Purposes
Section 7. Parties To Cooperate Respecting Termination
Section 8. Assignment
Section 9. Notices
Section 10. Voting Procedures
Section 11. Foreign Tax Credits
Section 12. Indemnification
12.1 Of AVIF and AIM by Cova and Cova Sales
12.2 Of Cova and Cova Sales by AVIF and AIM
12.3 Effect of Notice
12.4 Successors
Section 13. Applicable Law
Section 14. Execution in Counterparts
Section 15. Severability
Section 16. Rights Cumulative
Section 17. Headings
Section 18. Confidentiality
Section 19. Parties to Cooperate
Section 20. Amendments
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the ____ day of _________, 1997
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM"),
Cova Financial Services Life Insurance Company, a Missouri life insurance
company ("Cova"), on behalf of itself and each of its segregated asset accounts
listed in Schedule A hereto, as the parties hereto may amend from time to time
(each, an "Account," and collectively, the "Accounts"); and Cova Life Sales
Company, an affiliate of Cova and the principal underwriter of the Contracts
("Cova Sales") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"), shares
("Shares") of each of which are registered under the Securities Act of 1933, as
amended (the "1933 Act") and are currently sold to one or more separate accounts
of life insurance companies to fund benefits under variable annuity contracts
and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, Cova will be the issuer of certain variable annuity contracts and
variable life insurance contracts ("Contracts") as set forth on Schedule A
hereto, as the Parties hereto may amend from time to time, which Contracts
(hereinafter collectively, the "Contracts"), if required by applicable law, will
be registered under the 1933 Act; and
WHEREAS, Cova will fund the Contracts through the Accounts, each of which
may be divided into two or more subaccounts ("Subaccounts"; reference herein to
an "Account" includes reference to each Subaccount thereof to the extent the
context requires); and
WHEREAS, Cova will serve as the depositor of the Accounts, each of which is
registered as a unit investment trust investment company under the 1940 Act (or
exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Contracts will be registered as securities under the 1933 Act
(or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Cova intends to purchase Shares in one or more of the Funds on
behalf of the Accounts to fund the Contracts; and
WHEREAS, Cova Sales is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
--------------------------
1.1 AVAILABILITY.
-------------
AVIF will make Shares of each Fund available to Cova for purchase and
redemption at net asset value and with no sales charges, subject to the terms
and conditions of this Agreement. The Board of Directors of AVIF may refuse to
sell Shares of any Fund to any person, or suspend or terminate the offering of
Shares of any Fund if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Directors
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
--------------------------------------------
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
-------------------------------
AVIF agrees that all shares of the Funds will be sold only to Participating
Insurance Companies and other entities, all in accordance with Section 817
(h)(4) of the Internal Revenue Code of 1986, as amended (the "Code") and
Treasury Regulation Section 1.817-5. Shares of the Funds will not be sold to the
general public.
SECTION 2. PROCESSING TRANSACTIONS
----------------------------------
2.1 TIMELY PRICING AND ORDERS.
--------------------------
(a) AVIF or its designated agent will use its best efforts to provide Cova
with the net asset value per Share for each Fund by 5:30 p.m. Central Time on
each Business Day. As used herein, "Business Day" shall mean any day on which
(I) the New York Stock Exchange is open for regular trading, (ii) AVIF
calculates the Fund's net asset value, and (iii) Cova is open for business.
(b) Cova will use the data provided by AVIF each Business Day pursuant to
paragraph (a) immediately above to calculate Account unit values and to process
transactions that receive that same Business Day's Account unit values. Cova
will perform such Account processing the same Business Day, and will place
corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central
Time the following Business Day; provided, however, that AVIF shall provide
additional time to Cova in the event that AVIF is unable to meet the 5:30 p.m.
time stated in paragraph (a) immediately above. Such additional time shall be
equal to the additional time that AVIF takes to make the net asset values
available to Cova.
(c) With respect to payment of the purchase price by Cova and of redemption
proceeds by AVIF, Cova and AVIF shall net purchase and redemption orders with
respect to each Fund and shall transmit one net payment per Fund in accordance
with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value information
(as determined under SEC guidelines), Cova shall be entitled to an adjustment to
the number of Shares purchased or redeemed to reflect the correct net asset
value per Share. Any material error in the calculation or reporting of net asset
value per Share, dividend or capital gain information shall be reported promptly
upon discovery to Cova.
2.2 TIMELY PAYMENTS.
----------------
Cova will wire payment for net purchases to a custodial account designated
by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is
placed, to the extent practicable. AVIF will wire payment for net redemptions to
an account designated by Cova by 1:00 p.m. Central Time on the same day as the
Order is placed, to the extent practicable, but in any event within five (5)
calendar days after the date the order is placed in order to enable Cova to pay
redemption proceeds within the time specified in Section 22(e) of the 1940 Act
or such shorter period of time as may be required by law.
2.3 APPLICABLE PRICE.
-----------------
(a) Share purchase payments and redemption orders that result from purchase
payments, premium payments, surrenders and other transactions under Contracts
(collectively, "Contract transactions") and that Cova receives prior to the
close of regular trading on the New York Stock Exchange on a Business Day will
be executed at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the orders. For purposes of this
Section 2.3(a), Cova shall be the designated agent of AVIF for receipt of orders
relating to Contract transactions on each Business Day and receipt by such
designated agent shall constitute receipt by AVIF; provided that AVIF receives
notice of such orders by 9:00 a.m. Central Time on the next following Business
Day or such later time as computed in accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by Cova will be effected at
the net asset values of the appropriate Funds next computed after receipt by
AVIF or its designated agent of the order therefor, and such orders will be
irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
----------------------------
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to Cova of any income dividends or
capital gain distributions payable on the Shares of any Fund. Cova hereby elects
to reinvest all dividends and capital gains distributions in additional Shares
of the corresponding Fund at the ex-dividend date net asset values until Cova
otherwise notifies AVIF in writing, it being agreed by the Parties that the
ex-dividend date and the payment date with respect to any dividend or
distribution will be the same Business Day. Cova reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash.
2.5 BOOK ENTRY.
-----------
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to Cova. Shares ordered from AVIF will be
recorded in an appropriate title for Cova, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
-----------------------------
3.1 GENERAL.
--------
Except as otherwise specifically provided herein, each Party will bear all
expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
-------------
(a) AVIF will bear the cost of its registering as a management investment
company under the 1940 Act and registering its Shares under the 1933 Act, and
keeping such registrations current and effective; including, without limitation,
the preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices
with respect to AVIF and its Shares and payment of all applicable registration
or filing fees with respect to any of the foregoing.
(b) Cova will bear the cost of registering, to the extent required, each
Account as a unit investment trust under the 1940 Act and registering units of
interest under the Contracts under the 1933 Act and keeping such registrations
current and effective; including, without limitation, the preparation and filing
with the SEC of Forms N-SAR and Rule 24f-2 Notices with respect to each Account
and its units of interest and payment of all applicable registration or filing
fees with respect to any of the foregoing.
3.3 OTHER (NON-SALES-RELATED).
--------------------------
(a) AVIF will bear, or arrange for others to bear, the costs of preparing,
filing with the SEC and setting for printing AVIF's prospectus, statement of
additional information and any amendments or supplements thereto (collectively,
the "AVIF Prospectus"), periodic reports to shareholders, AVIF proxy material
and other shareholder communications.
(b) Cova will bear the costs of preparing, filing with the SEC and setting
for printing each Account's prospectus, statement of additional information and
any amendments or supplements thereto (collectively, the "Account Prospectus"),
any periodic reports to Contract owners, annuitants, insureds or participants
(as appropriate) under the Contracts (collectively, "Participants"), voting
instruction solicitation material, and other Participant communications.
(c) Cova will print in quantity and deliver to existing Participants the
documents described in Section 3.3(b) above and the prospectus provided by AVIF
in camera ready form. AVIF will print the AVIF statement of additional
information, proxy materials relating to AVIF and periodic reports of AVIF.
3.4 OTHER (SALES-RELATED).
----------------------
Cova will bear the expenses of distribution. These expenses would include
by way of illustration, but are not limited to, the costs of distributing to
Participants the following documents, whether they relate to the Account or
AVIF: prospectuses, statements of additional information, proxy materials and
periodic reports. These costs would also include the costs of preparing,
printing, and distributing sales literature and advertising relating to the
Funds, as well as filing such materials with, and obtaining approval from, the
SEC, the NASD, any state insurance regulatory authority, and any other
appropriate regulatory authority, to the extent required.
3.5 PARTIES TO COOPERATE.
---------------------
Each Party agrees to cooperate with the others, as applicable, in arranging
to print, mail and/or deliver, in a timely manner, combined or coordinated
prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
---------------------------
4.1 TAX LAWS.
---------
(a) AVIF represents and warrants that each Fund is currently qualified as a
regulated investment company ("RIC") under Subchapter M of the Code, and
represents that it will qualify and to maintain qualification of each Fund as a
RIC. AVIF will notify Cova immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
(b) AVIF represents that it will use its best efforts to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code. AVIF will notify Cova immediately upon having a reasonable basis for
believing that a Fund has ceased to so comply or that a Fund might not so comply
in the future. In the event of a breach of this Section 4.1(b) by AVIF, it will
take all reasonable steps to adequately diversify the Fund so as to achieve
compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) Notwithstanding Section 12.2 hereunder, Cova agrees that if the
Internal Revenue Service ("IRS") asserts in writing in connection with any
governmental audit or review of Cova or, to Cova's knowledge, of any
Participant, that any Fund has failed to comply with the diversification
requirements of Section 817(h) of the Code or Cova otherwise becomes aware of
any facts that could give rise to any claim against AVIF or its affiliates as a
result of such a failure or alleged failure:
(i) Cova shall promptly notify AVIF of such assertion or potential
claim (subject to the Confidentiality provisions of Section 18 as
to any Participant);
(ii) Cova shall consult with AVIF as to how to minimize any liability
that may arise as a result of such failure or alleged failure;
(iii)Cova shall use its best efforts to minimize any liability of AVIF
or its affiliates resulting from such failure, including, without
limitation, demonstrating, pursuant to Treasury Regulations
Section 1.817-5(a)(2), to the Commissioner of the IRS that such
failure was inadvertent;
(iv) Cova shall permit AVIF, its affiliates and their legal and
accounting advisors to participate in any conferences, settlement
discussions or other administrative or judicial proceeding or
contests (including judicial appeals thereof) with the IRS, any
Participant or any other claimant regarding any claims that could
give rise to liability to AVIF or its affiliates as a result of
such a failure or alleged failure; provided, however, that Cova
will retain control of the conduct of such conferences
discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by Cova to the IRS, any
Participant or any other claimant in connection with any of the
foregoing proceedings or contests (including, without limitation,
any such materials to be submitted to the IRS pursuant to
Treasury Regulations Section 1.817-5(a)(2)), (a) shall be
provided by Cova to AVIF (together with any supporting
information or analysis); subject to the confidentiality
provisions of Section 18, at least ten (10) business days or such
shorter period to which the Parties hereto agree prior to the day
on which such proposed materials are to be submitted, and (b)
shall not be submitted by Cova to any such person without the
express written consent of AVIF which shall not be unreasonably
withheld;
(vi) Cova shall provide AVIF or its affiliates and their accounting
and legal advisors with such cooperation as AVIF shall reasonably
request (including, without limitation, by permitting AVIF and
its accounting and legal advisors to review the relevant books
and records of Cova) in order to facilitate review by AVIF or its
advisors of any written submissions provided to it pursuant to
the preceding clause or its assessment of the validity or amount
of any claim against its arising from such a failure or alleged
failure;
(vii)Cova shall not with respect to any claim of the IRS or any
Participant that would give rise to a claim against AVIF or its
affiliates (a) compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable administrative
or judicial appeals, without the express written consent of AVIF
or its affiliates, which shall not be unreasonably withheld,
provided that Cova shall not be required, after exhausting all
administrative remedies, to appeal any adverse judicial decision
unless AVIF or its affiliates shall have provided an opinion of
independent counsel to the effect that a reasonable basis exists
for taking such appeal; and provided further that the costs of
any such appeal shall be borne equally by the Parties hereto
except that Cova shall not be liable for such costs if the
failure to comply with Section 817 (h) arises from a failure to
meet the requirements of Treasury Regulation Section
1.817-5(b)(1) or (2) or Treasury Regulation Section 1.817-5(f)
through no fault of Cova; and
(viii) AVIF and its affiliates shall have no liability as a result of
such failure or alleged failure if Cova fails to comply with any
of the foregoing clauses (i) through (vii), and such failure
could be shown to have materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written consent to
any compromise or settlement of any claim or liability hereunder, Cova may, in
its discretion, authorize AVIF or its affiliates to act in the name of Cova in,
and to control the conduct of, such conferences, discussions, proceedings,
contests or appeals and all administrative or judicial appeals thereof, and in
that event AVIF or its affiliates shall bear the fees and expenses associated
with the conduct of the proceedings that it is so authorized to control;
provided, that in no event shall Cova have any liability resulting from AVIF's
refusal to accept the proposed settlement or compromise with respect to any
failure caused by AVIF. As used in this Agreement, the term "affiliates" shall
have the same meaning as "affiliated person" as defined in Section 2(a)(3) of
the 1940 Act.
(d) Cova represents and warrants that the Contracts currently are and will
be treated as annuity contracts or life insurance contracts under applicable
provisions of the Code and that it will maintain such treatment; Cova will
notify AVIF immediately upon having a reasonable basis for believing that any of
the Contracts have ceased to be so treated or that they might not be so treated
in the future.
(e) Cova represents and warrants that each Account is a "segregated asset
account" and that interests in each Account are offered exclusively through the
purchase of or transfer into a "variable contract," within the meaning of such
terms under Section 817 of the Code and the regulations thereunder. Cova will
continue to meet such definitional requirements, and it will notify AVIF
immediately upon having a reasonable basis for believing that such requirements
have ceased to be met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS
--------------------------------
(a) AVIF will comply with any applicable state insurance laws or
regulations, to the extent specifically requested in writing by Cova, including,
the furnishing of information not otherwise available to Cova which is required
by state insurance law to enable Cova to obtain the authority needed to issue
the Contracts in any applicable state.
(b) Cova represents and warrants that (i) it is an insurance company duly
organized, validly existing and in good standing under the laws of the State of
Missouri and has full corporate power, authority and legal right to execute,
deliver and perform its duties and comply with its obligations under this
Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Missouri Insurance Law and the
regulations thereunder, and (iii) the Contracts comply in all material respects
with all other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland
and has full power, authority, and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
4.3. SECURITIES LAWS.
---------------
(a) Cova represents and warrants that (i) interests in each Account
pursuant to the Contracts will be registered under the 1933 Act to the extent
required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and New
York law, (iii) each Account is and will remain registered under the 1940 Act,
to the extent required by the 1940 Act, (iv) each Account does and will comply
in all material respects with the requirements of the 1940 Act and the rules
thereunder, to the extent required, (v) each Account's 1933 Act registration
statement relating to the Contracts, together with any amendments thereto, will
at all times comply in all material respects with the requirements of the 1933
Act and the rules thereunder, (vi) Cova will amend the registration statement
for its Contracts under the 1933 Act and for its Accounts under the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts or as may otherwise be required by applicable law, and (vii) each
Account Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale in
accordance with the laws of any state or other jurisdiction if and to the extent
reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
4.4. NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
-----------------------------------------------------
(a) AVIF will immediately notify Cova of (i) the issuance by any court or
regulatory body of any stop order, cease and desist order, or other similar
order with respect to AVIF's registration statement under the 1933 Act or AVIF
Prospectus, (ii) any request by the SEC for any amendment to such registration
statement or AVIF Prospectus that may affect the offering of Shares of AVIF,
(iii) the initiation of any proceedings for that purpose or for any other
purpose relating to the registration or offering of AVIF's Shares, or (iv) any
other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
investment medium of the Contracts issued or to be issued by Cova. AVIF will
make every reasonable effort to prevent the issuance, with respect to any Fund,
of any such stop order, cease and desist order or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible time.
(b) Cova will immediately notify AVIF of (i) the issuance by any court or
regulatory body of any stop order, cease and desist order, or other similar
order with respect to each Account's registration statement under the 1933 Act
relating to the Contracts or each Account Prospectus, (ii) any request by the
SEC for any amendment to such registration statement or Account Prospectus that
may affect the offering of Shares of AVIF, (iii) the initiation of any
proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. Cova will make every reasonable effort to prevent the issuance of
any such stop order, cease and desist order or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible time.
4.5. COVA TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
-------------------------------------------------
(a) Cova will provide to AVIF or its designated agent at least one (1)
complete copy of all SEC registration statements, Account Prospectuses, reports,
any preliminary and final voting instruction solicitation material, applications
for exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to each Account or the Contracts, contemporaneously with the
filing of such document with the SEC or other regulatory authorities.
(b) Cova will provide to AVIF or its designated agent at least one (1)
complete copy of each piece of sales literature or other promotional material in
which AVIF or any of its affiliates is named, at least five (5) Business Days
prior to its use or such shorter period as the Parties hereto may, from time to
time, agree upon. No such material shall be used if AVIF or its designated agent
objects to such use within five (5) Business Days after receipt of such material
or such shorter period as the Parties hereto may, from time to time, agree upon.
AVIF hereby designates A I M as the entity to receive such sales literature,
until such time as AVIF appoints another designated agent by giving notice to
Cova in the manner required by Section 9 hereof.
(c) Neither Cova nor any of its affiliates, will give any information or
make any representations or statements on behalf of or concerning AVIF or its
affiliates in connection with the sale of the Contracts other than (i) the
information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) Cova shall adopt and implement procedures reasonably designed to ensure
that information concerning AVIF and its affiliates that is intended for use
only by brokers or agents selling the Contracts (i.e., information that is not
intended for distribution to Participants) ("broker only materials") is so used,
and neither AVIF nor any of its affiliates shall be liable for any losses,
damages or expenses relating to the improper use of such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6. AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT COVA.
-------------------------------------------------
(a) AVIF will provide to Cova at least one (1) complete copy of all SEC
registration statements, AVIF Prospectuses, reports, any preliminary and final
proxy material, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to AVIF or the Shares of a Fund,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) AVIF will provide to Cova camera ready or computer diskette copies of
all AVIF prospectuses and printed copies, in an amount specified by Cova, of
AVIF statements of additional information, proxy materials, periodic reports to
shareholders and other materials required by law to be sent to Participants who
have allocated any Contract value to a Fund. AVIF will provide such copies to
Cova in a timely manner so as to enable Cova, as the case may be, to print and
distribute such materials within the time required by law to be furnished to
Participants.
(c) AVIF will provide to Cova or its designated agent at least one (1)
complete copy of each piece of sales literature or other promotional material in
which Cova, or any of its respective affiliates is named, or that refers to the
Contracts, at least five (5) Business Days prior to its use or such shorter
period as the Parties hereto may, from time to time, agree upon. No such
material shall be used if Cova or its designated agent objects to such use
within five (5) Business Days after receipt of such material or such shorter
period as the Parties hereto may, from time to time, agree upon. Cova shall
receive all such sales literature until such time as it appoints a designated
agent by giving notice to AVIF in the manner required by Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning Cova, each
Account, or the Contracts other than (I) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by Cova for distribution; or (iii) in sales literature or other
promotional material approved by Cova or its affiliates, except with the express
written permission of Cova.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning Cova, and
its respective affiliates that is intended for use only by brokers or agents
selling the Contracts (i.e., information that is not intended for distribution
to Participants) ("broker only materials") is so used, and neither Cova, nor any
of its respective affiliates shall be liable for any losses, damages or expenses
relating to the improper use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media, (e.g., on-line
networks such as the Internet or other electronic messages), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, and proxy materials
and any other material constituting sales literature or advertising under the
NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
-----------------------------------
5.1. GENERAL.
-------
The SEC has granted an order to AVIF exempting it from certain provisions
of the 1940 Act and rules thereunder so that AVIF may be available for
investment by certain other entities, including, without limitation, separate
accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with Cova, and
trustees of qualified pension and retirement plans (collectively, "Mixed and
Shared Funding"). The Parties recognize that the SEC has imposed terms and
conditions for such orders that are substantially identical to many of the
provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies Cova
that, in the event that AVIF implements Mixed and Shared Funding, it may be
appropriate to include in the prospectus pursuant to which a Contract is offered
disclosure regarding the potential risks of Mixed and Shared Funding.
5.2. DISINTERESTED DIRECTORS.
-----------------------
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3. MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
------------------------------------------------
AVIF agrees that its Board of Directors will monitor for the existence of
any material irreconcilable conflict between the interests of the Participants
in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). Cova agrees to inform the Board of Directors of AVIF of the existence
of or any potential for any such material irreconcilable conflict of which it is
aware. The concept of a "material irreconcilable conflict" is not defined by the
1940 Act or the rules thereunder, but the Parties recognize that such a conflict
may arise for a variety of reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax
or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by
Participants of different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive orders
of the type referred to in Section 5.1 hereof, Cova will assist the Board of
Directors in carrying out its responsibilities by providing the Board of
Directors with all information reasonably necessary for the Board of Directors
to consider any issue raised, including information as to a decision by Cova to
disregard voting instructions of Participants.
5.4. CONFLICT REMEDIES.
-----------------
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, Cova will, if it is a Participating
Insurance Company for which a material irreconcilable conflict is relevant, at
its own expense and to the extent reasonably practicable (as determined by a
majority of the Disinterested Directors), take whatever steps are necessary to
remedy or eliminate the material irreconcilable conflict, which steps may
include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the Accounts
from AVIF or any Fund and reinvesting such assets in a different
investment medium, including another Fund of AVIF, or submitting
the question whether such segregation should be implemented to a
vote of all affected Participants and, as appropriate,
segregating the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all Participants)
that votes in favor of such segregation, or offering to the
affected Participants the option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the 1940 Act
or a new separate account that is operated as a management
company.
(b) If the material irreconcilable conflict arises because of Cova's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, Cova may be
required, at AVIF's election, to withdraw each Account's investment in AVIF or
any Fund. No charge or penalty will be imposed as a result of such withdrawal.
Any such withdrawal must take place within six (6) months after AVIF gives
notice to Cova that this provision is being implemented, and until such
withdrawal AVIF shall continue to accept and implement orders by Cova for the
purchase and redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to Cova conflicts with the majority of
other state regulators, then Cova will withdraw each Account's investment in
AVIF within six (6) months after AVIF's Board of Directors informs Cova that it
has determined that such decision has created a material irreconcilable
conflict, and until such withdrawal AVIF shall continue to accept and implement
orders by Cova for the purchase and redemption of Shares of AVIF. No charge or
penalty will be imposed as a result of such withdrawal.
(d) Cova agrees that any remedial action taken by it in resolving any
material irreconcilable conflict will be carried out at its expense and with a
view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts. Cova
will not be required by the terms hereof to establish a new funding medium for
any Contracts if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
5.5. NOTICE TO COVA.
--------------
AVIF will promptly make known in writing to Cova the Board of Directors'
determination of the existence of a material irreconcilable conflict, a
description of the facts that give rise to such conflict and the implications of
such conflict.
5.6. INFORMATION REQUESTED BY BOARD OF DIRECTORS.
-------------------------------------------
Cova and AVIF (or its investment adviser) will at least annually submit to
the Board of Directors of AVIF such reports, materials or data as the Board of
Directors may reasonably request so that the Board of Directors may fully carry
out the obligations imposed upon it by the provisions hereof or any exemptive
order granted by the SEC to permit Mixed and Shared Funding, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Directors. All reports received by the Board of Directors of
potential or existing conflicts, and all Board of Directors actions with regard
to determining the existence of a conflict, notifying Participating Insurance
Companies and Participating Plans of a conflict, and determining whether any
proposed action adequately remedies a conflict, will be properly recorded in the
minutes of the Board of Directors or other appropriate records, and such minutes
or other records will be made available to the SEC upon request.
5.7. COMPLIANCE WITH SEC RULES.
-------------------------
If, at any time during which AVIF is serving as an investment medium for
variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to Mixed and Shared Funding, AVIF agrees that it will comply with the
terms and conditions thereof and that the terms of this Section 5 shall be
deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8. OTHER REQUIREMENTS.
------------------
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
----------------------
6.1. EVENTS OF TERMINATION.
---------------------
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of any party, with or without cause with respect to
the Fund, upon six (6) months advance written notice to the other parties,
or, if later, upon receipt of any required exemptive relief from the SEC,
unless otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against Cova or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding Cova's obligations under
this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings
would be based, have a material likelihood of imposing material adverse
consequences on the Fund with respect to which the Agreement is to be
terminated; or
(c) at the option of Cova upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the
NASD, the SEC, or any state insurance regulator or any other regulatory
body regarding AVIF's obligations under this Agreement or related to the
operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, Cova reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of
imposing material adverse consequences on Cova, or the Subaccount
corresponding to the Fund with respect to which the Agreement is to be
terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares
are not registered and, in all material respects, issued and sold in
accordance with any applicable federal or state law, or (ii) such law
precludes the use of such Shares as an underlying investment medium of the
Contracts issued or to be issued by Cova; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of Cova if the Fund ceases to qualify as a RIC under
Subchapter M of the Code or under successor or similar provisions, or if
Cova reasonably believes that the Fund may fail to so qualify; or
(g) at the option of Cova if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if Cova
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by Cova cease to
qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Contracts
are not registered, where required, and, in all material respects, are not
issued or sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2. NOTICE REQUIREMENT FOR TERMINATION.
----------------------------------
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given
at least six (6) months in advance of the effective date of termination
unless a shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given
at least sixty (60) days in advance of the effective date of termination
unless a shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior
written notice shall be given as soon as possible within twenty-four (24)
hours after the terminating Party learns of the event causing termination
to be required.
6.3. FUNDS TO REMAIN AVAILABLE.
-------------------------
Notwithstanding any termination of this Agreement, AVIF will, at the option
of Cova, continue to make available additional shares of the Fund pursuant to
the terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts."). Specifically, without limitation, the owners of the
Existing Contracts will be permitted to reallocate investments in the Fund (as
in effect on such date), redeem investments in the Fund and/or invest in the
Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 6.3 will not apply to any
terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4. SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
-------------------------------------------
All warranties and indemnifications will survive the termination of this
Agreement.
6.5. CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
---------------------------------------------
If any Party terminates this Agreement with respect to any Fund pursuant to
Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this
Agreement shall nevertheless continue in effect as to any Shares of that Fund
that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date as
of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") nine (9) months following the Initial Termination Date,
except that Cova may, by written notice shorten said nine (9) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
------------------------------------------------------
The Parties hereto agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
---------------------
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
SECTION 9. NOTICES
------------------
Notices and communications required or permitted by Section 9 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181
Facsimile:
Attn: General Counsel
COVA LIFE SALES COMPANY
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181
Facsimile:
Attn: General Counsel
SECTION 10. VOTING PROCEDURES
-----------------------------
Subject to the cost allocation procedures set forth in Section 3 hereof,
Cova will distribute all proxy material furnished by AVIF to Participants to
whom pass-through voting privileges are required to be extended and will solicit
voting instructions from Participants. Cova will vote Shares in accordance with
timely instructions received from Participants. Cova will vote Shares that are
(a) not attributable to Participants to whom pass-through voting privileges are
extended, or (b) attributable to Participants, but for which no timely
instructions have been received, in the same proportion as Shares for which said
instructions have been received from Participants, so long as and to the extent
that the SEC continues to interpret the 1940 Act to require pass through voting
privileges for Participants. Neither Cova nor any of its affiliates will in any
way recommend action in connection with or oppose or interfere with the
solicitation of proxies for the Shares held for such Participants. Cova reserves
the right to vote shares held in any Account in its own right, to the extent
permitted by law. Cova shall be responsible for assuring that each of its
Accounts holding Shares calculates voting privileges in a manner consistent with
that of other Participating Insurance Companies or in the manner required by the
Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify Cova
of any changes of interpretations or amendments to Mixed and Shared Funding
exemptive order it has obtained. AVIF will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular, AVIF either will
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or will comply with Section 16(c)
of the 1940 Act (although AVIF is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, AVIF will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
-------------------------------
AVIF agrees to consult in advance with Cova concerning any decision to
elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
---------------------------
12.1 OF AVIF AND AIM BY COVA AND COVA SALES.
--------------------------------------
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below,
Cova and Cova Sales agree to indemnify and hold harmless AVIF, its affiliates
(including AIM), and each person, if any, who controls AVIF or its affiliates
within the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes of
this Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Cova and Cova
Sales) or actions in respect thereof (including, to the extent reasonable, legal
and other expenses), to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise; provided, the Account owns
shares of the Fund and insofar as such losses, claims, damages, liabilities or
actions:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Account's
1933 Act registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to Cova or Cova
Sales by or on behalf of AVIF for use in any Account's 1933 Act
registration statement, any Account Prospectus, the Contracts, or
sales literature or advertising or otherwise for use in
connection with the sale of Contracts or Shares (or any amendment
or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, not supplied for
use therein by or on behalf of Cova, Cova Sales or their
respective affiliates and on which such persons have reasonably
relied) or the negligent, illegal or fraudulent conduct of Cova,
Cova Sales or their respective affiliates or persons under their
control (including, without limitation, their employees and
"Associated Persons," as that term is defined in paragraph (m) of
Article I of the NASD's By-Laws), in connection with the sale or
distribution of the Contracts or Shares; or
(iii)arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with
information furnished to AVIF or its affiliates by or on behalf
of Cova, Cova Sales or their respective affiliates for use in
AVIF's 1933 Act registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment or supplement
to any of the foregoing; or
(iv) arise as a result of any failure by Cova or Cova Sales to perform
the obligations, provide the services and furnish the materials
required of them under the terms of this Agreement, or any
material breach of any representation and/or warranty made by
Cova or Cova Sales in this Agreement or arise out of or result
from any other material breach of this Agreement by Cova or Cova
Sales; or
(v) arise as a result of failure by the Contracts issued by Cova to
qualify as annuity contracts or life insurance contracts under
the Code, otherwise than by reason of any Fund's failure to
comply with Subchapter M or Section 817(h) of the Code.
(b) Neither Cova nor Cova Sales shall be liable under this Section 12.1
with respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of that Indemnified Party's reckless disregard of
obligations or duties (i) under this Agreement, or (ii) to AVIF.
(c) Neither Cova nor Cova Sales shall be liable under this Section 12.1
with respect to any action against an Indemnified Party unless AVIF shall have
notified Cova and Cova Sales in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Cova and Cova Sales of any such action shall not
relieve Cova and Cova Sales from any liability which they may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this Section 12.1. Except as otherwise provided herein, in case any such
action is brought against an Indemnified Party, Cova and Cova Sales shall be
entitled to participate, at their own expense, in the defense of such action and
also shall be entitled to assume the defense thereof, with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from Cova or Cova Sales to such Indemnified
Party of Cova's or Cova Sales's election to assume the defense thereof, the
Indemnified Party will cooperate fully with Cova and Cova Sales and shall bear
the fees and expenses of any additional counsel retained by it, and neither Cova
nor Cova Sales will be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
12.2 OF COVA AND COVA SALES BY AVIF AND AIM.
--------------------------------------
(a) Except to the extent provided in Sections 4.1(c),12.2(c), 12.2(d) and
12.2(e), below, AVIF and AIM agree to indemnify and hold harmless Cova, Cova
Sales, their respective affiliates, and each person, if any, who controls Cova,
Cova Sales or their respective affiliates within the meaning of Section 15 of
the 1933 Act and each of their respective directors and officers, (collectively,
the "Indemnified Parties" for purposes of this Section 12.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of AVIF and/or AIM) or actions in respect thereof
(including, to the extent reasonable, legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law, or otherwise; provided, insofar as such losses, claims, damages,
liabilities or actions are related to the sale or acquisition of AVIF's shares
and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus or sales literature
or advertising of AVIF (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or its
affiliates by or on behalf of Cova, Cova Sales or their
respective affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, or in sales literature or advertising
or otherwise for use in connection with the sale of Contracts or
Shares (or any amendment or supplement to any of the foregoing);
or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising for the
Contracts, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of AVIF
or AIM or their respective affiliates and on which such persons
have reasonably relied) or the negligent, illegal or fraudulent
conduct of AVIF or AIM or their respective affiliates or persons
under their control (including, without limitation, their
employees and "Associated Persons" as that Term is defined in
Section (q) of Article 1 of the NASD By-Laws), in connection with
the sale or distribution of AVIF Shares; or
(iii)arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Account's
1933 Act registration statement, any Account Prospectus, sales
literature or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing, or the omission
or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance
upon and in conformity with information furnished to Cova, Cova
Sales or their respective affiliates by or on behalf of AVIF or
AIM for use in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the materials
required of it under the terms of this Agreement, or any material
breach of any representation and/or warranty made by AVIF in this
Agreement or arise out of or result from any other material
breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e)
hereof, AVIF and AIM agree to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of AVIF)
or actions in respect thereof (including, to the extent reasonable, legal and
other expenses) to which the Indemnified Parties may become subject directly or
indirectly under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or indirectly result
from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against Cova pursuant to the Contracts, the costs of any
ruling and closing agreement or other settlement with the IRS, and the cost of
any substitution by Cova of Shares of another investment company or portfolio
for those of any adversely affected Fund as a funding medium for each Account
that Cova reasonably deems necessary or appropriate as a result of the
noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to Cova, Cova Sales,
each Account or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any action against an Indemnified Party unless the Indemnified Party
shall have notified AVIF and/or AIM in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF or AIM of any such action shall not relieve
AVIF or AIM from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF and/or AIM will be entitled to participate,
at its own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the conduct
of any ruling request and closing agreement or other settlement proceeding with
the IRS), with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from AVIF and/or
AIM to such Indemnified Party of AVIF's and/or AIM's election to assume the
defense thereof, the Indemnified Party will cooperate fully with AVIF and AIM
and shall bear the fees and expenses of any additional counsel retained by it,
and neither AVIF nor AIM will be liable to such Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof, other
than reasonable costs of investigation.
(e) In no event shall AVIF or AIM be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, Cova, Cova Sales or any other Participating Insurance
Company or any Participant, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of any
representation, warranty, and/or covenant made by Cova or Cova Sales hereunder
or by any Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii) the
failure by Cova or any Participating Insurance Company to maintain its
segregated asset account (which invests in any Fund) as a legally and validly
established segregated asset account under applicable state law and as a duly
registered unit investment trust under the provisions of the 1940 Act (unless
exempt therefrom); or (iii) the failure by Cova or any Participating Insurance
Company to maintain its variable annuity or life insurance contracts (with
respect to which any Fund serves as an underlying funding vehicle) as annuity
contracts or life insurance contracts under applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
----------------
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Sections 12.1(c) or 12.2(d) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
12.4 SUCCESSORS.
----------
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
--------------------------
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
-------------------------------------
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
SECTION 15. SEVERABILITY
------------------------
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
-----------------------------
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
--------------------
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
SECTION 18. CONFIDENTIALITY
---------------------------
AVIF acknowledges that the identities of the customers of Cova or any of
its affiliates (collectively, the "Cova Protected Parties" for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the Cova Protected
Parties or any of their employees or agents in connection with Cova's
performance of its duties under this Agreement are the valuable property of the
Cova Protected Parties. AVIF agrees that if it comes into possession of any list
or compilation of the identities of or other information about the Cova
Protected Parties' customers, or any other information or property of the Cova
Protected Parties, other than such information as may be independently developed
or compiled by AVIF from information supplied to it by the Cova Protected
Parties' customers who also maintain accounts directly with AVIF, AVIF will hold
such information or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except: (a) with Cova's
prior written consent; or (b) as required by law or judicial process. Cova
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively the "AVIF Protected Parties" for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF's
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. Cova agrees that if it comes into possession of any list
or compilation of the identities of or other information about the AVIF
Protected Parties' customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by Cova from information supplied to it by the AVIF Protected
Parties' customers who also maintain accounts directly with Cova, Cova will hold
such information or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except: (a) with AVIF's
prior written consent; or (b) as required by law or judicial process. Each party
acknowledges that any breach of the agreements in this Section 18 would result
in immediate and irreparable harm to the other parties for which there would be
no adequate remedy at law and agree that in the event of such a breach, the
other parties will be entitled to equitable relief by way of temporary and
permanent injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
SECTION 19. PARTIES TO COOPERATE
--------------------------------
Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD and state insurance regulators) and will permit each other and such
authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
SECTION 20. AMENDMENTS
----------------------
No provision of this Agreement may be amended or modified in any manner
except by a written agreement executed by all parties hereto.
SECTION 21. ASSIGNMENT
----------------------
This Agreement may not be assigned without the prior written consent of all
parties hereto.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
<TABLE>
<CAPTION>
<S> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: ________________________ By: ______________________________________
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: ________________________ By: ______________________________________
Name: ________________________ Name: ______________________________________
Title: ________________________ Title:______________________________________
</TABLE>
COVA FINANCIAL SERVICES LIFE
INSURANCE COMPANY, on behalf of itself and its
separate accounts
Attest: ________________________ By: ____________________________
Name: ________________________ Name: ____________________________
Title: ________________________ Title: ____________________________
COVA LIFE SALES COMPANY
Attest: ________________________ By: ____________________________
Name: ________________________ Name: ____________________________
Title: ________________________ Title: ____________________________
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
- -----------------------------------
* AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
- -------------------------------------
* Cova Variable Annuity Account One
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
- -----------------------------------------
* Contract Form # XL-407
* Contract Form # CL-407
* Contract Form # XL-617
* Contract Form # CL-617
PARTICIPATION AGREEMENT
-----------------------
AMONG
-----
INVESTORS FUND SERIES
ZURICH KEMPER INVESTMENTS, INC.
ZURICH KEMPER DISTRIBUTORS, INC.
AND
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this ___ day of ________, 1997 by
and among Cova Financial Services Life Insurance Company (hereinafter, the
"Company"), a Missouri insurance company, on its own behalf and on behalf of
each separate account of the Company set forth on Schedule A hereto as may be
amended from time to time (each account hereinafter referred to as an
"Account"), Investors Fund Series, a business trust organized under the laws of
the Commonwealth of Massachusetts (hereinafter the "Fund"), Zurich Kemper
Investments, Inc. (hereinafter the "Adviser"), a Delaware corporation, and
Zurich Kemper Distributors, Inc. (hereinafter the "Underwriter"), a Delaware
corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance and variable annuity contracts
(hereinafter the "Variable Insurance Products") offered by insurance companies
that have entered into participation agreements with the Fund (hereinafter
"Participating Insurance Companies");
WHEREAS, the beneficial interest in the Fund is divided into several series of
shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(SEC Release No. IC-17164; File No. 812-7345; hereinafter the "Shared Funding
Exemption Order");
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act");
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws;
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts supported wholly or partially by the
Accounts (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement;
WHEREAS, each Account is duly established and maintained as a separate account,
established by resolution of the Board of Directors of the Company, on the date
shown for such Account on Schedule A hereto, to set aside and invest assets
attributable to the aforesaid Contracts;
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act;
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC under the
Securities Exchange Act of 1934, as amended ("1934 Act"), and is a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios listed in Schedule A
hereto, as it may be amended from time to time by mutual written agreement
("Designated Portfolios"), on behalf of the Accounts to fund the aforesaid
Contracts, and the Underwriter is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company also intends to purchase shares in other open-end investment
companies or series thereof not affiliated with the Fund ("Unaffiliated Funds")
on behalf of the Accounts to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and the Underwriter agree as follows:
ARTICLE I
Sale of Fund Shares
-------------------
I.1 The Underwriter agrees to sell to the Company those shares of the Designated
Portfolios that the Accounts order, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Designated Portfolios.
I.2 The Fund agrees to make shares of each Designated Portfolio available for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Fund calculates such Designated Portfolio's
net asset value pursuant to rules of the SEC, and the Fund shall use reasonable
efforts to calculate such net asset value on each day when the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the Board of
Trustees of the Fund ("Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction, or is, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary in the best interest of the shareholders of
such Designated Portfolio.
I.3 The Fund and the Underwriter agree that shares of the Fund will be sold only
to Participating Insurance Companies or their separate accounts in accordance
with the requirements of Section 817(h)(4) of the Internal Revenue Code of 1986,
as amended ("Code") and Treasury Regulation Section 1.817-5. No shares of any
Designated Portfolios will be sold to the general public. The Fund and the
Underwriter will not sell shares of any Designated Portfolio to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Sections 2.1, 3.4, 3.5 and 3.6 and Article VII of this
Agreement is in effect to govern such sales.
I.4 The Fund agrees to redeem, on the Company's request, any full or fractional
shares of the Designated Portfolios held by the Company, executing such requests
on a daily basis at the net asset value next computed after receipt by the Fund
or its designee of the request for redemption, except that the Fund reserves the
right to suspend the right of redemption or postpone the date of payment or
satisfaction upon redemption consistent with Section 22(e) of the 1940 Act and
any rules thereunder, and in accordance with the procedures and policies of the
Fund as described in the Fund's then current prospectus.
I.5 For purposes of Sections I.1 and I.4, the Company shall be the designee of
the Fund for receipt of purchase and redemption orders from the Accounts, and
receipt by such designee shall constitute receipt by the Fund; provided that the
Company receives the order prior to the determination of net asset value as set
forth in the Fund's then current prospectus and the Fund receives notice of such
order by 9:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the SEC.
I.6 The Company agrees to purchase and redeem the shares of each Designated
Portfolio offered by the Fund's then current prospectus in accordance with the
provisions of such prospectus.
I.7 The Company shall pay for shares of a Designated Portfolio on the next
Business Day after receipt of an order to purchase shares of such Designated
Portfolio. Payment shall be in federal funds transmitted by wire by 11:00 a.m.
New York time. If payment in federal funds for any purchase is not received or
is received by the Fund after 11:00 a.m. New York time on such Business Day, the
Company shall promptly, upon the Fund's request, reimburse the Fund for any
charges, costs, fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowing or overdrafts by, the Fund, or any
similar expenses incurred by the Fund, as a result of portfolio transactions
effected by the Fund based upon such purchase request. For purposes of Section
2.8 and 2.9 hereof, upon receipt by the Fund of the federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become the
responsibility of the Fund.
I.8 Issuance and transfer of the shares of a Designated Portfolio will be by
book entry only. Stock certificates will not be issued to the Company or any
Account. Shares of a Designated Portfolio ordered from the Fund will be recorded
in an appropriate title for each Account or the appropriate subaccount of each
Account.
I.9 The Fund shall furnish same-day notice (by wire or telephone, followed by
written confirmation) to the Company of any income, dividends or capital gain
distributions payable on shares of the Designated Portfolios. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on shares of a Designated Portfolio in additional shares of that
Designated Portfolio. The Company reserves the right to revoke this election and
to receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions. The Fund shall use its best efforts to furnish
advance notice of the day such dividends and distributions are expected to be
paid.
I.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. New York time) and shall use its best efforts to make such net asset value
per share available by 7:00 p.m. New York time. In the event the Fund is unable
to meet the 7:00 p.m. time stated herein, it shall provide additional time for
the Company to place orders for the purchase and redemption of shares. Such
additional time shall be equal to the additional time which the Fund takes to
make the net asset value available to the Company. If Fund provides the Company
with materially incorrect share net asset value information through no fault of
the Company, the Company on behalf of the Separate Accounts, shall be entitled
to an adjustment to the number of shares purchased or redeemed to reflect the
correct share net asset value. Any material error in the calculation of net
asset value per share, dividend or capital gain information shall be reported
promptly upon discovery to the Company. If a Separate Account due to such error
has received amounts in excess of the amounts to which it is entitled, the
Company, when requested by Fund, shall make adjustments to the Separate Account
to reflect the change in the values of the shares as reflected in the unit
values of the affected Variable Contract owners who still have values in the
applicable designated Portfolio. The parties shall use all reasonable efforts to
reach agreement as to resolution of any such errors within two business days
after the discovery of the error.
I.11 The Parties hereto acknowledge that the arrangement contemplated by this
Agreement is not exclusive; the shares of the Designated Portfolios (and other
Portfolios of the Fund) may be sold to other insurance companies (subject to
Section I.3 and Article VII hereof) and the cash value of the Contracts may be
invested in other investment companies.
I.12 The Company agrees that, upon the request of the Fund, the Underwriter or
the Adviser, the Company will cooperate in the development and imposition of
reasonable restrictions upon the transfer by Contract owners of amounts to or
from sub-accounts investing in the Designated Portfolios, which transfers are
implemented by or through a financial services firm offering market timing,
asset allocation or similar services.
ARTICLE II
Representations and Warranties
------------------------------
II.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be continually issued,
offered for sale and sold in compliance in all material respects with all
applicable federal and state laws and that the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
separate account under the Missouri insurance laws and has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
separate account for the Contracts.
II.2 The Fund represents and warrants that shares of the Designated Portfolios
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws and that the Fund is and shall remain registered under the 1940
Act. The Fund shall amend the Registration Statement for its shares under the
1933 Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Fund shall register and qualify the
shares of the Designated Portfolios for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund after
taking into consideration any state insurance law requirements that the Company
advises the Fund may be applicable.
II.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future subject to applicable law.
II.4 The Fund makes no representations as to whether any aspect of its
operation, including but not limited to, investments policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the investment policies, fees and
expenses of the Designated Portfolios are and shall at all times remain in
compliance with the insurance laws of the State of Missouri to the extent
required to perform this Agreement. The Company will advise the Fund in writing
as to any requirements of Missouri insurance law that affect the Designated
Portfolios, and the Fund will be deemed to be in compliance with this Section
2.4 so long as the Fund complies with such advice of the Company.
II.5 The Fund represents that it is lawfully organized and validly existing as a
business trust under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act.
II.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the shares of
the Designated Portfolios in accordance with any applicable state and federal
securities laws.
II.7 The Adviser represents and warrants that it is and shall remain duly
registered as an investment adviser under all applicable federal and state
securities laws and that the Adviser shall perform its obligations for the Fund
in compliance in all material respects with any applicable state and federal
securities laws.
II.8 The Fund, the Adviser and the Underwriter represent and warrant that all
their directors, officers, employees, investment advisers, and other individuals
or entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage required currently by Rule 17g-1 of the 1940 Act or such related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
II.9 The Company represents and warrants that all its directors, officers,
employees, investment advisers, and other individuals or entities employed or
controlled by the Company dealing with the money and/or securities of the Fund
are covered by a blanket fidelity bond or similar coverage in an amount not less
than $5 million. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company. The Company agrees
that this bond or another bond containing these provisions will always be in
effect, and agrees to notify the Fund, the Adviser and the Underwriter in the
event that such coverage no longer applies.
II.10 The Company represents and warrants that all shares of the Designated
Portfolios purchased by the Company will be purchased on behalf of one or more
unmanaged separate accounts that offer interests therein that are registered
under the 1933 Act and upon which a registration fee has been or will be paid;
and the Company acknowledges that the Fund intends to rely upon this
representation and warranty for purposes of calculating SEC registration fees
payable with respect to such shares of the Designated Portfolios pursuant to
Instruction B.5 to Form 24F-2 or any similar form or SEC registration fee
calculation procedure that allows the Fund to exclude shares so sold for
purposes of calculating its SEC registration fee. The Company agrees to
cooperate with the Fund on no less than an annual basis to certify as to its
continuing compliance with this representation and warranty.
ARTICLE III
Prospectuses, Statements of Additional
Information, and Proxy Statements; Voting
-----------------------------------------
III.1 The Fund shall provide the Company with as many copies of the Fund's
current prospectus for the Designated Portfolios as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus) and other
assistance (including a "camera ready" copy of the new prospectus as set in type
or a computer diskette containing a copy of the new prospectus in the form sent
to the financial printer with format changes being subject to Fund consent, in
which case the Company shall be responsible for the accuracy of any change in
the format of such prospectus when printed) as is reasonably necessary in order
for the Company once each year (or more frequently if the prospectus for a
Designated Portfolio is amended) to have the prospectus for the Contracts and
the prospectus for the Designated Portfolios and other funds printed together in
one document. Expenses with respect to the foregoing shall be borne as provided
under Article V.
III.2 The Fund's prospectus shall disclose that (a) the Fund is intended to be a
funding vehicle for all types of variable annuity and variable life insurance
contracts offered by Participating Insurance Companies, (b) material
irreconcilable conflicts of interest may arise, and (c) the Fund's Board will
monitor events in order to identify the existence of any material irreconcilable
conflicts and determine what action, if any, should be taken in response to such
conflicts. The Fund hereby notifies the Company that disclosure in the
prospectus for the Contracts regarding the potential risks of mixed and shared
funding may be appropriate. Further, the Fund's prospectus shall state that the
current Statement of Additional Information ("SAI") for the Fund is available
from the Company (or, in the Fund's discretion, from the Fund), and the Fund
shall provide a copy of such SAI to any owner of a Contract who requests such
SAI and to the Company in such quantities as the Company may reasonably request.
Expenses with respect to the foregoing shall be borne as provided under Article
V.
III.3 The Fund shall provide the Company with copies of its proxy material,
reports to shareholders, and other communications to shareholders for the
Designated Portfolios in such quantity as the Company shall reasonably require
for distributing to Contract owners. Expenses with respect to the foregoing
shall be borne as provided under Article V.
III.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the shares of each Designated Portfolio in accordance with
instructions received from Contract owners; and
(iii)vote shares of each Designated Portfolio for which no instructions
have been received in the same proportion as shares of such Designated
Portfolio for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote shares
of each Designated Portfolio held in any separate account in its own right, to
the extent permitted by law.
III.5 The Company shall be responsible for assuring that each of its separate
accounts participating in a Designated Portfolio calculates voting privileges as
required by the Shared Funding Exemption Order and consistent with any
reasonable standards that the Fund has adopted or may adopt.
III.6 The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular the Fund will either provide for annual
meetings or comply with Section 16(c) of the 1940 Act (although the Fund is not
one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, Section 16(b). Further, the Fund
will act in accordance with the SEC's interpretation of the requirements of
Section 16(a) with respect to periodic elections of directors or trustees and
with whatever rules the SEC may promulgate from time to time with respect
thereto. The Fund reserves the right, upon prior written notice to the Company
(given at the earliest practicable time), to take all actions, including but not
limited to, the dissolution, termination, merger and sale of all assets of the
Fund or any Designated Portfolio upon the sole authorization of the Board, to
the extent permitted by the laws of the Commonwealth of Massachusetts and the
1940 Act.
III.7 It is understood and agreed that, except with respect to information
regarding the Fund, the Underwriter, the Adviser or Designated Portfolios
provided in writing by the Fund, the Underwriter or the Adviser, none of the
Fund, the Underwriter or the Adviser is responsible for the content of the
prospectus or statement of additional information for the Contracts.
ARTICLE IV
Sales Material and Information
------------------------------
IV.1 The Company shall furnish, or shall cause to be furnished, to the Fund or
the Underwriter, each piece of sales literature or other promotional material
("sales literature") that the Company develops or uses and in which the Fund (or
a Designated Portfolio thereof) or the Adviser or the Underwriter is named, at
least eight business days prior to its use. No such material shall be used if
the Fund or its designee reasonably objects to such use within eight business
days after receipt of such material. The Fund or its designee reserves the right
to reasonably object to the continued use of such material, and no such material
shall be used if the Fund or its designee so object.
IV.2 The Company shall not give any information or make any representation or
statement on behalf of the Fund or concerning the Fund in connection with the
sale of the Contracts other than the information or representations contained in
the registration statement, prospectus or SAI for the shares of the Designated
Portfolios, as such registration statement, prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature approved by the Fund or its designee or by the
Underwriter, except with the permission of the Fund or the Underwriter or the
designee of either.
IV.3 The Fund or the Underwriter shall furnish, or shall cause to be furnished,
to the Company, each piece of sales literature that the Fund or Underwriter
develops or uses in which the Company and/or its Account is named, at least
eight business days prior to its use. No such material shall be used if the
Company reasonably objects to such use within eight business days after receipt
of such material. The Company reserves the right to reasonably object to the
continued use of such material and no such material shall be used if the Company
so objects.
IV.4 The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account,
or the Contracts other than the information or representations contained in a
registration statement, prospectus, or statement of additional information for
the Contracts, as such registration statement, prospectus or statement of
additional information may be amended or supplemented from time to time, or in
published reports for the Accounts which are the public domain or approved by
the Company for distribution to Contract owners, or in sales literature approved
by the Company or its designee, except with the permission of the Company.
IV.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Designated Portfolios,
contemporaneously with the filing of such document(s) with the SEC or other
regulatory authorities.
IV.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
shareholder reports, solicitations for voting instructions, sales literature,
applications for exemptions, request for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Accounts,
contemporaneously with the filing of such document(s) with the SEC or other
regulatory authorities.
IV.7 For purposes of this Agreement, the phrase "sales literature" includes, but
is not limited to, any of the following: advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, electronic media, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article) and educational or
training materials or other communications distributed or made generally
available to some or all agents or employees.
IV.8 At the request of any party to this Agreement, any other party will make
available to the requesting party's independent auditors all records, data and
access to operating procedures that may reasonably be requested in connection
with compliance and regulatory requirements related to this Agreement or any
party's obligations under this Agreement.
ARTICLE V
Fees and Expenses
-----------------
V.1 All expenses incident to performance by the Fund under this Agreement shall
be paid by the Fund, except and as further provided in Schedule B. The Fund
shall see to it that all shares of the Designated Portfolios are registered,
duly authorized for issuance and sold in compliance with applicable federal
securities laws and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state securities laws prior to their sale.
V.2 The parties hereto shall bear the expenses of typesetting, printing and
distributing the Fund's prospectus, SAI, proxy materials and reports as provided
in Schedule B.
V.3 Administrative services to variable Contract owners shall be the
responsibility of the Company and shall not be the responsibility of the Fund,
Underwriter or Adviser. The Fund recognizes the Company as the sole shareholder
of shares of the Designated Portfolios issued under the Agreement.
V.4 The Fund shall not pay and neither the Adviser nor the Underwriter shall pay
any fee or other compensation to the Company under this Agreement, although the
parties will bear certain expenses in accordance with Schedule B and other
provisions of this Agreement.
ARTICLE VI
Diversification and Qualification
---------------------------------
VI.1 The Fund will invest the assets of each Designated Portfolio in such a
manner as to ensure that the Contracts will be treated as annuity or life
insurance contracts, whichever is appropriate, under the Internal Revenue Code
of 1986, as amended ("Code") and the regulations issued thereunder (or any
successor provisions). Without limiting the scope of the foregoing, the Fund
will, with respect to each Designated Portfolio, comply with Section 817(h) of
the Code and Treasury Regulation 1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI, the Fund will take all reasonable steps
(a) to notify the Company of such breach and (b) to adequately diversify the
affected Designated Portfolio so as to achieve compliance within the grace
period afforded by Treasury Regulation 1.817-5.
VI.2 The Fund represents that each Designated Portfolio is currently qualified
(and for new Designated Portfolios, intends to qualify) as a Regulated
Investment Company under Subchapter M of the Code, and that it will maintain
such qualification (under Subchapter M or any successor or similar provisions)
and that it will notify the Company immediately upon having a reasonable basis
for believing that a Designated Portfolio has ceased to so qualify or that a
Designated Portfolio might not so qualify in the future.
VI.3 The Company represents that the Contracts are currently, and at the time of
issuance shall be, treated as life insurance or annuity insurance contracts,
under applicable provisions of the Code, and that it will make every effort to
maintain such treatment, and that it will notify the Fund, the Adviser and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is a
"modified endowment contract" as that term is defined in Section 7702A of the
Code (or any successor or similar provision), shall identify such contract as a
modified endowment contract.
ARTICLE VII
Potential Conflicts
-------------------
VII.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Designated Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of contract owners. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
VII.2 The Company and the Adviser will report any potential or existing
conflicts of which each is aware to the Board. The Company will assist the Board
in carrying out its responsibilities under the Shared Funding Exemption Order,
by providing the Board with all information reasonably necessary for the Board
to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever Contract owner voting
instructions are disregarded. At least annually, and more frequently if deemed
appropriate by the Board, the Company shall submit to the Adviser, and the
Adviser shall at least annually submit to the Board, such reports, materials and
data as the Board may reasonably request so that the Board may fully carry out
the obligations imposed upon it by the conditions contained in the Shared
Funding Exemption Order; and said reports, materials and data shall be submitted
more frequently if deemed appropriate by the Board. The responsibility to report
such information and conflicts to the Board will be carried out with a view only
to the interests of the contract owners.
VII.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and any other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (a),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Designated Portfolio and reinvesting such assets in a different
investment medium, which may include another Designated Portfolio of the Fund,
or submitting to a vote of all affected contract owners the question whether
such segregation should be implemented and, as appropriate, segregating the
assets of any appropriate group (i.e. annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected contract owners the option of making such a change; and (b),
establishing a new registered management investment company or managed separate
account.
VII.4 If a material irreconcilable conflict arises because of a decision by the
Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in any Designated Portfolio and terminate this Agreement with respect
to such Account provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. The
Company will bear the cost of any remedial action, including such withdrawal and
termination. No penalty will be imposed by the Fund upon the affected Account
for withdrawing assets from the Fund in the event of a material irreconcilable
conflict. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the effective date of such termination the Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of such Designated Portfolio.
VII.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the affected Designated Portfolio and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the effective date of such termination the Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of such Designated Portfolios.
VII.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict; but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw an Account's investment in any Designated Portfolio and
terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
VII.7 If and to the extent the Shared Funding Exemption Order contains terms and
conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of
this Agreement, then the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with the Shared
Funding Exemption Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5
of the Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in the Shared
Funding Exemption Order or any amendment thereto. If and to the extent that Rule
6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Shared Funding
Exemption Order) on terms and conditions materially different from those
contained in the Shared Funding Exemption Order, then (a) the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5,
3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only
to the extent that terms and conditions substantially identical to such Sections
are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII
Indemnification
---------------
VIII.1 Indemnification by the Company.
-------------------------------
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Underwriter and each of their officers, trustees and directors and
each person, if any, who controls the Fund, the Adviser or the Underwriter
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the shares of the Designated Portfolios or
the Contracts and;
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement, prospectus, or statement of additional information for the
Contracts or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by
or on behalf of the Fund for use in the Registration Statement, prospectus
or statement of additional information for the Contracts or in the
Contracts or sales literature for the Contracts (for any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or shares of the Designated Portfolios; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus, SAI or sales literature of the Fund not supplied by
the Company or persons under its control) or wrongful conduct of the
Company or persons under its authorization or control, with respect to the
sale or distribution of the Contracts or shares of the Designated
Portfolios; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, prospectus, SAI or
sales literature of the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading if such a statement or omission was made in reliance upon
information furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith or
otherwise, to comply with the qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in any Registration
Statement, prospectus, statement of additional information or sales
literature for any Unaffiliated Fund, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or otherwise pertain to or arise in connection with the
availability of any Unaffiliated Fund as an underlying funding vehicle in
respect of the Contracts; or
(vi) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company;
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c).
(b) The Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of its obligations or duties under this Agreement.
(c) The Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim shall not
relieve the Company from any liability that it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision, except to the extent that the Company has been
prejudiced by such failure to give notice. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the shares of the Designated Portfolios or the Contracts
or the operation of the Fund.
VIII.2 Indemnification by the Underwriter
----------------------------------
(a) The Underwriter agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of shares of the Designated Portfolios or
the Contracts; and
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, prospectus or SAI of the Fund or sales literature of the Fund
developed by the Underwriter (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or its sales literature
(or any amendment or supplement thereto) or otherwise for use in connection
with the sale of the Contracts or shares of the Designated Portfolios; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not supplied by
the Underwriter or persons under its control) or wrongful conduct of the
Fund or Underwriter or person under their control with respect to the sale
or distribution of the Contracts or shares of the Designated Portfolios; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, prospectus or sales
literature for the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission was made
in reliance upon information furnished to the Company by or on behalf of
the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise,
to comply with the diversification and other qualification requirements
specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Accounts, whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision, except to the extent that the
Underwriter has been prejudiced by such failure to give notice. In case any such
action is brought against the Indemnified Party, the Underwriter will be
entitled to participate, at its own expense, in the defense thereof. The
Underwriter also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action and to settle the claim at is own
expense; provided, however, that no such settlement shall, without the
Indemnified Parties' written consent, include any factual stipulation referring
to the Indemnified Parties or their conduct. After notice from the Underwriter
to such party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
VIII.3 Indemnification By the Fund
---------------------------
(a) The Fund agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Fund); or litigation (including legal and other expenses)
to which the Indemnified Parties may be required to pay or may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereof) or settlements, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise,
to comply with the diversification and qualification requirements specified
in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
(b) The Fund shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter, the Adviser or the Accounts, whichever is
applicable.
(c) The Fund shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the Fund in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve the
Fund from any liability that it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this indemnification
provision, except to the extent that the Fund has been prejudiced by such
failure to give notice. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action and
to settle the claim at its own expense; provided, however, that no such
settlement shall, without the Indemnified Parties' written consent, include any
factual stipulation referring to the Indemnified Parties or their conduct. After
notice from the Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
(d) The Company, the Adviser and the Underwriter agree to notify the Fund
promptly of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of any Account, or the sale or
acquisition of shares of the Designated Portfolios.
ARTICLE IX
Applicable Law
--------------
IX.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
IX.2 This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from the statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemption Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X
Termination
-----------
X.1 This Agreement shall continue in full force and effect until the first to
occur of:
(a) termination by any party, for any reason with respect to any Designated
Portfolio, by six (6) months' advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the Fund, the Adviser
and the Underwriter with respect to any Designated Portfolio based upon the
Company's reasonable and good faith determination that shares of such Designated
Portfolio are not reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the Fund, the Adviser
and the Underwriter with respect to any Designated Portfolio if the shares of
such Designated Portfolio are not registered, issued or sold in accordance with
applicable state and/or federal securities laws or such law precludes the use of
such shares to fund the Contracts issued or to be issued by the Company; or
(d) termination by the Fund, the Adviser or Underwriter in the event that
formal administrative proceedings are instituted against the Company or any
affiliate by the NASD, the SEC, or the Insurance Commissioner or like official
of any state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the operation of any
Account, or the purchase of the shares of a Designated Portfolio or the shares
of any Unaffiliated Fund, provided, however, that the Fund, the Adviser or
Underwriter determines in its sole judgement exercised in good faith, that any
such administrative proceedings will have a material adverse effect upon the
ability of the Company to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal administrative
proceedings are instituted against the Fund, the Adviser or Underwriter by the
NASD, the SEC, or any state securities or insurance department or any other
regulatory body, provided, however, that the Company determines in its sole
judgment exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund, the Adviser
and the Underwriter with respect to any Designated Portfolio in the event that
such Designated Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M or fails to comply with the Section 817(h) diversification
requirements specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund, the Adviser or Underwriter by written notice
to the Company in the event that the Contracts fail to meet the qualifications
specified in Article VI hereof; or
(h) termination by any of the Fund, the Adviser or the Underwriter by
written notice to the Company, if any of the Fund, the Adviser or the
Underwriter, respectively, shall determine, in their sole judgement exercised in
good faith, that the Company has suffered a material adverse change in its
business, operations, financial condition, insurance company rating or prospects
since the date of this Agreement or is the subject of material adverse
publicity; or
(i) termination by the Company by written notice to the Fund, the Adviser
and the Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that the Fund, the Adviser or the Underwriter has
suffered a material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is the subject of
material adverse publicity and that material adverse change or publicity will
have a material adverse effect on the Fund's or the Underwriter's ability to
perform its obligations under this Agreement; or
(j) at the option of Company, as one party, or the Fund, the Adviser and
the Underwriter, as one party, upon the other party's material breach of any
provision of this Agreement upon 30 days' notice and opportunity to cure.
X.2 Effect of Termination. Notwithstanding any termination of this Agreement,
the Fund and the Underwriter shall, at the option of the Company, continue to
make available additional shares of a Designated Portfolio pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may in such
event be permitted to reallocate investments in the Designated Portfolios,
redeem investments in the Designated Portfolios and/or invest in the Designated
Portfolios upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.2 shall not apply to any
termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
X.3 Notwithstanding any termination of this Agreement, each party's obligation
under Article VIII to indemnify the other parties and Section 12.4 shall
survive.
ARTICLE XI
Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Investors Fund Series
222 South Riverside Plaza
Chicago, Illinois 60606
Attention: Secretary
If to the Company:
Cova Financial Services Life Insurance Company
One Tower Lane
Suite 3000
Oakbrook Terrace, Illinois 60181
Attention: General Counsel
If to the Adviser:
Zurich Kemper Investments, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
Attention: Secretary
If to the Underwriter:
Zurich Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
Attention: Secretary
ARTICLE XII
Miscellaneous
-------------
XII.1 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
XII.2 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
XII.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
XII.4 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Delaware Insurance Commissioner with any information or
reports in connection with services provided under this Agreement that such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Delaware variable annuity laws and regulations and any other applicable law or
regulations.
XII.5 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
XII.6 This Agreement or any of the rights and obligations hereunder may not be
assigned by any party without the prior written consent of all parties hereto.
XII.7 All persons are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which on file with the
Secretary of the Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund with
respect to a Designated Portfolio hereunder are not binding upon any of the
trustees, officers or shareholders of the Fund individually, but are binding
upon only the assets and property of such Designated Portfolio. All parties
dealing with the Fund with respect to a Designated Portfolio shall look solely
to the assets of such Designated Portfolio for the enforcement of any claims
against the Fund hereunder.
XII.8 No provision of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by the parties
hereto.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
in its name and on behalf by its duly authorized representative and its seal to
be hereunder affixed hereto as of the date specified below.
COMPANY: Cova Financial Services Life Insurance Company
By:____________________________________________
Title:_________________________________________
FUND: Investors Fund Series
By:____________________________________________
Title:_________________________________________
ADVISER Zurich Kemper Investments, Inc.
By:____________________________________________
Title:_________________________________________
UNDERWRITER Zurich Kemper Distributors, Inc.
By:____________________________________________
Title:_________________________________________
SCHEDULE A
NAME OF SEPARATE ACCOUNT AND DATE
ESTABLISHED BY BOARD OF DIRECTORS
- ---------------------------------
Cova Variable Annuity Account One (Established 2/24/87).
CONTRACTS FUNDED
BY SEPARATE ACCOUNT
- -------------------
Individual Flexible Premium Variable Annuity: Policy Form Numbers XL-407,
CL-407, XL-617 and CL-617.
DESIGNATED PORTFOLIOS
- ---------------------
Kemper Government Securities Portfolio
Kemper Small Cap Value Portfolio
<TABLE>
<CAPTION>
SCHEDULE B
EXPENSES
1 In the event the prospectus, SAI, annual report or other communication of
the Fund is combined with a document of another party, the Fund will pay
the costs based upon the relative number of pages attributable to the Fund.
ITEM FUNCTION RESPONSIBLE PARTY
---- -------- -----------------
<S> <C> <C>
PROSPECTUS
Update Typesetting Fund (1)
New Sales: Printing Company
Distribution Company
Existing Printing Fund (1)
Owners:
Distribution Fund (1)
STATEMENTS OF ADDITIONAL INFORMATION Same as Prospectus Same
PROXY MATERIALS OF THE FUND Typesetting Fund
Printing Fund
Distribution Fund
ANNUAL REPORTS & OTHER COMMUNICATIONS
WITH SHAREHOLDERS
OF THE FUND
All Typesetting Fund (1)
Marketing: Printing Company
Distribution Company
Existing Owners: Printing Fund (1)
Distribution Fund (1)
OPERATIONS OF FUND All operations and related expenses, including the cost of Fund
registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and
registration statement, proxy materials and reports, the
preparation of all statements and notices required by any
federal or state law and all taxes on the issuance of the
Fund's shares, and all costs of management of the business
affairs of the Fund.
</TABLE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this __ day of ________, 1998 by and
between GOLDMAN SACHS VARIABLE INSURANCE TRUST, an unincorporated business trust
formed under the laws of Delaware (the "Trust"), GOLDMAN, SACHS & CO., a New
York limited partnership (the "Distributor"), and COVA FINANCIAL SERVICES LIFE
INSURANCE COMPANY, a Missouri life insurance company (the "Company"), on its own
behalf and on behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares, each such Series representing an interest in a
particular investment portfolio of securities and other assets (a "Fund"), and
which Series may be subdivided into various classes ("Classes") with each such
Class supporting a distinct charge and expense arrangement; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for insurance company separate accounts supporting variable
annuity contracts and variable life insurance policies to be offered by
insurance companies and may also be utilized by qualified retirement plans; and
WHEREAS, the Distributor has the exclusive right to distribute Trust shares
to qualifying investors; and
WHEREAS, the Company desires that the Trust serve as an investment vehicle
for a certain separate account(s) of the Company and the Distributor desires to
sell shares of certain Series and/or Class(es) to such separate account(s);
NOW, THEREFORE, in consideration of their mutual promises, the Trust, the
Distributor and the Company agree as follows:
ARTICLE I
ADDITIONAL DEFINITIONS
1.1. "Account" -- the separate account of the Company described more
specifically in Schedule 1 to this Agreement. If more than one separate account
is described on Schedule 1, the term shall refer to each separate account so
described.
1.2. "Business Day" -- each day that the Trust is open for business as
provided in the Trust's Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended, and any
successor thereto.
1.4. "Contracts" -- the class or classes of variable annuity contracts
and/or variable life insurance policies issued by the Company and described more
specifically on Schedule 2 to this Agreement.
1.5. "Contract Owners" -- the owners of the Contracts, as distinguished
from all Product Owners.
1.6. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.7. "Participating Insurance Company" -- any insurance company investing
in the Trust on its behalf or on behalf of a Participating Account, including
the Company.
1.8. "Participating Plan" -- any qualified retirement plan investing in the
Trust.
1.9. "Participating Investor" -- any Participating Account, Participating
Insurance Company or Participating Plan, including the Account and the Company.
1.10. "Products" -- variable annuity contracts and variable life insurance
policies supported by Participating Accounts, including the Contracts.
1.11. "Product Owners" -- owners of Products, including Contract Owners.
1.12. "Trust Board" -- the board of trustees of the Trust.
1.13. "Registration Statement" -- with respect to the Trust shares or a
class of Contracts, the registration statement filed with the SEC to register
such securities under the 1933 Act, or the most recently filed amendment
thereto, in either case in the form in which it was declared or became
effective. The Contracts' Registration Statement for each class of Contracts is
described more specifically on Schedule 2 to this Agreement. The Trust's
Registration Statement is filed on Form N-1A (File No. 333-35883).
1.14. "1940 Act Registration Statement" -- with respect to the Trust or the
Account, the registration statement filed with the SEC to register such person
as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account's 1940 Act Registration Statement is described
more specifically on Schedule 2 to this Agreement. The Trust's 1940 Act
Registration Statement is filed on Form N-1A (File No. 811-08361).
1.15. "Prospectus" -- with respect to shares of a Series (or Class) of the
Trust or a class of Contracts, each version of the definitive prospectus or
supplement thereto filed with the SEC pursuant to Rule 497 under the 1933 Act.
With respect to any provision of this Agreement requiring a party to take action
in accordance with a Prospectus, such reference thereto shall be deemed to be to
the version for the applicable Series, Class or Contracts last so filed prior to
the taking of such action. For purposes of Article IX, the term "Prospectus"
shall include any statement of additional information incorporated therein.
1.16. "Statement of Additional Information" -- with respect to the shares
of the Trust or a class of Contracts, each version of the definitive statement
of additional information or supplement thereto filed with the SEC pursuant to
Rule 497 under the 1933 Act. With respect to any provision of this Agreement
requiring a party to take action in accordance with a Statement of Additional
Information, such reference thereto shall be deemed to be the last version so
filed prior to the taking of such action.
1.17. "SEC" -- the Securities and Exchange Commission.
1.18. "NASD" -- The National Association of Securities Dealers, Inc.
1.19. "1933 Act" -- the Securities Exchange Act of 1933, as amended.
1.20. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II
SALE OF TRUST SHARES
2.1. AVAILABILITY OF SHARES
(a) The Trust has granted to the Distributor exclusive authority to
distribute the Trust shares and to select which Series or Classes of Trust
shares shall be made available to Participating Investors. Pursuant to such
authority, and subject to Article X hereof, the Distributor shall make
available to the Company for purchase on behalf of the Account, shares of
the Series and Classes listed on Schedule 3 to this Agreement, such
purchases to be effected at net asset value in accordance with Section 2.3
of this Agreement. Such Series and Classes shall be made available to the
Company in accordance with the terms and provisions of this Agreement until
this Agreement is terminated pursuant to Article X or the Distributor
suspends or terminates the offering of shares of such Series or Classes in
the circumstances described in Article X.
(b) Notwithstanding clause (a) of this Section 2.1, Series or Classes
of Trust shares in existence now or that may be established in the future
will be made available to the Company only as the Distributor may so
provide, subject to the Distributor's rights set forth in Article X to
suspend or terminate the offering of shares of any Series or Class or to
terminate this Agreement.
(c) The parties acknowledge and agree that: (i) the Trust may revoke
the Distributor's authority pursuant to the terms and conditions of its
distribution agreement with the Distributor; and (ii) the Trust reserves
the right in its sole discretion to refuse to accept a request for the
purchase of Trust shares.
2.2. REDEMPTIONS. The Trust shall redeem, at the Company's request, any
full or fractional Trust shares held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Article X of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series or Class to the extent permitted by the
1940 Act, any rules, regulations or orders thereunder, or the Prospectus for
such Series or Class.
2.3. PURCHASE AND REDEMPTION PROCEDURES
(a) The Trust hereby appoints the Company as an agent of the Trust for
the limited purpose of receiving purchase and redemption requests on behalf
of the Account (but not with respect to any Trust shares that may be held
in the general account of the Company) for shares of those Series or
Classes made available hereunder, based on allocations of amounts to the
Account or subaccounts thereof under the Contracts, other transactions
relating to the Contracts or the Account and customary processing of the
Contracts. Receipt of any such requests (or effectuation of such
transaction or processing) on any Business Day by the Company as such
limited agent of the Trust prior to the Trust's close of business as
defined from time to time in the applicable Prospectus for such Series or
Class (which as of the date of execution of this Agreement is defined as
the close of regular trading on the New York Stock Exchange (normally 4:00
p.m. New York Time)) shall constitute receipt by the Trust on that same
Business Day, provided that the Company uses its best efforts to provide
actual and sufficient notice of such request to the Trust by 8:00 a.m. New
York Time on the next following Business Day and the Trust receives such
notice no later than 9:00 a.m. New York time on such Business Day. Such
notice may be communicated by telephone to the office or person designated
for such notice by the Trust, and shall be confirmed by facsimile.
(b) The Company shall pay for shares of each Series or Class on the
same day that it provides actual notice to the Trust of a purchase request
for such shares. Payment for Series or Class shares shall be made in
Federal funds transmitted to the Trust by wire to be received by the Trust
by 12:00 noon New York Time on the day the Trust receives actual notice of
the purchase request for Series or Class shares (unless the Trust
determines and so advises the Company that sufficient proceeds are
available from redemption of shares of other Series or Classes effected
pursuant to redemption requests tendered by the Company on behalf of the
Account). In no event may proceeds from the redemption of shares requested
pursuant to an order received by the Company after the Trust's close of
business on any Business Day be applied to the payment for shares for which
a purchase order was received prior to the Trust's close of business on
such day. If the issuance of shares is canceled because Federal funds are
not timely received, the Company shall indemnify the respective Fund and
Distributor with respect to all costs, expenses and losses relating
thereto. Upon the Trust's receipt of Federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust. If Federal funds are not received on time,
such funds will be invested, and Series or Class shares purchased thereby
will be issued, as soon as practicable after actual receipt of such funds
but in any event not on the same day that the purchase order was received.
(c) Payment for Series or Class shares redeemed by the Account or the
Company shall be made in Federal funds transmitted by wire to the Company
or any other person properly designated in writing by the Company, such
funds normally to be transmitted by 6:00 p.m. New York Time on the next
Business Day after the Trust receives actual notice of the redemption order
for Series or Class shares (unless redemption proceeds are to be applied to
the purchase of Trust shares of other Series or Classes in accordance with
Section 2.3(b) of this Agreement), except that the Trust reserves the right
to redeem Series or Class shares in assets other than cash and to delay
payment of redemption proceeds to the extent permitted by the 1940 Act, any
rules or regulations or orders thereunder, or the applicable Prospectus.
The Trust shall not bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds by the Company; the
Company alone shall be responsible for such action.
(d) Any purchase or redemption request for Series or Class shares held
or to be held in the Company's general account shall be effected at the net
asset value per share next determined after the Trust's actual receipt of
such request, provided that, in the case of a purchase request, payment for
Trust shares so requested is received by the Trust in Federal funds prior
to close of business for determination of such value, as defined from time
to time in the Prospectus for such Series or Class.
(e) Prior to the first purchase of any Trust shares hereunder, the
Company and the Trust shall provide each other with all information
necessary to effect wire transmissions of Federal funds to the other party
and all other designated persons pursuant to such protocols and security
procedures as the parties may agree upon. Should such information change
thereafter, the Trust and the Company, as applicable, shall notify the
other in writing of such changes, observing the same protocols and security
procedures, at least three Business Days in advance of when such change is
to take effect. The Company and the Trust shall observe customary
procedures to protect the confidentiality and security of such information,
but the Trust shall not be liable to the Company for any breach of
security.
(f) The procedures set forth herein are subject to any additional
terms set forth in the applicable Prospectus for the Series or Class or by
the requirements of applicable law.
2.4. NET ASSET VALUE. The Trust shall use its best efforts to inform the
Company of the net asset value per share for each Series or Class available to
the Company as soon as reasonably practicable after the net asset value per
share for such Series or Class is calculated. The Trust shall calculate such net
asset value in accordance with the Prospectus for such Series or Class and shall
use its best efforts to make such net asset value per share available by 6:00
p.m. New York time.
2.5. DIVIDENDS AND DISTRIBUTIONS. The Trust shall furnish notice to the
Company as soon as reasonably practicable of any income dividends or capital
gain distributions payable on any Series or Class shares. The Company, on its
behalf and on behalf of the Account, hereby elects to receive all such dividends
and distributions as are payable on any Series or Class shares in the form of
additional shares of that Series or Class. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends and capital gain distributions in cash; to be effective, such
revocation must be made in writing and received by the Trust at least ten
Business Days prior to a dividend or distribution date. The Trust shall notify
the Company promptly of the number of Series or Class shares so issued as
payment of such dividends and distributions.
2.6. BOOK ENTRY. Issuance and transfer of Trust shares shall be by book
entry only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Trust shares shall be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
2.7. PRICING ERRORS. Any material errors in the calculation of net asset
value, dividends or capital gain information shall be reported immediately upon
discovery to the Company and an appropriate adjustment shall be made within a
reasonable period of time. An error shall be deemed "material" based on our
interpretation of the SEC's position and policy with regard to materiality, as
it may be modified from time to time. Neither the Trust, any Fund, the
Distributor, nor any of their affiliates shall be liable for any information
provided to the Company pursuant to this Agreement which information is based on
incorrect information supplied by or on behalf of the Company or any other
Participating Company to the Trust or the Distributor.
2.8. LIMITS ON PURCHASERS. The Distributor and the Trust shall sell Trust
shares only to insurance companies and their separate accounts and to persons or
plans ("Qualified Persons") that qualify to purchase shares of the Trust under
Section 817(h) of the Code and the regulations thereunder without impairing the
ability of the Account to consider the portfolio investments of the Trust as
constituting investments of the Account for the purpose of satisfying the
diversification requirements of Section 817(h). The Distributor and the Trust
shall not sell Trust shares to any insurance company or separate account unless
an agreement complying with Article VIII of this Agreement is in effect to
govern such sales. The Company hereby represents and warrants that it and the
Account are Qualified Persons.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. COMPANY. The Company represents and warrants that: (i) the Company is
an insurance company duly organized and in good standing under Missouri
insurance law; (ii) the Account is a validly existing separate account, duly
established and maintained in accordance with applicable law; (iii) the
Account's 1940 Act Registration Statement has been filed with the SEC in
accordance with the provisions of the 1940 Act and the Account is duly
registered as a unit investment trust thereunder; (iv) the Contracts'
Registration Statement has been declared effective by the SEC; (v) the Contracts
will be issued in compliance in all material respects with all applicable
Federal and state laws; (vi) the Contracts have been filed, qualified and/or
approved for sale, as applicable, under the insurance laws and regulations of
the states in which the Contracts will be offered; (vii) the Account will
maintain its registration under the 1940 Act and will comply in all material
respects with the 1940 Act; (viii) the Contracts currently are, and at the time
of issuance and for so long as they are outstanding will be, treated as annuity
contracts or life insurance policies, whichever is appropriate, under applicable
provisions of the Code; and (ix) the Company's entering into and performing its
obligations under this Agreement does not and will not violate its charter
documents or by-laws, rules or regulations, or any agreement to which it is a
party. The Company will notify the Trust promptly if for any reason it is unable
to perform its obligations under this Agreement.
3.2. TRUST. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed and validly existing under the
Delaware law; (ii) the Trust's 1940 Act Registration Statement has been filed
with the SEC in accordance with the provisions of the 1940 Act and the Trust is
duly registered as an open-end management investment company thereunder; (iii)
the Trust's Registration Statement has been declared effective by the SEC; (iv)
the Trust shares will be issued in compliance in all material respects with all
applicable federal laws; (v) the Trust will remain registered under and will
comply in all material respects with the 1940 Act during the term of this
Agreement; (vi) each Fund of the Trust will qualify as a "regulated investment
company" under Subchapter M of the Code and will comply with the diversification
standards prescribed in Section 817(h) of the Code and the regulations
thereunder; and (vii) the investment policies of each Fund are in material
compliance with any investment restrictions set forth on Schedule 4 to this
Agreement. The Trust, however, makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state.
3.3. DISTRIBUTOR. The Distributor represents and warrants that: (i) the
Distributor is a limited partnership duly organized and in good standing under
New York law; (ii) the Distributor is registered as a broker-dealer under
federal and applicable state securities laws and is a member of the NASD; and
(iii) the Distributor is registered as an investment adviser under federal
securities laws.
3.4. LEGAL AUTHORITY. Each party represents and warrants that the execution
and delivery of this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by all necessary corporate,
partnership or trust action, as applicable, by such party, and, when so executed
and delivered, this Agreement will be the valid and binding obligation of such
party enforceable in accordance with its terms.
3.5. BONDING REQUIREMENT. Each party represents and warrants that all of
its directors, officers, partners and employees dealing with the money and/or
securities of the Trust are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Trust in an
amount not less than the amount required by the applicable rules of the NASD and
the federal securities laws. The aforesaid bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company. All
parties shall make all reasonable efforts to see that this bond or another bond
containing these provisions is always in effect, shall provide evidence thereof
promptly to any other party upon written request therefor, and shall notify the
other parties promptly in the event that such coverage no longer applies.
ARTICLE IV
REGULATORY REQUIREMENTS
4.1. TRUST FILINGS. The Trust shall amend the Trust's Registration
Statement and the Trust's 1940 Act Registration Statement from time to time as
required in order to effect the continuous offering of Trust shares in
compliance with applicable law and to maintain the Trust's registration under
the 1940 Act for so long as Trust shares are sold.
4.2. CONTRACTS FILINGS. The Company shall amend the Contracts' Registration
Statement and the Account's 1940 Act Registration Statement from time to time as
required in order to effect the continuous offering of the Contracts in
compliance with applicable law or as may otherwise be required by applicable
law, but in any event shall maintain a current effective Contracts' Registration
Statement and the Account's registration under the 1940 Act for so long as the
Contracts are outstanding unless the Company has supplied the Trust with an SEC
no-action letter or opinion of counsel satisfactory to the Trust's counsel to
the effect that maintaining such Registration Statement on a current basis is no
longer required. The Company shall be responsible for filing all such Contract
forms, applications, marketing materials and other documents relating to the
Contracts and/or the Account with state insurance commissions, as required or
customary, and shall use its best efforts: (i) to obtain any and all approvals
thereof, under applicable state insurance law, of each state or other
jurisdiction in which Contracts are or may be offered for sale; and (ii) to keep
such approvals in effect for so long as the Contracts are outstanding.
4.3. VOTING OF TRUST SHARES. With respect to any matter put to vote by the
holders of Trust shares ("Voting Shares"), the Company will provide
"pass-through" voting privileges to owners of Contracts registered with the SEC
as long as the 1940 Act requires such privileges in such cases. In cases in
which "pass-through" privileges apply, the Company will (i) solicit voting
instructions from Contract Owners of SEC-registered Contracts; (ii) vote Voting
Shares attributable to Contract Owners in accordance with instructions or
proxies timely received from such Contract Owners; and (iii) vote Voting Shares
held by it that are not attributable to reserves for SEC-registered Contracts or
for which it has not received timely voting instructions in the same proportion
as instructions received in a timely fashion from Owners of SEC-registered
Contracts. The Company shall be responsible for ensuring that it calculates
"pass-through" votes for the Account in a manner consistent with the provisions
set forth above and with other Participating Insurance Companies. Neither the
Company nor any of its affiliates will in any way recommend action in connection
with, or oppose or interfere with, the solicitation of proxies for the Trust
shares held for such Contract Owners, except with respect to matters as to which
the Company has the right under Rule 6e-2 or 6e-3(T) under the 1940 Act, to vote
Voting Shares without regard to voting instructions from Contract Owners.
4.4. STATE INSURANCE RESTRICTIONS. The Company acknowledges and agrees that
it is the responsibility of the Company and other Participating Insurance
Companies to determine investment restrictions and any other restrictions,
limitations or requirements under state insurance law applicable to any Fund or
the Trust or the Distributor, and that neither the Trust nor the Distributor
shall bear any responsibility to the Company, other Participating Insurance
Companies or any Product Owners for any such determination or the correctness of
such determination. Schedule 4 sets forth the investment restrictions that the
Company and/or other Participating Insurance Companies have determined are
applicable to any Fund and with which the Trust has agreed to comply as of the
date of this Agreement. The Company shall inform the Trust of any investment
restrictions imposed by state insurance law that the Company determines may
become applicable to the Trust or a Fund from time to time as a result of the
Account's investment therein, other than those set forth on Schedule 4 to this
Agreement. Upon receipt of any such information from the Company or any other
Participating Insurance Company, the Trust shall determine whether it is in the
best interests of shareholders to comply with any such restrictions. If the
Trust determines that it is not in the best interests of shareholders (it being
understood that "shareholders" for this purpose shall mean Product Owners) to
comply with a restriction determined to be applicable by the Company, the Trust
shall so inform the Company, and the Trust and the Company shall discuss
alternative accommodations in the circumstances. If the Trust determines that it
is in the best interests of shareholders to comply with such restrictions, the
Trust and the Company shall amend Schedule 4 to this Agreement to reflect such
restrictions, subject to obtaining any required shareholder approval thereof.
4.5. COMPLIANCE. Under no circumstances will the Trust, the Distributor or
any of their affiliates (excluding Participating Investors) be held responsible
or liable in any respect for any statements or representations made by them or
their legal advisers to the Company or any Contract Owner concerning the
applicability of any federal or state laws, regulations or other authorities to
the activities contemplated by this Agreement.
4.6. DRAFTS OF FILINGS. The Trust and the Company shall provide to each
other copies of draft versions of any Registration Statements, Prospectuses,
Statements of Additional Information, periodic and other shareholder or Contract
Owner reports, proxy statements, solicitations for voting instructions,
applications for exemptions, requests for no-action letters, and all amendments
or supplements to any of the above, prepared by or on behalf of either of them
and that mentions the other party by name. Such drafts shall be provided to the
other party sufficiently in advance of filing such materials with regulatory
authorities in order to allow such other party a reasonable opportunity to
review the materials.
4.7. COPIES OF FILINGS. The Trust and the Company shall provide to each
other at least one complete copy of all Registration Statements, Prospectuses,
Statements of Additional Information, periodic and other shareholder or Contract
Owner reports, proxy statements, solicitations of voting instructions,
applications for exemptions, requests for no-action letters, and all amendments
or supplements to any of the above, that relate to the Trust, the Contracts or
the Account, as the case may be, promptly after the filing by or on behalf of
each such party of such document with the SEC or other regulatory authorities
(it being understood that this provision is not intended to require the Trust to
provide to the Company copies of any such documents prepared, filed or used by
Participating Investors other than the Company and the Account).
4.8. REGULATORY RESPONSES. Each party shall promptly provide to all other
parties copies of responses to no-action requests, notices, orders and other
rulings received by such party with respect to any filing covered by Section 4.7
of this Agreement.
4.9. COMPLAINTS AND PROCEEDINGS
(a) The Trust and/or the Distributor shall immediately notify the
Company of: (i) the issuance by any court or regulatory body of any stop
order, cease and desist order, or other similar order (but not including an
order of a regulatory body exempting or approving a proposed transaction or
arrangement) with respect to the Trust's Registration Statement or the
Prospectus of any Series or Class; (ii) any request by the SEC for any
amendment to the Trust's Registration Statement or the Prospectus of any
Series or Class; (iii) the initiation of any proceedings for that purpose
or for any other purposes relating to the registration or offering of the
Trust shares; or (iv) any other action or circumstances that may prevent
the lawful offer or sale of Trust shares or any Class or Series in any
state or jurisdiction, including, without limitation, any circumstance in
which (A) such shares are not registered and, in all material respects,
issued and sold in accordance with applicable state and federal law or (B)
such law precludes the use of such shares as an underlying investment
medium for the Contracts. The Trust will make every reasonable effort to
prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting
thereof at the earliest possible time.
(b) The Company shall immediately notify the Trust and the Distributor
of: (i) the issuance by any court or regulatory body of any stop order,
cease and desist order, or other similar order (but not including an order
of a regulatory body exempting or approving a proposed transaction or
arrangement) with respect to the Contracts' Registration Statement or the
Contracts' Prospectus; (ii) any request by the SEC for any amendment to the
Contracts' Registration Statement or Prospectus; (iii) the initiation of
any proceedings for that purpose or for any other purposes relating to the
registration or offering of the Contracts; or (iv) any other action or
circumstances that may prevent the lawful offer or sale of the Contracts or
any class of Contracts in any state or jurisdiction, including, without
limitation, any circumstance in which such Contracts are not registered,
qualified and approved, and, in all material respects, issued and sold in
accordance with applicable state and federal laws. The Company will make
every reasonable effort to prevent the issuance of any such stop order,
cease and desist order or similar order and, if any such order is issued,
to obtain the lifting thereof at the earliest possible time.
(c) Each party shall immediately notify the other parties when it
receives notice, or otherwise becomes aware of, the commencement of any
litigation or proceeding against such party or a person affiliated
therewith in connection with the issuance or sale of Trust shares or the
Contracts.
(d) The Company shall provide to the Trust and the Distributor any
complaints it has received from Contract Owners pertaining to the Trust or
a Fund, and the Trust and Distributor shall each provide to the Company any
complaints it has received from Contract Owners relating to the Contracts.
4.10. COOPERATION. Each party hereto shall cooperate with the other parties
and all appropriate government authorities (including without limitation the
SEC, the NASD and state securities and insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry by any such authority relating to this Agreement or
the transactions contemplated hereby. However, such access shall not extend to
attorney-client privileged information.
ARTICLE V
SALE, ADMINISTRATION AND SERVICING OF THE CONTRACTS
5.1. SALE OF THE CONTRACTS. The Company shall be fully responsible as to
the Trust and the Distributor for the sale and marketing of the Contracts. The
Company shall provide Contracts, the Contracts' and Trust's Prospectuses,
Contracts' and Trust's Statements of Additional Information, and all amendments
or supplements to any of the foregoing to Contract Owners and prospective
Contract Owners, all in accordance with federal and state laws. The Company
shall ensure that all persons offering the Contracts are duly licensed and
registered under applicable insurance and securities laws. The Company shall
ensure that each sale of a Contract satisfies applicable suitability
requirements under insurance and securities laws and regulations, including
without limitation the rules of the NASD. The Company shall adopt and implement
procedures reasonably designed to ensure that information concerning the Trust
and the Distributor that is intended for use only by brokers or agents selling
the Contracts (i.e., information that is not intended for distribution to
Contract Owners or offerees) is so used.
5.2. ADMINISTRATION AND SERVICING OF THE CONTRACTS. The Company shall be
fully responsible as to the Trust and the Distributor for the underwriting,
issuance, service and administration of the Contracts and for the administration
of the Account, including, without limitation, the calculation of performance
information for the Contracts, the timely payment of Contract Owner redemption
requests and processing of Contract transactions, and the maintenance of a
service center, such functions to be performed in all respects at a level
commensurate with those standards prevailing in the variable insurance industry.
The Company shall provide to Contract Owners all Trust reports, solicitations
for voting instructions including any related Trust proxy solicitation
materials, and updated Trust Prospectuses as required under the federal
securities laws.
5.3. CUSTOMER COMPLAINTS. The Company shall promptly address all customer
complaints and resolve such complaints consistent with high ethical standards
and principles of ethical conduct.
5.4. TRUST PROSPECTUSES AND REPORTS. In order to enable the Company to
fulfill its obligations under this Agreement and the federal securities laws,
the Trust shall provide the Company with a copy, in camera-ready form or on
diskette or in a form otherwise suitable for printing or duplication of: (i) the
Trust's Prospectus for the Series and Classes listed on Schedule 3 and any
supplement thereto; (ii) each Statement of Additional Information and any
supplement thereto; (iii) any Trust proxy soliciting material for such Series or
Classes; and (iv) any Trust periodic shareholder reports. The Trust and the
Company may agree upon alternate arrangements, but in all cases, the Trust
reserves the right to approve the printing of any such material. The Trust shall
provide the Company at least 10 days advance written notice when any such
material shall become available, provided, however, that in the case of a
supplement, the Trust shall provide the Company notice reasonable in the
circumstances, it being understood that circumstances surrounding such
supplement may not allow for advance notice. The Company may not alter any
material so provided by the Trust or the Distributor (including without
limitation presenting or delivering such material in a different medium, e.g.,
electronic or Internet) without the prior written consent of the Distributor.
The Trust acknowledges that the Trust Prospectus will be printed in a combined
printed document with other funds offered to the Contracts.
5.5. TRUST ADVERTISING MATERIAL. No piece of advertising or sales
literature or other promotional material in which the Trust or the Distributor
is named (including, without limitation, material for prospects, existing
Contract Owners, brokers, rating or ranking agencies, or the press, whether in
print, radio, television, video, Internet, or other electronic medium) shall be
used by the Company or any person directly or indirectly authorized by the
Company, including without limitation, underwriters, distributors, and sellers
of the Contracts, except with the prior written consent of the Trust or the
Distributor, as applicable, as to the form, content and medium of such material,
which consent may not be unreasonably withheld. Any such piece shall be
furnished to the Trust for such consent at least 15 Business Days prior to its
use. The Trust or the Distributor shall respond to any request for written
consent within 10 Business Days after receipt of such material, but failure to
respond shall not relieve the Company of the obligation to obtain the prior
written consent of the Trust or the Distributor. After receiving the Trust's or
Distributor's consent to the use of any such material, no further changes may be
made without obtaining the Trust's or Distributor's consent to such changes. The
Trust or Distributor may at any time in its sole discretion, reasonably
exercised, revoke such written consent, and upon notification of such
revocation, the Company shall no longer use the material subject to such
revocation. Until further notice to the Company, the Trust has delegated its
rights and responsibilities under this provision to the Distributor.
5.6. CONTRACTS ADVERTISING MATERIAL. No piece of advertising or sales
literature or other promotional material in which the Company is named shall be
used by the Trust or the Distributor, except with the prior written consent of
the Company, which consent may not be unreasonably withheld. Any such piece
shall be furnished to the Company for such consent at least 15 Business Days
prior to its use. The Company shall respond to any request for written consent
within 10 Business Days after receipt of such material, but failure to respond
shall not relieve the Trust or the Distributor of the obligation to obtain the
prior written consent of the Company. The Company may at any time in its sole
discretion revoke any written consent, and upon notification of such revocation,
neither the Trust nor the Distributor shall use the material subject to such
revocation. The Company, upon prior written notice to the Trust, may delegate
its rights and responsibilities under this provision to the principal
underwriter for the Contracts.
5.7. TRADE NAMES. No party shall use any other party's names, logos,
trademarks or service marks, whether registered or unregistered, without the
prior written consent of such other party, or after written consent therefor has
been revoked. The Company shall not use in advertising, publicity or otherwise
the name of the Trust, Distributor, or any of their affiliates nor any trade
name, trademark, trade device, service mark, symbol or any abbreviation,
contraction or simulation thereof of the Trust, Distributor, or their affiliates
without the prior written consent of the Trust or the Distributor in each
instance.
5.8. REPRESENTATIONS BY COMPANY. Except with the prior written consent of
the Trust, the Company shall not give any information or make any
representations or statements about the Trust or the Funds nor shall it
authorize or allow any other person to do so except information or
representations contained in the Trust's Registration Statement or the Trust's
Prospectuses or in reports or proxy statements for the Trust, or in sales
literature or other promotional material approved in writing by the Trust or its
designee in accordance with this Article V, or in published reports or
statements of the Trust in the public domain.
5.9. REPRESENTATIONS BY TRUST. Except with the prior written consent of the
Company, the Trust shall not give any information or make any representations on
behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts'
Registration Statement or Contracts' Prospectus or in published reports of the
Account which are in the public domain or in sales literature or other
promotional material approved in writing by the Company in accordance with this
Article V.
5.10. ADVERTISING. For purposes of this Article V, the phrase "sales
literature or other promotional material" includes, but is not limited to, any
material constituting sales literature or advertising under the NASD rules, the
1940 Act or the 1933 Act.
ARTICLE VI
COMPLIANCE WITH CODE
6.1. SECTION 817(h). Each Fund of the Trust shall comply with Section
817(h) of the Code and the regulations issued thereunder to the extent
applicable to the Fund as an investment company underlying the Account, and the
Trust shall notify the Company immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future and will immediately take all reasonable steps to adequately
diversify the Fund to achieve compliance.
6.2. SUBCHAPTER M. Each Fund of the Trust shall maintain the qualification
of the Fund as a registered investment company (under Subchapter M or any
successor or similar provision), and the Trust shall notify the Company
immediately upon having a reasonable basis for believing that a Fund has ceased
to so qualify or that it might not so qualify in the future.
6.3. CONTRACTS. The Company shall ensure the continued treatment of the
Contracts as annuity contracts or life insurance policies, whichever is
appropriate, under applicable provisions of the Code and shall notify the Trust
and the Distributor immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
ARTICLE VII
EXPENSES
7.1. EXPENSES. All expenses incident to each party's performance under this
Agreement (including expenses expressly assumed by such party pursuant to this
Agreement) shall be paid by such party to the extent permitted by law.
7.2. TRUST EXPENSES. Expenses incident to the Trust's performance of its
duties and obligations under this Agreement include, but are not limited to, the
costs of:
(a) registration and qualification of the Trust shares under the federal
securities laws;
(b) preparation and filing with the SEC of the Trust's Prospectuses,
Trust's Statement of Additional Information, Trust's Registration
Statement, Trust proxy materials and shareholder reports, and
preparation of a camera-ready copy of the foregoing;
(c) preparation of all statements and notices required by any Federal or
state securities law;
(d) printing and mailing of all materials and reports required to be
provided by the Trust to its existing shareholders;
(e) all taxes on the issuance or transfer of Trust shares;
(f) payment of all applicable fees relating to the Trust, including,
without limitation, all fees due under Rule 24f-2 in connection with
sales of Trust shares to qualified retirement plans, custodial,
auditing, transfer agent and advisory fees, fees for insurance
coverage and Trustees' fees;
(g) any expenses permitted to be paid or assumed by the Trust pursuant to
a plan, if any, under Rule 12b-1 under the 1940 Act; and
(h) printing of the Trust's Prospectuses and Statement of Additional
Information for distribution by the Company to existing Contract
Owners. If the Trust's Prospectuses are printed by the Company in one
document with the prospectus for the Contracts and the prospectuses
for other funds, then the expenses of such printing will be
apportioned between the Company and the Trust in proportion to the
number of pages of the Contract's prospectus, other fund prospectuses
and the Trust's Prospectuses, taking account of other relevant factors
affecting the expense of printing, such as covers, columns, graphs and
charts; the Trust to bear the cost of printing the Trust's portion of
such document (relating to the Trust's Prospectuses) for distribution
only to owners of existing Contracts funded by the Trust and the
Company to bear the expense of printing the portion of such documents
relating to the Account; provided, however, the Company shall bear all
printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing
Variable Contracts not funded by the Trust.
7.3. COMPANY EXPENSES. Expenses incident to the Company's performance of
its duties and obligations under this Agreement include, but are not limited to,
the costs of:
(a) registration and qualification of the Contracts under the federal
securities laws;
(b) preparation and filing with the SEC of the Contracts' Prospectus and
Contracts' Registration Statement;
(c) the sale, marketing and distribution of the Contracts, including
printing and dissemination of Contracts' and the Trust's Prospectuses
to prospective Contract purchasers and to owners of existing Variable
Contracts not funded by the Trust and compensation for Contract sales;
(d) administration of the Contracts;
(e) solicitation of voting instructions with respect to Trust proxy
materials;
(f) payment of all applicable fees relating to the Contracts, including,
without limitation, all fees due under Rule 24f-2;
(g) preparation, printing and dissemination of all statements and notices
to Contract Owners required by any Federal or state insurance law
other than those paid for by the Trust; and
(h) preparation, printing and dissemination of all marketing materials for
the Contracts and Trust except where other arrangements are made in
advance.
7.4. 12b-1 PAYMENTS. The Trust shall pay no fee or other compensation to
the Company under this Agreement, except that if the Trust or any Series or
Class adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then payments may be made to the Company in
accordance with such plan. The Trust currently does not intend to make any
payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940
Act or in contravention of such rule, although it may make payments pursuant to
Rule 12b-1 in the future. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1 and such formulation is required by the 1940 Act
or any rules or order thereunder, the Trust undertakes to have a Board of
Trustees, a majority of whom are not interested persons of the Trust, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
ARTICLE VIII
POTENTIAL CONFLICTS
8.1. EXEMPTIVE ORDER. The parties to this Agreement acknowledge that the
Trust has filed an application with the SEC to request an order (the "Exemptive
Order") granting relief from various provisions of the 1940 Act and the rules
thereunder to the extent necessary to permit Trust shares to be sold to and held
by variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and other
Qualified Persons (as defined in Section 2.8 hereof). It is anticipated that the
Exemptive Order, when and if issued, shall require the Trust and each
Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Article VIII. The Trust will not enter into a
participation agreement with any other Participating Insurance Company unless it
imposes the same conditions and undertakings on that company as are imposed on
the Company pursuant to this Article VIII.
8.2. COMPANY MONITORING REQUIREMENTS. The Company will monitor its
operations and those of the Trust for the purpose of identifying any material
irreconcilable conflicts or potential material irreconcilable conflicts between
or among the interests of Participating Plans, Product Owners of variable life
insurance policies and Product Owners of variable annuity contracts.
8.3. COMPANY REPORTING REQUIREMENTS. The Company shall report any conflicts
or potential conflicts to the Trust Board and will provide the Trust Board, at
least annually, with all information reasonably necessary for the Trust Board to
consider any issues raised by such existing or potential conflicts or by the
conditions and undertakings required by the Exemptive Order. The Company also
shall assist the Trust Board in carrying out its responsibilities under these
conditions including, but not limited to: (a) informing the Trust Board whenever
it disregards Contract Owner voting instructions with respect to variable life
insurance policies, and (b) providing, at least annually, such other information
and reports as the Trust Board may reasonably request. The Company will carry
out these obligations with a view only to the interests of Contract Owners.
8.4. TRUST BOARD MONITORING AND DETERMINATION. The Trust Board shall
monitor the Trust for the existence of any material irreconcilable conflicts
between or among the interests of Participating Plans, Product Owners of
variable life insurance policies and Product Owners of variable annuity
contracts and determine what action, if any, should be taken in response to
those conflicts. A majority vote of Trustees who are not interested persons of
the Trust as defined in the 1940 Act (the "disinterested trustees") shall
represent a conclusive determination as to the existence of a material
irreconcilable conflict between or among the interests of Product Owners and
Participating Plans and as to whether any proposed action adequately remedies
any material irreconcilable conflict. The Trust Board shall give prompt written
notice to the Company and Participating Plan of any such determination.
8.5. UNDERTAKING TO RESOLVE CONFLICT. In the event that a material
irreconcilable conflict of interest arises between Product Owners of variable
life insurance policies or Product Owners of variable annuity contracts and
Participating Plans, the Company will, at its own expense, take whatever action
is necessary to remedy such conflict as it adversely affects Contract Owners up
to and including (1) establishing a new registered management investment
company, and (2) withdrawing assets from the Trust attributable to reserves for
the Contracts subject to the conflict and reinvesting such assets in a different
investment medium (including another Fund of the Trust) or submitting the
question of whether such withdrawal should be implemented to a vote of all
affected Contract Owners, and, as appropriate, segregating the assets supporting
the Contracts of any group of such owners that votes in favor of such
withdrawal, or offering to such owners the option of making such a change. The
Company will carry out the responsibility to take the foregoing action with a
view only to the interests of Contract Owners.
8.6. WITHDRAWAL. If a material irreconcilable conflict arises because of
the Company's decision to disregard the voting instructions of Contract Owners
of variable life insurance policies or variable annuities and that decision
represents a minority position or would preclude a majority vote at any Fund
shareholder meeting, then, at the request of the Trust Board, the Company will
redeem the shares of the Trust to which the disregarded voting instructions
relate. No charge or penalty, however, will be imposed in connection with such a
redemption.
8.7. EXPENSES ASSOCIATED WITH REMEDIAL ACTION. In no event shall the Trust
be required to bear the expense of establishing a new funding medium for any
Contract. The Company shall not be required by this Article to establish a new
funding medium for any Contract if an offer to do so has been declined by vote
of a majority of the Contract Owners materially adversely affected by the
irreconcilable material conflict.
8.8. SUCCESSOR RULES. If and to the extent that Rule 6e-2 and Rule 6e-3(T)
are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provisions of the 1940 Act or the rules promulgated thereunder with respect to
mixed and shared funding on terms and conditions materially different from those
contained in the Exemptive Order, then (i) the Trust and/or the Company, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, or Rule 6e-3, as adopted, as applicable, to the extent
such rules are applicable, and (ii) Sections 8.2 through 8.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE IX
INDEMNIFICATION
9.1. INDEMNIFICATION BY THE COMPANY. The Company hereby agrees to, and
shall, indemnify and hold harmless the Trust, the Distributor and each person
who controls or is affiliated with the Trust or the Distributor within the
meaning of such terms under the 1933 Act or 1940 Act (but not any Participating
Insurance Companies or Qualified Persons) and any officer, trustee, partner,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any material
fact contained in the Contracts Registration Statement, Contracts
Prospectus, sales literature or other promotional material for the
Contracts or the Contracts themselves (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or omission
was made in reliance upon and in conformity with information furnished
in writing to the Company by the Trust or the Distributor for use in
the Contracts Registration Statement, Contracts Prospectus or in the
Contracts or sales literature or promotional material for the
Contracts (or any amendment or supplement to any of the foregoing) or
otherwise for use in connection with the sale of the Contracts or
Trust shares; or
(b) arise out of any untrue statement of a material fact contained in the
Trust Registration Statement, any Prospectus for Series or Classes or
sales literature or other promotional material of the Trust (or any
amendment or supplement to any of the foregoing), or the omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances in which they were made, if such statement or
omission was made in reliance upon and in conformity with information
furnished to the Trust or Distributor in writing by or on behalf of
the Company; or
(c) arise out of or are based upon any wrongful conduct of, or violation
of federal or state law by, the Company or persons under its control
or subject to its authorization, including without limitation, any
broker-dealers or agents authorized to sell the Contracts, with
respect to the sale, marketing or distribution of the Contracts or
Trust shares, including, without limitation, any impermissible use of
broker-only material, unsuitable or improper sales of the Contracts or
unauthorized representations about the Contracts or the Trust; or
(d) arise as a result of any failure by the Company or persons under its
control (or subject to its authorization) to provide services, furnish
materials or make payments as required under this Agreement; or
(e) arise out of any material breach by the Company or persons under its
control (or subject to its authorization) of this Agreement; or
(f) any breach of any warranties contained in Article III hereof, any
failure to transmit a request for redemption or purchase of Trust
shares or payment therefor on a timely basis in accordance with the
procedures set forth in Article II, or any unauthorized use of the
names or trade names of the Trust or the Distributor.
This indemnification is in addition to any liability that the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is caused by the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
9.2. INDEMNIFICATION BY THE TRUST. The Trust hereby agrees to, and shall,
indemnify and hold harmless the Company and each person who controls or is
affiliated with the Company within the meaning of such terms under the 1933 Act
or 1940 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any material
fact contained in the Trust Registration Statement, any Prospectus for
Series or Classes or sales literature or other promotional material of
the Trust (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in
which they were made; provided that this obligation to indemnify shall
not apply if such statement or omission was made in reliance upon and
in conformity with information furnished in writing by the Company to
the Trust or the Distributor for use in the Trust Registration
Statement, Trust Prospectus or sales literature or promotional
material for the Trust (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained in the
Contracts Registration Statement, Contracts Prospectus or sales
literature or other promotional material for the Contracts (or any
amendment or supplement to any of the foregoing), or the omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in writing by
the Trust to the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust or its
Trustees or officers with respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Trust to provide services,
furnish materials or make payments as required under the terms of this
Agreement; or
(e) arise out of any material breach by the Trust of this Agreement
(including any breach of Section 6.1 or 6.2 of this Agreement and any
warranties contained in Article III hereof);
it being understood that in no way shall the Trust be liable to the Company with
respect to any violation of insurance law, compliance with which is a
responsibility of the Company under this Agreement or otherwise or as to which
the Company failed to inform the Trust in accordance with Section 4.4 hereof.
This indemnification is in addition to any liability that the Trust may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is caused by the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
9.3. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor hereby agrees to,
and shall, indemnify and hold harmless the Company and each person who controls
or is affiliated with the Company within the meaning of such terms under the
1933 Act or 1940 Act and any officer, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities, joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any material
fact contained in the Trust Registration Statement, any Prospectus for
Series or Classes or sales literature or other promotional material of
the Trust (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in
which they were made; provided that this obligation to indemnify shall
not apply if such statement or omission was made in reliance upon and
in conformity with information furnished in writing by the Company to
the Trust or Distributor for use in the Trust Registration Statement,
Trust Prospectus or sales literature or promotional material for the
Trust (or any amendment or supplement to any of the foregoing) or
otherwise for use in connection with the sale of the Contracts or
Trust shares; or
(b) arise out of any untrue statement of a material fact contained in the
Contracts Registration Statement, Contracts Prospectus or sales
literature or other promotional material for the Contracts (or any
amendment or supplement to any of the foregoing), or the omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in writing by
the Distributor to the Company; or
(c) arise out of or are based upon wrongful conduct of the Distributor or
persons under its control with respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Distributor or persons under
its control to provide services, furnish materials or make payments as
required under the terms of this Agreement; or
(e) arise out of any material breach by the Distributor or persons under
its control of this Agreement (including any breach by the Trust of
Section 6.1 or 6.2 of this Agreement and any breach of any warranties
by the Trust or the Distributor contained in Article III hereof);
it being understood that in no way shall the Distributor be liable to the
Company with respect to any violation of insurance law, compliance with which is
a responsibility of the Company under this Agreement or otherwise or as to which
the Company failed to inform the Distributor in accordance with Section 4.4
hereof. This indemnification is in addition to any liability that the
Distributor may otherwise have; provided, however, that no party shall be
entitled to indemnification if such loss, claim, damage or liability is caused
by the wilful misfeasance, bad faith, gross negligence or reckless disregard of
duty by the party seeking indemnification.
9.4. RULE OF CONSTRUCTION. It is the parties' intention that, in the event
of an occurrence for which the Trust has agreed to indemnify the Company, the
Company shall seek indemnification from the Trust only in circumstances in which
the Trust is entitled to seek indemnification from a third party with respect to
the same event or cause thereof.
9.5. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article IX of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article IX ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article IX, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the reasonable fees and disbursements
of such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such consent
or if there be a final judgment for the plaintiff, the indemnifying party agrees
to indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX. The
indemnification provisions contained in this Article IX shall survive any
termination of this Agreement.
ARTICLE X
RELATIONSHIP OF THE PARTIES; TERMINATION
10.1. RELATIONSHIP OF PARTIES. The Company is to be an independent
contractor vis-a-vis the Trust, the Distributor, or any of their affiliates for
all purposes hereunder and will have no authority to act for or represent any of
them (except to the limited extent the Company acts as agent of the Trust
pursuant to Section 2.3(a) of this Agreement). In addition, no officer or
employee of the Company will be deemed to be an employee or agent of the Trust,
Distributor, or any of their affiliates. The Company will not act as an
"underwriter" or "distributor" of the Trust, as those terms variously are used
in the 1940 Act, the 1933 Act, and rules and regulations promulgated thereunder.
10.2. NON-EXCLUSIVITY AND NON-INTERFERENCE. The parties hereto acknowledge
that the arrangement contemplated by this Agreement is not exclusive; the Trust
shares may be sold to other insurance companies and investors (subject to
Section 2.8 hereof) and the cash value of the Contracts may be invested in other
investment companies, provided, however, that until this Agreement is terminated
pursuant to this Article X:
(a) the Company shall promote the Trust and the Funds made available
hereunder on the same basis as other funding vehicles available under
the Contracts;
(b) the Company shall not, without prior notice to the Distributor (unless
otherwise required by applicable law), take any action to operate the
Account as a management investment company under the 1940 Act;
(c) the Company shall not, without the prior written consent of the
Distributor, which consent shall not be unreasonably withheld,
solicit, induce or encourage Contract Owners to change or modify the
Trust, or to change the Trust's distributor or investment adviser
(unless otherwise required by applicable law);
(d) the Company shall not substitute another investment company for one or
more Funds without providing written notice to the Distributor at
least 60 days in advance of effecting any such substitution;
(e) the Company shall not withdraw the Account's investment in the Trust
or a Fund of the Trust except as necessary to facilitate Contract
Owner requests and routine Contract processing; and
(f) the Company shall not solicit, induce or encourage Contract Owners to
transfer or withdraw Contract Values allocated to a Fund or to
exchange their Contracts for contracts not allowing for investment in
the Trust, except with 60 days prior written notice to the Distributor
under circumstances where the Company has determined such
solicitation, inducement or encouragement to be in the best interests
of Contract Owners (unless otherwise required by applicable law).
10.3. TERMINATION OF AGREEMENT. This Agreement shall not terminate until
(i) the Trust is dissolved, liquidated, or merged into another entity, or (ii)
as to any Fund that has been made available hereunder, the Account no longer
invests in that Fund and the Company has confirmed in writing to the
Distributor, if so requested by the Distributor, that it no longer intends to
invest in such Fund. However, certain obligations of, or restrictions on, the
parties to this Agreement may terminate as provided in Sections 10.4 through
10.6 and the Company may be required to redeem Trust shares pursuant to Section
10.7 or in the circumstances contemplated by Article VIII. Article IX and
Sections 5.7 and 10.8 shall survive any termination of this Agreement.
10.4. TERMINATION OF OFFERING OF TRUST SHARES. The obligation of the Trust
and the Distributor to make Trust shares available to the Company for purchase
pursuant to Article II of this Agreement shall terminate at the option of the
Distributor as provided below:
(a) upon institution of formal proceedings against the Company, or the
Distributor's reasonable determination that institution of such
proceedings is being considered by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Trust shares, or an expected or
anticipated ruling, judgment or outcome which would, in the
Distributor's reasonable judgment exercised in good faith, materially
impair the Company's or Trust's ability to meet and perform the
Company's or Trust's obligations and duties hereunder, such
termination effective upon 15 days prior written notice;
(b) in the event any of the Contracts are not registered, issued or sold
in accordance with applicable federal and/or state law, such
termination effective immediately upon receipt of written notice;
(c) if the Distributor shall determine, in its sole judgment exercised in
good faith, that either (1) the Company shall have suffered a material
adverse change in its business or financial condition or (2) the
Company shall have been the subject of material adverse publicity
which is likely to have a material adverse impact upon the business
and operations of either the Trust or the Distributor, such
termination effective upon 30 days prior written notice;
(d) if the Distributor suspends or terminates the offering of Trust shares
of any Series or Class to all Participating Investors or only
designated Participating Investors, when such action is required by
law or by regulatory authorities having jurisdiction or when, in the
sole discretion of the Distributor acting in good faith, suspension or
termination is necessary in the best interests of the shareholders of
any Series or Class (it being understood that "shareholders" for this
purpose shall mean Product Owners), such notice effective immediately
upon receipt of written notice, it being understood that a lack of
Participating Investor interest in a Series or Class may be grounds
for a suspension or termination as to such Series or Class and that a
suspension or termination shall apply only to the specified Series or
Class;
(e) upon the Company's assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Account to another
insurance company pursuant to an assumption reinsurance agreement)
unless the Trust consents thereto, such termination effective upon 30
days prior written notice;
(f) if the Company is in material breach of any provision of this
Agreement, which breach has not been cured to the satisfaction of the
Trust within 10 days after written notice of such breach has been
delivered to the Company, such termination effective upon expiration
of such 10-day period;
(g) upon the determination of the Trust's Board to dissolve, liquidate or
merge the Trust as contemplated by Section 10.3(i), upon termination
of the Agreement pursuant to Section 10.3(ii), or upon notice from the
Company pursuant to Section 10.5 or 10.6, such termination pursuant
hereto to be effective upon 15 days prior written notice; or
(h) at any time more than one year after the date of this Agreement, upon
six months prior written notice.
Except in the case of an option exercised under clause (b) or (d), the
obligations shall terminate only as to new Contracts and the Distributor shall
continue to make Trust shares available to the extent necessary to permit owners
of Contracts in effect on the effective date of such termination (hereinafter
referred to as "Existing Contracts") to reallocate investments in the Trust,
redeem investments in the Trust and/or invest in the Trust upon the making of
additional purchase payments under the Existing Contracts.
10.5. TERMINATION OF INVESTMENT IN A FUND. The Company may elect to cease
investing in a Fund, promoting a Fund as an investment option under the
Contracts, or withdraw its investment or the Account's investment in a Fund,
subject to compliance with applicable law, upon written notice to the Trust
within 15 days of the occurrence of any of the following events (unless provided
otherwise below):
(a) if the Trust informs the Company pursuant to Section 4.4 that it will
not cause such Fund to comply with investment restrictions as
requested by the Company and the Trust and the Company are unable to
agree upon any reasonable alternative accommodations;
(b) if shares in such Fund are not reasonably available to meet the
requirements of the Contracts as determined by the Company (including
any non-availability as a result of notice given by the Distributor
pursuant to Section 10.4(d)), and the Distributor, after receiving
written notice from the Company of such non-availability, fails to
make available, within 10 days after receipt of such notice, a
sufficient number of shares in such Fund or an alternate Fund to meet
the requirements of the Contracts; or
(c) if such Fund fails to meet the diversification requirements specified
in Section 817(h) of the Code and any regulations thereunder and the
Trust, upon written request, fails to provide reasonable assurance
that it will take action to cure or correct such failure;
Such termination shall apply only as to the affected Fund and shall not apply to
any other Fund in which the Company or the Account invests.
10.6. TERMINATION OF INVESTMENT BY THE COMPANY. The Company may elect to
cease investing in all Series or Classes of the Trust made available hereunder,
promoting the Trust as an investment option under the Contracts, or withdraw its
investment or the Account s investment in the Trust, subject to compliance with
applicable law, upon written notice to the Trust within 15 days of the
occurrence of any of the following events (unless provided otherwise below):
(a) upon institution of formal proceedings against the Trust or the
Distributor (but only with regard to the Trust) by the NASD, the SEC
or any state securities or insurance commission or any other
regulatory body;
(b) if, with respect to the Trust or a Fund, the Trust or the Fund ceases
to qualify as a regulated investment company under Subchapter M of the
Code, as defined therein, or any successor or similar provision, or if
the Company reasonably believes that the Trust may fail to so qualify,
and the Trust, upon written request, fails to provide reasonable
assurance that it will take action to cure or correct such failure
within 30 days;
(c) if the Trust or Distributor is in material breach of a provision of
this Agreement, which breach has not been cured to the satisfaction of
the Company within 10 days after written notice of such breach has
been delivered to the Trust or the Distributor, as the case may be; or
(d) at any time more than one year after the date of this Agreement, upon
six months prior written notice.
10.7. COMPANY REQUIRED TO REDEEM. The parties understand and acknowledge
that it is essential for compliance with Section 817(h) of the Code that the
Contracts qualify as annuity contracts or life insurance policies, as
applicable, under the Code. Accordingly, if any of the Contracts cease to
qualify as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Trust reasonably believes that any such Contracts may fail
to so qualify, the Trust shall have the right to require the Company to redeem
Trust shares attributable to such Contracts upon notice to the Company and the
Company shall so redeem such Trust shares in order to ensure that the Trust
complies with the provisions of Section 817(h) of the Code applicable to
ownership of Trust shares. Notice to the Company shall specify the period of
time the Company has to redeem the Trust shares, subject to applicable law, or
to make other arrangements satisfactory to the Trust and its counsel, such
period of time to be determined with reference to the requirements of Section
817(h) of the Code. In addition, the Company may be required to redeem Trust
shares pursuant to action taken or request made by the Trust Board in accordance
with the Exemptive Order described in Article VIII or any conditions or
undertakings set forth or referenced therein, or other SEC rule, regulation or
order that may be adopted after the date hereof. The Company agrees to redeem
shares in the circumstances described herein and to comply with applicable terms
and provisions. Also, in the event that the Distributor suspends or terminates
the offering of a Series or Class pursuant to Section 10.4(d) of this Agreement,
the Company, upon request by the Distributor, will cooperate in taking
appropriate action to withdraw the Account's investment in the respective Fund.
10.8. CONFIDENTIALITY. The Company will keep confidential any information
acquired as a result of this Agreement regarding the business and affairs of the
Trust, the Distributor, and their affiliates.
ARTICLE XI
APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect, as appropriate, changes in or relating to the
Contracts, any Series or Class, additions of new classes of Contracts to be
issued by the Company and separate accounts therefor investing in the Trust.
Such amendments may be made effective by executing the form of amendment
included on each schedule attached hereto. The provisions of this Agreement
shall be equally applicable to each such class of Contracts, Series, Class or
separate account, as applicable, effective as of the date of amendment of such
Schedule, unless the context otherwise requires. The parties to this Agreement
may amend this Agreement from time to time by written agreement signed by all of
the parties.
ARTICLE XII
NOTICE, REQUEST OR CONSENT
Any notice, request or consent to be provided pursuant to this Agreement is
to be made in writing and shall be given:
If to the Trust:
Douglas C. Grip
President
Goldman Sachs Variable Insurance Trust
One New York Plaza
New York, NY 10004
If to the Distributor:
Douglas C. Grip
Vice President
Goldman Sachs & Co.
One New York Plaza
New York, NY 10004
If to the Company:
Cova Financial Services Life Insurance Company
One Tower Lane Suite 3000
Oakbrook Terrace, IL 60181
Attention: General Counsel
or at such other address as such party may from time to time specify in writing
to the other party. Each such notice, request or consent to a party shall be
sent by registered or certified United States mail with return receipt requested
or by overnight delivery with a nationally recognized courier, and shall be
effective upon receipt. Notices pursuant to the provisions of Article II may be
sent by facsimile to the person designated in writing for such notices.
ARTICLE XIII
MISCELLANEOUS
13.1. INTERPRETATION. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the state of
Delaware, without giving effect to the principles of conflicts of laws, subject
to the following rules:
(a) This Agreement shall be subject to the provisions of the 1933 Act,
1940 Act and Securities Exchange Act of 1934, as amended, and the
rules, regulations and rulings thereunder, including such exemptions
from those statutes, rules, and regulations as the SEC may grant, and
the terms hereof shall be limited, interpreted and construed in
accordance therewith.
(b) The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
(d) The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are
entitled to under state and federal laws.
13.2. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which together shall constitute one and the same
instrument.
13.3. NO ASSIGNMENT. Neither this Agreement nor any of the rights and
obligations hereunder may be assigned by the Company, the Distributor or the
Trust without the prior written consent of the other parties.
13.4. DECLARATION OF TRUST. A copy of the Declaration of Trust of the Trust
is on file with the Secretary of State of the state of Delaware, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as trustees, and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually, but binding only upon the assets and
property of the Trust. No Series of the Trust shall be liable for the
obligations of any other Series of the Trust.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(Trust)
Date: ___________ By: ______________________________________
Name:
Title:
GOLDMAN, SACHS & CO.
(Distributor)
Date: ___________ By: ______________________________________
Name:
Title:
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
(Company)
Date: ___________ By: ______________________________________
Name:
Title:
<TABLE>
<CAPTION>
SCHEDULE 1
----------
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts of the Company are subject to the Agreement:
<S> <C> <C> <C>
Date Established by
Name of Account and Board of Directors of the SEC 1940 Act Registration Type of Product Supported
Subaccounts Company Number by Account
- ----------- ------- ------ ----------
Cova Variable Annuity 2/24/87 #811-05200 Variable Annuity
Account One
</TABLE>
[Form of Amendment to Schedule 1]
Effective as of , the following separate accounts of the Company are hereby
added to this Schedule 1 and made subject to the Agreement:
<TABLE>
<CAPTION>
<S> <C> <C>
Date Established by
Name of Account and Board of Directors of the SEC 1940 Act Registration Type of Product Supported
Subaccounts Company Number by Account
- ----------- ------- ------ ----------
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 1 in accordance with Article XI of the Agreement.
______________________________________ ___________________________
Goldman Sachs Variable Insurance Trust Cova Financial Services
Life Insurance Company
______________________________________
Goldman, Sachs & Co.
SCHEDULE 2
----------
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
<TABLE>
<CAPTION>
SEC 1933 Act
Policy Marketing Name Registration Number Contract Form Number Annuity or Life
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Custom - Select Variable 333-34741 XL-407 Annuity
Annuity CL-407
XL-617
CL-617
</TABLE>
[Form of Amendment to Schedule 2]
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
<S> <C> <C>
SEC 1933 Act Name of Supporting Account
Policy Marketing Name Registration Number Annuity or Life
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 2 in accordance with Article XI of the Agreement.
______________________________________ _________________________
Goldman Sachs Variable Insurance Trust Cova Financial Services
Life Insurance Company
______________________________________
Goldman, Sachs & Co.
SCHEDULE 3
----------
Trust Classes and Series
Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Classes
and Series are available under the Contracts:
<TABLE>
<CAPTION>
<S> <C>
Contracts Marketing Name Trust Classes and Series
-------------------------------------------------------- -----------------------------------------------
Custom Select Variable Annuity Growth and Income Fund
International Equity Fund
Global Income Fund
</TABLE>
[Form of Amendment to Schedule 3]
Effective as of __________________, this Schedule 3 is hereby amended to reflect
the following changes in Trust Classes and Series:
<TABLE>
<CAPTION>
<S> <C>
Contracts Marketing Name Trust Classes and Series
-------------------------------------------------------- -----------------------------------------------
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 3 in accordance with Article XI of the Agreement.
______________________________________ __________________________
Goldman Sachs Variable Insurance Trust Cova Financial Services
Life Insurance Company
______________________________________
Goldman, Sachs & Co.
SCHEDULE 4
----------
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following investment
restrictions are applicable to the Trust:
[Form of Amendment to Schedule 4]
Effective as of ___________________, this Schedule 4 is hereby amended to
reflect the following changes:
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 4 in accordance with Article XI of the Agreement.
______________________________________ _________________________
Goldman Sachs Variable Insurance Trust Cova Financial Services
Life Insurance Company
______________________________________
Goldman, Sachs & Co.
PARTICIPATION AGREEMENT
AMONG
RUSSELL INSURANCE FUNDS,
RUSSELL FUND DISTRIBUTORS, INC.
AND
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
THIS AGREEMENT is made and entered into as of this ___ day of _________,
1997, by and among COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY, a Missouri
corporation (hereinafter the "Company"), on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as such
schedule may be amended from time to time (each such account hereinafter
referred to as the "Account" and collectively as the "Accounts"), and RUSSELL
INSURANCE FUNDS, a Massachusetts Business Trust (hereinafter the "Investment
Company"), and RUSSELL FUND DISTRIBUTORS, INC. a Washington corporation
(hereinafter the "Underwriter").
WHEREAS, Investment Company engages in business as a diversified open-end
management investment company and is available to act as the investment vehicle
for separate accounts established for variable life insurance policies and
variable annuity contracts (collectively, the "Variable Insurance Products");
and
WHEREAS, the beneficial interest in the Investment Company is divided into
several series of shares, referred to individually as "Funds" and representing
the interest in a particular managed portfolio of securities and other assets;
and
WHEREAS, Investment Company is registered as an open-end management
investment company under the 1940 Act, and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Frank Russell Investment Management Company (the "Adviser") is
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable life
or annuity contracts or both under the 1933 Act, and offers or will offer for
sale certain variable life or annuity contracts or both which are or will be
exempt from registration; and
WHEREAS, each Account is a duly organized, validly existing, segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to one or more variable life or annuity
contracts; and
WHEREAS, the Company has registered or will register one of the Accounts as
a unit investment trust under the 1940 Act and other Accounts are exempt from
registration; and
WHEREAS, Investment Company has received "mixed and shared funding"
exemptive relief from the Securities and Exchange Commission permitting it to
offer its shares to life insurers in connection with variable annuity contracts
and variable life insurance policies offered by such insurers which may or may
not be affiliated with each other (SEC Release IC-16160, Dec. 7, 1987); and
WHEREAS, the Underwriter is registered as a broker/dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act") and is a member in good standing of the National Association of Securities
Dealers, Inc. (hereinafter the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Funds on behalf of
each Account to fund certain of the aforesaid variable life or annuity contracts
or both, and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained and other good and valuable consideration the receipt of which
is hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I. SALE OF INVESTMENT COMPANY SHARES
1.1 The Underwriter agrees to sell to the Company those shares of Investment
Company which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Investment Company or its
designee of the order for the shares of the Investment Company. For purposes of
this Section 1.1, the Company shall be the designee of the Investment Company
for receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Investment Company; provided that the Investment
Company receives notice of such order by 8:00 a.m. Pacific time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which Investment Company calculated
its net asset value pursuant to the rules of the Securities and Exchange
Commission.
1.2 The Investment Company agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Investment Company calculates its net asset
value pursuant to rules of the Securities and Exchange Commission, and the
Investment Company shall use reasonable efforts to calculate such net asset
value on each day which the New York Stock Exchange is open for trading.
Notwithstanding the foregoing, the Board of Directors of the Investment Company
(hereinafter the "Board") may refuse to sell shares of any Fund, or suspend or
terminate the offering of shares of any Fund if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole discretion
of the Board acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, necessary in the best interests of the
shareholders of such Fund.
1.3 The Investment Company and the Underwriter agree that all shares of the
Investment Company will be sold only to Participating Insurance Companies which
have agreed to participate in the Investment Company to fund their Separate
Accounts and/or to Qualified Plans, all in accordance with the requirements of
Section 817(h)(4) of the Internal Revenue Code of 1986, as amended ("Code"), and
Treasury Regulation 1.817-5. No shares of any Investment Company will be sold to
the general public.
1.4 The Investment Company agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Investment Company held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Investment Company or its designee of the request for
redemption. For purposes of this Section 1.4, the Company shall be the designee
of the Investment Company for receipt of requests for redemption from each
Account, and receipt by such designee shall constitute receipt by the Investment
Company; provided that the Investment Company receives notice of such request
for redemption by 8:00 a.m. Pacific time on the next following Business Day.
1.5 The Company agrees to purchase and redeem the shares of selected Funds
offered by the then-current prospectus of the Investment Company and in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable life and annuity contracts with the
form number(s) which are listed on Schedule B attached hereto and incorporated
herein by this reference, as such Schedule B may be amended from time to time
hereafter by mutual written agreement of all the parties hereto (the
"Contracts"), may be invested in the Investment Company, in such other
investment companies advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, in the Company's general account or in other
separate accounts of the Company managed by the Company or an affiliate,
provided that such amounts may also be invested in an investment company other
than the Investment Company if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Funds of the Investment
Company and (b) the Company gives the Investment Company and the Underwriter 45
days written notice of its intention to make such other investment company
available as a funding vehicle for the Contracts and (c) the Investment Company
or Underwriter consents to the use of such other investment company.
1.6 The Company shall pay for Investment Company shares on the next Business Day
after an order to purchase Investment Company shares is made in accordance with
the provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire.
1.7 Issuance and transfer of the Investment Company's shares will be by book
entry only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Investment Company will be recorded in an appropriate
title for each Account.
1.8 The Investment Company shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the Investment Company's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Fund shares in additional shares of that
Fund. The Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. Investment Company
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.9 The Investment Company shall make the net asset value per share for each
Fund available to the Company on a daily basis as soon as reasonably practical
after the net asset value per share is calculated but shall use its best efforts
to make such net asset value available by 3:30 P.M. Pacific time. If the
Investment Company provides the Company with materially incorrect share net
asset value information through no fault of the Company, the Company on behalf
of the Separate Accounts, shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct share net asset value. Any
material error in the calculation of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to the
Company. If a Separate Account, due to such error, has received amounts in
excess of the amounts to which it is entitled, the Company, when requested by
the Investment Company, shall make adjustments to the Separate Account to
reflect the change in the values of the shares as reflected in the unit values
of the affected Variable Contract owners who still have values in the applicable
Fund. No adjustment for an error shall be taken in any Separate Account until
such time as the parties hereto have agreed to a resolution of the error, but
the parties shall use all reasonable efforts to reach such agreement within two
business days after the discovery of the error.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are registered under
the 1933 Act or are exempt from registration thereunder; that the Contracts will
be issued and sold in compliance in all material respects with all applicable
Federal and State laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under applicable state insurance law and that each Account is or
will be registered as a unit investment trust in accordance with the provisions
of the 1940 Act to serve as a segregated investment account for the Contracts or
is exempt from registration thereunder.
2.2 The Investment Company represents and warrants that Investment Company
shares sold pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for issuance and sold in compliance with the laws of the State
of Washington and all applicable federal and state securities laws and that the
Investment Company is and shall remain registered under the 1940 Act. The
Investment Company shall amend the Registration Statement for its shares under
the 1933 and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Investment Company shall register and
qualify the shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Investment Company or the
Underwriter.
2.3 The Investment Company represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4 The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts, under applicable provisions of
the Code and that it will make every effort to maintain such treatment and that
it will notify the Investment Company and the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5 The Investment Company currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the
Investment Company undertakes to have a board of trustees, a majority of whom
are not interested persons of the Investment Company, formulate and approve any
plan under Rule 12b-1 to finance distribution expenses.
2.6 The Investment Company makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7 The Underwriter represents and warrants that it is a member in good standing
of the NASD and is registered as a broker-dealer with the SEC. The Underwriter
further represents that it will sell and distribute the Investment Company
shares in accordance with any applicable state laws and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8 The Investment Company represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9 The Underwriter represents and warrants that the Adviser is and shall remain
duly registered in all material respects under all applicable federal and state
securities laws and that the Adviser shall perform its obligations for the
Investment Company in compliance in all material respects any applicable state
laws and federal securities laws.
2.10 The Investment Company and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money or securities of the Investment
Company are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Investment Company in an amount
not less than the minimal coverage as required currently by Rule 17g-(1) of the
1940 Act or related provisions as may be promulgated from time to time. The
aforesaid Bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
2.11 The Company represents and warrants that all of its directors, officers,
employees, investment advisers, and other entities dealing with the money or
securities of the Investment Company are and shall continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Investment Company in an amount not less than five million dollars ($5 million).
The aforesaid Bond shall include coverage for larceny and embezzlement and shall
be issued by a reputable bonding company.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS: VOTING
3.1 The Underwriter shall provide the Company with as many printed copies of the
Investment Company's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Investment Company shall provide camera-ready film or computer
diskettes containing the Investment Company's prospectus and Statement of
Additional Information and such other assistance as is reasonably necessary in
order for the Company once each year (or more frequently if the prospectus
and/or Statement of Additional Information for the Investment Company is amended
during the year) to have the prospectus for the Contracts and the Investment
Company's prospectus printed together in one document, and to have the Statement
of Additional Information for the Investment Company and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Investment Company's prospectus and/or
its Statement of Additional Information in combination with other fund
companies' prospectuses approved pursuant to Section 1.5 and statements of
additional information. Except as provided in the following three sentences, all
expenses of printing and distributing Investment Company prospectuses and
Statements of Additional Information shall be the expense of the Company. For
Prospectuses and Statement of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure as required by
the 1933 Act and/or the 1940 Act, the cost of printing shall be borne by the
Investment Company. If the Company chooses to receive camera-ready film or
computer diskettes in lieu of receiving printed copies of the Investment
Company's prospectus, the Investment Company will reimburse the Company in an
amount equal to the product of A and B where A is the number of such
prospectuses distributed to owners of the Contracts, and B is the Investment
Company's per unit cost of typesetting and printing the Investment Company's
prospectus. The same procedures shall be followed with respect to the Investment
Company's Statement of Additional Information.
The Company agrees to provide the Investment Company or its designee with
such information as may be reasonably requested by the Investment Company to
assure that the Investment Company's expenses do not include the cost of
printing any prospectuses or Statements of Additional Information other than
those actually distributed to existing owners of the Contracts.
3.2 The Investment Company's prospectus shall state that the Statement of
Additional Information for the Investment Company is available from the
Underwriter or the Company (or in the Fund's discretion, the Prospectus shall
state that such Statement is available from the Investment Company).
3.3 The Investment Company, at its expense, shall provide the Company with
copies of its proxy statements, reports to shareholders, and other required
communications (except for prospectuses and Statement of Additional Information,
which are covered in Section 3.1) to shareholders in such quantity as the
Company shall reasonably require for distributing to Contract owners.
3.4 The Company will provide pass-through voting privileges to all Contract
owners so long as the SEC continues to interpret the Investment Company Act of
1940 as requiring pass-through voting privileges for Contract owners.
Accordingly, the Company, where applicable, will vote shares of the Fund held in
its separate accounts in a manner consistent with voting instructions timely
received from its Variable Insurance Product owners. The Company will be
responsible for assuring that each of its Separate Accounts that participates in
the Investment Company calculates voting privileges in a manner consistent with
other participating insurance companies. The Company will vote shares for which
it has not received timely voting instructions, as well as shares it owns, in
the same proportion as it votes those shares for which it has received voting
instructions.
3.5 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule 6e-3
is adopted, to provide exemptive relief from any provision of the Investment
Company Act of 1940 or the rules thereunder with respect to mixed and shared
funding on terms and conditions materially different from any exemptions granted
in the Investment Company's mixed and shared funding exemptive order, then the
Investment Company, and/or the Company, as appropriate, shall take such steps as
may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such Rules are applicable.
3.6 The Investment Company will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Investment Company will
either provide for annual or special meetings or comply with the requirements of
Section 16(c) of the 1940 Act (although the Investment Company is not one of the
trusts described in Section 16(c) of that Act) as well as with Sections 16(a)
and, if and when applicable, 16(b). Further, the Investment Company will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors and with whatever rules the SEC
may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the Investment
Company or its designee, each piece of sales literature or other promotional
material, or component thereof, in which the Investment Company, the Adviser, or
the Underwriter is named, at least fifteen Business Days prior to its use. No
such material shall be used if the Investment Company or its designee object to
such use within fifteen Business Days after receipt of such material.
4.2 The Company shall not give any information or make any representations or
statements on behalf of the Investment Company or concerning the Investment
Company in connection with the sale of the Contracts other than the information
or representations contained in the registration statement or prospectus for the
Investment Company shares, as such registration statement and prospectus may be
amended or supplemented from time to time, or in reports or proxy statements for
the Investment Company, or in sales literature or other promotional material
approved by the Investment Company or its designee or by the Underwriter, except
with the permission of the Investment Company or the Underwriter or the designee
of either.
4.3 The Investment Company, the Underwriter, or their designees shall furnish,
or shall cause to be furnished, to the Company or its designee, each piece of
sales literature or other promotional material, or component thereof, in which
the Company or its separate Accounts are named at least fifteen Business Days
prior to its use. No such material shall be used if the Company or its designee
objects to such use within fifteen Business Days after receipt of such material.
4.4 The Investment Company and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus or offering materials for the
Contracts, as such may be amended or supplemented from time to time, or in
published reports for each Account which are in the public domain or approved by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved by the Company or its designee, except with the
permission of the Company.
4.5 The Investment Company will provide to the Company at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Investment Company or its
shares, contemporaneously with the filing of such document with the Securities
and Exchange Commission or other regulatory authorities.
4.6 The Company will provide to the Investment Company at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities. In the case of unregistered
Contracts, in lieu of providing prospectuses and Statements of Additional
Information, the Company shall provide the Investment Company with one complete
copy of the offering materials for the Contracts.
4.7 For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, electronic media, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. POTENTIAL CONFLICTS
-------------------
5.1 The parties acknowledge that Investment Company has received a "mixed and
shared funding" exemptive order from the SEC granting relief from various
provisions of the Investment Company Act of 1940 and the rules thereunder to the
extent necessary to permit Investment Company shares to be sold to and held by
Variable Insurance Products separate accounts of both affiliated and
unaffiliated participating insurance companies. The exemptive order requires the
Investment Company and each participating insurance company to comply with
conditions and undertakings substantially as provided in this Article V. The
Investment Company will not enter into a participation agreement with any other
participating insurance company unless it imposes the same conditions and
undertakings as are imposed on the Company.
5.2 The Investment Company's Board of Trustees ("Board") will monitor the
Investment Company for the existence of any material irreconcilable conflict
between the interests of Contract owners of all separate accounts investing in
the Investment Company. An irreconcilable material conflict may arise for a
variety of reasons, which may include: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of the Investment Company
are being managed; (e) a difference in voting instructions given by Contract
owners; and (f) a decision by a participating insurance company to disregard the
voting instructions of Contract owners.
5.3 The Company will report any potential or existing conflicts to the
Investment Company's Board. The Company will be responsible for assisting the
Board in carrying out its duties in this regard by providing the Board with all
information reasonably necessary for the Board to consider any issues raised.
The responsibility includes, but is not limited to, an obligation by the Company
to inform the Board whenever it has determined to disregard Contract owner
voting instructions. These responsibilities of the Company will be carried out
with a view only to the interests of the Contract owners.
5.4 If a majority of the Board or majority of its disinterested Trustees,
determines that a material irreconcilable conflict exists affecting the Company,
then the Company, at its expense and to the extent reasonably practicable (as
determined by a majority of the Board's disinterested Trustees), will take any
steps necessary to remedy or eliminate the irreconcilable material conflict,
including: (a) withdrawing the assets allocable to some or all of the separate
accounts from the Investment Company or any Fund thereof and reinvesting those
assets in a different investment medium, which may include another Fund of the
Investment Company, or another investment company; (b) submitting the question
as to whether such segregation should be implemented to a vote of all affected
Contract owners and as appropriate, segregating the assets of any appropriate
group (i.e., variable annuity or variable life insurance contract owners of one
or more participating insurance companies) that votes in favor of such
segregation, or offering to the affected Contract owners the option of making
such a change; and (c) establishing a new registered management investment
company (or series thereof) or managed separate account. If a material
irreconcilable conflict arises because of the Company's decision to disregard
Contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, the Company may be required at the
election of the Investment Company, to withdraw its separate accounts'
investment in the Investment Company, and no charge or penalty will be imposed
as a result of such withdrawal. The responsibility to take such remedial action
shall be carried out with a view only to the interests of the Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict but in no event will
the Investment Company or any investment adviser of the Investment Company be
required to establish a new funding medium for any Contract. Further, the
Company shall not be required by this Section 5.4 to establish a new funding
medium for any Contract if any offer to do so has been declined by a vote of a
majority of Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable material
conflict and its implications shall be made known promptly and in writing to the
Company.
5.6. No less than annually, the Company shall submit to the Board such reports,
materials or data as the Board may reasonably request so that the Board may
fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
ARTICLE VI. FEES AND EXPENSES
6.1 The Investment Company and the Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Investment
Company or any Fund adopts and implements a plan pursuant to Rule 12b-1 to
finance distribution expenses, then the Underwriter may make payments to the
Company or to the underwriter for the Contracts if and in amounts agreed to by
the Underwriter in writing and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter, or other
resources available to the Underwriter. No such payments shall be made directly
by the Investment Company.
Currently, no such payments are contemplated.
6.2 All expenses incident to performance by the Investment Company under this
Agreement shall be paid by the Investment Company. The Investment Company shall
ensure that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Investment Company, in accordance with applicable state laws
prior to their sale. The Investment Company shall bear the expenses for the cost
of registration and qualification of the Investment Company's shares,
preparation and filing of the Investment Company's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Investment Company's shares.
6.3 The Company shall bear the expenses of distributing the Investment Company's
prospectus, proxy materials, and reports to owners of Contracts issued by the
Company.
ARTICLE VII. DIVERSIFICATION
7.1 The Investment Company will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Internal Revenue Code and the regulations issued thereunder.
Without limiting the scope of the foregoing, the Investment Company will at all
times comply with Section 817(h) of the Code and Treasury Regulation 1.817-5,
relating to the diversification requirements for variable annuity, endowment, or
life insurance contracts and any amendments or other modifications to such
Section or Regulations.
ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Investment Company
and each member of the Board and officers and each person, if any, who controls
the Investment Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or action in respect thereof)
or settlements are related to the sale or acquisition of the Investment
Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in any Registration
Statement, prospectus or other offering materials for the Contracts or
contained in the Contracts or sales literature for the Contracts (or
any amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Company by or on behalf of the Investment Company for use in any
Registration Statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Investment Company's shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Investment Company
not supplied by the Company, or persons under its control) or wrongful
conduct of the Company or persons under its control, with respect to
the sale or distribution of the Contracts or Investment Company
shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus, or
sales literature of the Investment Company or any amendment thereof or
supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to the
Investment Company by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of a result from any material breach of any representation
or warranty made by the Company in this Agreement or arise out of or
result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to the
Investment Company, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim shall not
relieve the Company from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Investment Company shares or the Contracts or the
operation of the Investment Company.
8.2 INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Investment Company's shares or the Contracts and;
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
or prospectus or sales literature of the Investment Company (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to the
Underwriter or Investment Company by or on behalf of the Company for
use in the Registration Statement or prospectus for the Investment
Company or in the sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Investment Company shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in any Registration
Statement, prospectus, other offering materials or sales literature
for the Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Investment Company, Adviser, or
Underwriter or persons under their control, with respect to the sale
or distribution of the Contracts or Investment Company shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, prospectus,
other offering materials or sales literature covering the Contracts,
or any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of
the Investment Company; or
(iv) arise as a result of any failure by the Investment Company to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith
or otherwise, to comply with the diversification requirements
specified in Article VII of this Agreement); or
(v) arise out of or result from any material breach of any representation
or warranty made by the Underwriter in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company or each Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of any Account.
8.3 INDEMNIFICATION BY THE INVESTMENT COMPANY
8.3(a). The Investment Company agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Investment Company or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements result
from the gross negligence, bad faith or willful misconduct of the Board or any
member thereof, are related to the operations of the Investment Company and:
(i) arise as a result of any failure by the Investment Company to provide
the services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VII of this Agreement); or
(ii) arise out of or result from any material breach of any representation
or warranty made by the Investment Company in this Agreement or arise
out of or result from any other material breach of this Agreement by
the Investment Company, as limited by and in accordance with the
provisions of Sections 8.3(b) and 8.3(c) hereof.
8.3(b). The Investment Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's will misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Investment Company, the Underwriter or any Account, which ever
is applicable.
8.3(c). The Investment Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Investment Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Investment
Company of any such claim shall not relieve the Investment Company from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Investment Company
will be entitled to participate, at its own expense, in the defense thereof. The
Investment Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Investment Company to such party of the Investment Company's election to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Investment Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Investment
Company of the commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of any Account,
or the sale or acquisition of shares of the Investment Company.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Washington.
9.2 To the extent they are applicable, this Agreement shall be subject to the
provisions of the 1933, 1934 and 1940 acts, and the rules and regulations and
rulings thereunder, including such exemptions from those statutes, rules and
regulations as the Securities and Exchange Commission may grant and the terms
hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION OF AGREEMENT
10.1 This Agreement shall continue in full force and effect until the first to
occur of:
(a) termination by any party for any reason by one hundred twenty (120)
days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Investment Company
and the Underwriter with respect to any fund based upon the Company's
determination that shares of such Fund are not reasonable available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Investment Company
and the Underwriter with respect to any Fund in the event any of the Fund's
shares are not registered, issued, or sold materially in accordance with
applicable state or federal law or such law precludes the use of such shares as
the underlying investment media of the Contracts issued or to be issued by the
Company; or
(d) Termination by the Company by written notice to the Investment Company
and the Underwriter with respect to any Fund in the event that such Fund ceases
to qualify as a Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision, or if the Company reasonably believes
that the Investment Company may fail to so qualify; or
(e) termination by the Company by written notice to the Investment Company
and the Underwriter with respect to any Fund in the event that such Fund fails
to meet the diversification requirements specified in Article VII hereof or if
the Company reasonably believes that the Fund may fail to so qualify; or
(f) termination by either the Investment Company or the Underwriter by
written notice to the Company, if either one or both of the Investment Company
or the Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company or its affiliated companies has
suffered a material adverse change in its business, operations, financial
condition, or prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(g) termination by the Company by written notice to the Investment Company
and the Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Investment Company or the Underwriter
has suffered a material adverse change in its business, operations, financial
condition, or prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(h) the Company, upon the institution of formal proceedings against the
Investment Company by the SEC, the National Association of Securities Dealers,
Inc., or any other regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in the Company's reasonable judgment, materially
impair the Investment Company's ability to meet and perform the Investment
Company's obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by the Company with said termination to be
effective upon receipt of notice;
(i) termination by the Investment Company upon the institution of formal
proceedings against the Company by the SEC, the National Association of
Securities Dealers, Inc., or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in the Investment
Company's reasonable judgment, materially impair the Company's ability to meet
and perform its obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by the Investment Company with said termination to
be effective upon receipt of notice;
(j) termination by the Company, upon the Investment Company's or the
Underwriter's breach of any material provision of this Agreement, which breach
has not been cured to the satisfaction of the Company within ten days after
written notice of such breach is delivered to the Investment Company;
(k) termination by the Investment Company upon the Company's breach of any
material provision of this Agreement, which breach has not been cured to the
satisfaction of the Investment Company within ten days after written notice of
such breach is delivered to the Company.
10.2 Notwithstanding any termination of this Agreement, the Investment Company
and the Underwriter shall at the option of the Company, continue to make
available additional shares of the Investment Company pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investment in the Investment Company,
redeem investments in the Investment Company, or invest in the Investment
Company upon the making of additional purchase payments under the Existing
Contracts.
10.3 The Company shall not redeem Investment Company shares attributable to the
Contracts (as opposed to Investment Company shares attributable to the Company's
assets held in any of the Accounts) except (i) as necessary to implement
Contract Owner initiated transactions, or (ii) as required by state or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Fund that was
otherwise available under the Contracts without first giving the Investment
Company or the Underwriter ninety (90) days notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Investment Company:
909 A Street
Tacoma, Washington 98402
Attention: Karl J. Ege, Esq.
If to the Company:
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181
Attention: General Counsel
If to the Underwriter:
909 A. Street
Tacoma, Washington 98402
Attention: Karl J. Ege, Esq.
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Investment Company must look solely to the
property of the Investment Company for the enforcement of any claims against the
Investment Company as neither the Board, officers, agents or shareholders assume
any personal liability for obligations entered into on behalf of the Investment
Company.
12.2 Subject to the requirements of legal process and regulatory authority, each
party hereto shall treat as confidential the names and addresses of the owners
of the Contracts and all information reasonably identified as confidential in
writing by any other party hereto and, except as permitted by this Agreement,
shall not disclose, disseminate or utilize such names and addresses and other
confidential information until such time as it may come into the public domain
without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
12.5 If any provisions of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable life
insurance operations of the Company are being conducted in a manner consistent
with the California Variable Life Insurance Regulations and any other applicable
law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreements or any of the rights and obligations hereunder may not be
assigned by any party without the prior written consent of all parties hereto;
provided, however, that the Underwriter may assign this Agreement or any rights
or obligations hereunder to any affiliate of or company under common control
with the Underwriter, if such assignee is duly licensed and registered to
perform the obligations of the Underwriter under this Agreement.
12.9 The Master Trust Agreement dated 11 July 1996, as amended from time to
time, establishing the Investment Company, which is hereby referred to and a
copy of which is on file with the Secretary of The Commonwealth of
Massachusetts, provides that the name Russell Insurance Funds means the Trustees
from time to time serving (as Trustees but not personally) under said Master
Trust Agreement. It is expressly acknowledged and agreed that the obligations of
the Investment Company hereunder shall not be binding upon any of the
shareholders, Trustees, officers, employees or agents of the Investment Company,
personally, but shall bind only the trust property of the Investment Company as
provided in its Master Trust Agreement. The execution and delivery of this
Agreement have been authorized by the Trustees of the Investment Company and
signed by the President of the Investment Company, acting as such, and neither
such authorization by such Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Investment Company as provided in its Master Trust Agreement.
12.10 In the event of the termination of this Agreement, the parties agree that
ARTICLE VIII and Section 12.6 shall remain in effect after termination.
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be executed in its name and on behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date first
written above.
COVA FINANCIAL SERVICES LIFE
INSURANCE COMPANY
ATTEST: BY:
_____________________ ____________________________
Secretary President
RUSSELL INSURANCE FUNDS
ATTEST: BY:
_____________________ ____________________________
Secretary President
RUSSELL FUND DISTRIBUTORS, INC.
ATTEST: BY:
_____________________ ______________________________
Secretary President
SCHEDULE A
ACCOUNTS
Name of Account Date of Resolution of Company's
Board which Established the Account
Cova Variable Annuity Account One February 24, 1987
SCHEDULE B
CONTRACTS
1. Contract Form Numbers: XL - 407
CL - 407
XL - 617
CL - 617
2. Funds currently available to act as investment vehicles for certain of the
above-listed contracts:
Russell Insurance Funds: Multi-Style Equity Fund
Aggressive Equity Fund
Non-U.S. Fund
Core Bond Fund
PARTICIPATION AGREEMENT
AMONG
LIBERTY VARIABLE INVESTMENT TRUST,
LIBERTY FINANCIAL INVESTMENTS, INC.
AND
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
This Agreement, made and entered into this ___ day of _______, 1997 by and
among Cova Financial Services Life Insurance Company(the "Company"), on its own
behalf and on behalf of its Separate Accounts, each of which is a segregated
asset account of the Company, Liberty Variable Investment Trust (the "Trust"),
and Liberty Financial Investments, Inc. ("LFII").
WHEREAS, the Trust engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, ""Contracts"") to be offered by insurance companies which have
entered into participation agreements substantially identical to this Agreement
(hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares (such series being hereinafter referred to individually as a
"Series" or collectively as the "Series"); and
WHEREAS, the Trust relies on an order from the Securities and Exchange
Commission ("SEC"), dated July 1, 1988 (File No. 812-7044), granting life
insurance companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder to the extent necessary to
permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (the "1933 Act"); and
WHEREAS, Liberty Advisory Services Corp. ("LASC") is duly registered as an
investment adviser under the federal Investment Advisers Act of 1940 ("Advisers
Act") and any applicable state securities law; and
WHEREAS, Colonial Investors Service Center, Inc. ("CISC") serves as
transfer agent to the Trust; and
WHEREAS, the Company has established, by resolution of its Board of
Directors, the duly organized, validly existing segregated asset accounts listed
on Schedule A hereto (the "Separate Accounts"); and
WHEREAS, the Company has registered or will register the Separate Accounts
as unit investment trusts under the 1940 Act; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products ("Contracts") under the 1933 Act, which Contracts are funded
by the Separate Accounts; and
WHEREAS, the Company relies on certain provisions of the 1940 and 1933 Acts
that exempt the Separate Accounts and Contracts from the registration
requirements of the Acts in connection with the sale of the Contracts under
certain tax-advantaged retirement programs as provided for by the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, LFII is registered as a broker-dealer with the SEC under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase, on behalf of each Separate
Account, shares of the Series listed on Schedule A next to such Separate
Account, to fund the Contracts, and LFII is authorized to sell such shares to
unit investment trusts such as each Separate Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Trust and LFII agree as follows:
ARTICLE I. SALE OF FUND SHARES
-------------------
1.1. LFII will sell to the Company those shares of the Trust which each
Separate Account orders, executing such orders on a daily basis at the net asset
value next computed after receipt of such orders by the Trust. For the purposes
of this Section 1.1., CISC shall be the designee of the Trust for receipt of
such orders from each Separate Account and receipt by such designee shall
constitute receipt by the Trust.
1.2. The Trust will make its shares available indefinitely for purchase at
the applicable net asset value per share by the Company and its Separate
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall use reasonable efforts to
calculate such net asset value on each day on which the New York Stock Exchange
is open for trading ("Business Day"). Notwithstanding the foregoing, the Board
of Trustees of the Trust (the "Trustees") may refuse to sell shares of any
Series to any person, or suspend or terminate the offering of shares of any
Series if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Trustees, acting in good faith
and in light of their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of such Series.
1.3. The Trust agrees that all shares of the Series of the Trust will be
sold only to Participating Insurance Companies which have agreed to participate
in the Trust to fund their separate accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h)(4) of the Code and Treasury
Regulation 1.817-5. Shares of the Series of the Trust will not be sold to the
general public.
1.4. The Trust and LFII will not sell Trust shares to any insurance company
or separate account unless an agreement containing provisions substantially the
same as Articles I., III., V., VII. and Sections 2.5. and 2.12 of Article II. of
this Agreement is in effect to govern such sales.
1.5. The Trust will redeem for cash, at the Company's request, any full or
fractional shares of the Trust held by the Company, executing such requests at
the net asset value next computed after receipt by the Trust of such requests.
For purposes of this Section 1.5., CISC shall be the designee of the Trust for
receipt of requests for redemption for each Separate Account.
Subject to the applicable rules and regulations, if any, of the SEC, the
Trust may pay the redemption price for shares of any Series in whole or in part
by a distribution in kind of securities from the portfolio of the Trust
allocated to such Series in lieu of money, valuing such securities at their
value employed for determining net asset value governing such redemption price,
and selecting such securities in a manner the Trustees may determine in good
faith to be fair and equitable.
1.6. The Trust may suspend the redemption of any full or fractional shares
of the Trust (1) for any period (a) during which the New York Stock Exchange is
closed (other than customary weekend and holiday closings) or (b) during which
trading on the New York Stock Exchange is restricted; (2) for any period during
which an emergency exists as a result of which (a) disposal by the Trust of
securities owned by it is not reasonably practicable or (b) it is not reasonably
practicable for the Trust fairly to determine the value of its net assets; or
(3) for such other periods as the SEC may by order permit for the protection of
shareholders of the Trust.
1.7. The Company will purchase and redeem the shares of each Series offered
by the then current prospectus of the Trust and in accordance with the
provisions of such prospectus and statement of additional information (the
"SAI") (collectively referred to as "Prospectus," unless otherwise provided).
1.8. The Company shall pay for Trust shares on the next Business Day after
an order to purchase Trust shares is made in accordance with the provisions of
Section 1.1. hereof. Payment shall be in federal funds transmitted by wire, or
may otherwise be provided by separate agreement.
1.9. Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Company or the Separate
Accounts. Shares ordered from the Trust will be recorded in an appropriate title
for each Separate Account or the appropriate subaccount of each Separate
Account.
1.10. The Trust, through its designee CISC, shall furnish same day notice
(by wire or telephone, followed by written confirmation) to the Company of any
income dividends or capital gain distributions payable on the shares of any
Series. The Company hereby elects to receive all such income, dividends and
capital gain distributions as are payable on the shares of each Series in
additional shares of that Series. The Company reserves the right to revoke this
election and to receive all such income, dividends and capital gain
distributions in cash. The Trust shall notify the Company through its designee,
CISC, of the number of shares so issued as payment of such income, dividends and
distributions.
1.11. The Trust shall make the net asset value per share for each Series
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 7 p.m., Boston time. In the
event that the Trust is unable to meet the 7:00 p.m. time stated herein, it
shall provide additional time for the Company to place orders for the purchase
and redemption of shares. Such additional time shall be equal to the additional
time which the Trust takes to make the net asset value available to the Company.
If the Trust provides the Company with materially incorrect share net asset
value information through no fault of the Company, the Company on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any material
error in the calculation of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to the Company. If a
Separate Account due to such error has received amounts in excess of the amounts
to which it is entitled, the Company, when requested by the Trust, shall make
adjustments to the Separate Account to reflect the change in the values of the
shares as reflected in the unit values of the affected variable Contract owners
who still have values in the Series. No adjustment for an error shall be taken
in any Separate Account until such time as the parties hereto have agreed to a
resolution of the error, but the parties shall use all reasonable efforts to
reach such agreement within two business days after the discovery of the error.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act to the extent required by the 1933 Act; that the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws and that the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that prior to any
issuance or sale of any Contract it has legally and validly established each
Separate Account as a segregated asset account under the applicable state
insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register each Separate Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts, to the extent required by the 1940 Act.
2.2. The Trust represents and warrants that Trust shares sold pursuant to
this Agreement shall be registered under the 1933 Act to the extent required by
the 1933 Act, duly authorized for issuance and sold in compliance with the laws
of The Commonwealth of Massachusetts and all applicable federal and any state
securities laws and that the Trust is and shall remain registered under the 1940
Act to the extent required by the 1940 Act. The Trust shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Trust shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Trust or LFII.
2.3. The Trust represents that it intends to qualify as a Regulated
Investment Company under Subchapter M of the Code and that it will maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts under applicable provisions of
the Code and that they will make every effort to maintain such treatment and
that they will notify the Trust and LFII immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Trust currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future consistent with applicable law.
To the extent that it decides to finance distribution expenses pursuant to Rule
12b-1, the Trust undertakes to have its Trustees, a majority of whom are not
interested persons of the Trust, formulate and approve any plan under Rule 12b-1
to finance distribution expenses.
2.6. The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. LFII represents and warrants that it is a member in good standing of
the NASD and is registered as a broker-dealer with the SEC. LFII further
represents that it will sell and distribute the Trust shares in accordance with
the laws of The Commonwealth of Massachusetts and all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it does
and will comply in all material aspects with the 1940 Act.
2.9. The Trust represents and warrants that LASC is and shall remain duly
registered as an investment adviser in all material aspects under all applicable
federal and state securities laws and that LASC shall perform its obligations
for the Trust in compliance in all material respects with the applicable laws of
The Commonwealth of Massachusetts and any applicable state and federal
securities laws.
2.10. The Trust represents and warrants that all of its trustees, officers,
employees, and other individuals/entities having access to securities or funds
of the Trust are and shall continue to be at all times covered by a joint
fidelity bond in an amount not less than $10 million with a deductible of
$150,000 per occurrence. The aforesaid bond shall include coverage for larceny
and embezzlement and shall be issued by a reputable fidelity insurance company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities having
access to securities or funds of the Trust are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust, in an amount not less than $5 million with no deductible amount. The
aforesaid bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable fidelity insurance company.
2.12. The Company represents and warrants that it will not transfer or
otherwise convey shares of the Trust, without the prior written consent of LFII.
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
---------------------------------------
3.1. , At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus for the
shares of the Series as the Company may reasonable request for distribution to
existing Contract owners whose Contracts are funded by such shares. Trust or its
designee shall provide the Company, at the Company's expense, with as many more
copies of the current prospectus for the shares as the Company may reasonably
request for distribution to prospective purchasers of Contracts. If requested by
the Company in lieu thereof, Trust or its designee shall provide such
documentation (including a "camera ready" copy of the new prospectus as set in
type or, at the request of the Company, as a diskette in the form sent to the
financial printer) and other assistance as is reasonably necessary in order for
the parties hereto once a year (or more frequently if the prospectus for the
shares is supplemented or amended) to have the prospectus for the Contracts and
the prospectus for the Trust shares and any other fund shares offered as
investments for the Contracts printed together in one document. The expenses of
such printing will be apportioned between (a) the Company and (b) the Trust, in
proportion to the number of pages of the Contract, other fund shares
prospectuses and the Trust shares prospectus, taking account of other relevant
factors affecting the expense of printing, such as covers, columns, graphs and
charts; Trust to bear the cost of printing the shares' prospectus portion of
such document for distribution only to owners of existing Contracts funded by
the Trust shares and the Company to bear the expense of printing the portion of
such documents relating to the Separate Account; provided, however, the Company
shall bear all printing expenses of such combined documents where used for
distribution to prospective purchasers or owners of existing Contracts not
funded by the shares.
3.2. The Trust's prospectus shall state that the SAI for the Trust is
available from LFII and the Trust, at its expense, shall provide final copy of
such SAI to LFII for duplication and provision to any prospective owner who
requests the SAI and to any owner of a Contract ("Owners").
3.3. The Trust, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require for
distribution to Owners.
3.4. If and to the extent required by law, the Company and, so long as and
to the extent that the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for Owners, the Trust shall:
(i) solicit voting instructions from Owners;
(ii) vote the Trust shares in accordance with instructions received from
Owners; and
(iii) vote Trust shares for which no instructions have been received in
the same proportion as Trust shares of such Series for which
instructions have been received.
The Company reserves the right to vote Trust shares held in any segregated asset
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Trust calculates voting privileges in a
manner consistent with the standards to be provided in writing to the
Participating Insurance Companies.
3.5. The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders. The Trust reserves the right to take all actions,
including but not limited to, the dissolution, merger, and sale of all assets of
the Trust upon the sole authorization of its Trustees, to the extent permitted
by the laws of The Commonwealth of Massachusetts and the 1940 Act.
ARTICLE IV. SALES MATERIAL AND INFORMATION
------------------------------
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust or LASC, or any sub-adviser, or LFII is named, at
least fifteen (15) days prior to its use. No such material shall be used if the
Trust or its designee object to such use within fifteen (15) days after receipt
of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or Prospectus for the Trust shares, as
such registration statement and Prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Trust, or in sales
literature or other promotional material approved by the Trust or its designee
or by LFII, except with the permission of the Trust or LFII or the designee of
either.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designees, each piece of sales literature or
other promotional material in which the Company and/or its Separate Account(s),
are named at least fifteen (15) days prior to its use. No such material shall be
used if the Company or its designee object to such use within fifteen (15) days
after receipt of such material.
4.4. The Trust and LFII shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, any Separate Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for such
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for such Separate
Account which are in the public domain or approved by the Company for
distribution to Owners, or in sales literature or other promotional material
approved by the Company or its designee, except with the permission of the
Company.
4.5. The Trust will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemption,
requests for no-action letters, and all amendments to any of the above, that
relate to the Trust or its shares, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Trust at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemption, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or any Separate Account,
contemporaneously with the filing of such document with the SEC.
4.7. For purposes of this Article IV., the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters seminar texts, reprints or excerpts of any
other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, SAIs, shareholder reports, and proxy materials.
ARTICLE V. FEES AND EXPENSES
-----------------
5.1. The Trust and LFII shall pay no fee or other compensation to the
Company under this Agreement, except that if the Trust or any Series adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
LFII may make payments to the Company or to the underwriter for the Contracts if
and in amounts agreed to by LFII in writing and such payments will be made out
of fees payable to LFII by the Trust for this purpose. No such payments shall be
made directly by the Trust. Currently, no such plan pursuant to Rule 12b-1 or
payments are contemplated.
5.2. All expenses incident to performance by the Trust under this Agreement
shall be paid by the Trust. The Trust shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Trust, in accordance with
applicable state laws prior to their sale. The Trust shall bear the expenses of
registration and qualification of the Trust's shares, preparation and filing of
the Trust's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting in type and printing the proxy materials
and reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, and all taxes on the issuance or transfer
of the Trust's shares.
5.3. The Company shall bear the expenses of distributing the Trust's proxy
materials and reports to Owners.
ARTICLE VI. DIVERSIFICATION
---------------
6.1. The Trust will at all times invest money from the Contracts in such a
manner as to ensure that, insofar as such investment is required to assure such
treatment, the Contracts will be treated as variable contracts under the Code
and the regulations issued thereunder. Without limiting the scope of the
foregoing, the Trust will at all times comply with Section 817(h) of the Code
and the Treasury Regulations thereunder including without limitation Treasury
Regulation 1.817-5 relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulations and will notify the Company
immediately upon having a reasonable basis for believing any Series has ceased
to comply or may not so comply and will immediately take all reasonable steps to
adequately diversify the Series to achieve compliance.
ARTICLE VII. POTENTIAL CONFLICTS
-------------------
7.1. The Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the Owners of separate accounts
of the Participating Insurance Companies investing in the Trust. A material
irreconcilable conflict may arise for a variety of reasons, including: (a) an
action by any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretive letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Series are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance policy owners; or (f) a decision by an insurer to disregard the voting
instructions of Owners. The Trustees shall promptly inform the Company if they
determine that a material irreconcilable conflict exists and the implications
thereof.
7.2. The Company will report any potential or existing conflicts (including
the occurrence of any event specified in paragraph 7.1. which may give rise to
such a conflict) of which it is aware to the Trustees. The Company will assist
the Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order, by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Trustees whenever
Owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Trustees, or a majority of
its disinterested Trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Trustees), take whatever steps are necessary to remedy or
eliminate the material irreconcilable conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts of
Participating Insurance Companies from the Trust or any Series and reinvesting
such assets in a different investment medium, including (but not limited to)
another Series of the Trust, or submitting the question whether such segregation
should be implemented to a vote of all affected Owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Owners the option of making such a change; (2)
establishing a new registered management investment company or managed separate
account; and (3) obtaining SEC approval.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Owner voting instructions and that decision represents
a minority position or would preclude a majority vote, the Company may be
required, at the Trust's election, to withdraw the affected Separate Account's
investment in the Trust and terminate this Agreement; provided, however that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested Trustees. Any such withdrawal and termination must take place
within six (6) months after the Trust gives written notice that this provision
is being implemented, and until the end of that six (6) month period LFII and
the Trust shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Trust.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Separate Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing that they
have determined that such decision has created a material irreconcilable
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Until the end of the
foregoing six (6) month period, LFII and Trust shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Trust.
7.6. For purposes of Sections 7.3. through 7.6. of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in no event
will the Trust be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3. to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Owners materially adversely affected by the material irreconcilable
conflict. In the event that the Trustees determine that any proposed action does
not adequately remedy any material irreconcilable conflict, then the Company
will withdraw the affected Separate Account's investment in the Trust and
terminate this Agreement within six (6) months after the Trustees inform the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) or terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Trust and/or the Company, as appropriate, shall take such steps as
may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.4., 3.5., 7.1., 7.2., 7.3., 7.4., and 7.5. of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
---------------
8.1. Indemnification By The Company
8.1.(a). The Company will indemnify and hold harmless the Trust and
each of its Trustees and Officers and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1.) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or
contained in the sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this Agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished in writing to the Company by or on
behalf of the Trust for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
(ii) arise out of or are based upon statements or representations
(other than statements or representations contained in the
registration statement, Prospectus or sales literature of the
Trust not supplied by the Company, or persons under their
control) or wrongful conduct of one or both of the Company or
persons under their control, with respect to the sale or
distribution of the Contracts or Trust shares; or
(iii)arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
Prospectus, or sales literature of the Trust or any amendment
thereof or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished in writing to the Trust by or on behalf of the Company;
or
(iv) arise out of or result from any failure by the Company to provide
the services and furnish the materials contemplated by this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
8.1.(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by
reason of such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Trust, whichever is applicable.
8.1.(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Company of any such claim shall not relieve the Company from any liability
which they may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own expense, in the
defense of such action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the election of the
Company to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company
will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1.(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the Contracts
or the operation of the Trust.
8.2. Indemnification By LFII
8.2.(a). LFII will indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2.) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of LFII) or litigation (including legal
and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the
Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus or sales literature
for the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
Agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to LFII or the Trust
by or on behalf of the Company for use in the registration
statement or prospectus for the Trust or in sales literature
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Trust shares;
or
(ii) arise out of or are based upon statements or representations
(other than statements or representations contained in the
registration statement, Prospectus or sales literature of
the Trust not supplied by LFII, or persons under their
control) or wrongful conduct of the Trust or LFII or persons
under their control, with respect to the sale or
distribution of the Contracts or Trust shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, Prospectus, or sales literature covering the
Contracts or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or
omission was made in reliance upon information furnished to
the Company by or on behalf of LFII or the Trust; or
(iv) arise out of or result from any failure by LFII or the Trust
to provide the services and furnish the materials under the
terms of this Agreement (including a failure to comply with
the diversification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by LFII in this
Agreement or arise out of or result from any other material
breach of this Agreement by LFII, as limited by and in
accordance with the provisions of Sections 8.2(b) and 8.2(c)
hereof.
8.2.(b). LFII shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to
which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Company or a Separate Account, whichever is applicable.
8.2.(c). LFII shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LFII in writing within a reasonable
time after the summons or other first legal process giving information of
the nature of the claim shall have been served upon such Indemnified Party
(or after such Indemnified Party shall have received notice of such service
on any designated agent), but failure to notify LFII of any such claim
shall not relieve LFII from any liability which they may have to the
Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, LFII shall be entitled to
participate, at its own expense, in the defense of such action. LFII also
shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from LFII to such party of
the election of LFII to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it,
and LFII will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs of
investigation.
8.2.(d). The Indemnified Parties will promptly notify LFII of the
commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of a Separate
Account.
8.3. Indemnification By the Trust
8.3.(a). The Trust will indemnify and hold harmless the Company, and
its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3.) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Trust) or litigation (including
legal and other expenses) to which the Indemnified Parties may become
subject under any statute, regulation at common law or otherwise, insofar
as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross negligence, bad faith
or willful misconduct of the Board of Trustees or any member thereof, are
related to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
diversification requirements specified in Article VI. of
this Agreement or the Regulated Investment Company
requirements specified in Section 2.3 of the Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Trust;
as limited by and in accordance with the provisions of Sections 8.3.(b).
and 8.3.(c). hereof.
8.3.(b). The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise by subject by
reason of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Trust, LFII or each
Separate Account, whichever is applicable.
8.3.(c). The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have served upon such
Indemnified Party (or after such Indemnified party shall have received
notice of such service on any designated agent), but failure to notify the
Trust of any such claim shall not relieve the Trust from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the Trust
will be entitled to participate, at its own expense, in the defense
thereof. The Trust also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Trust to such party of the Trust's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trust will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.3.(d). The Company and LFII agree promptly to notify the Trust of
the commencement of any litigation or proceedings against them or any of
their respective officers or directors in connection with this Agreement,
the issuance or sale of the Contracts, with respect to the operation of any
Separate Account, or the sale or acquisition of shares of the Trust.
ARTICLE IX. APPLICABLE LAW
--------------
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts; provided, however, that if such laws or any of the provisions of
this Agreement conflict with applicable provisions of the 1940 Act, the latter
shall control.
9.2. This Agreement shall be made subject to the provisions of the 1933,
1934, and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
-----------
10.1. This Agreement shall terminate:
(a) at the option of any party six months advance written notice to
the other parties; provided, however such notice shall not be given earlier
than one (1) year following the date of this Agreement; or
(b) at the option of the Company to the extent that shares of Series
are not reasonably available to meet the requirements of the Contracts as
determined by the Company; provided, however, that such termination shall
apply only to the Series not reasonably available. Prompt notice of the
election to terminate for such cause shall be furnished by the Company; or
(c) at the option of the Trust in the event that formal administrative
proceedings are instituted against the Company or LFII by the NASD, the
SEC, the Insurance Commissioner of the domiciliary state of the Company or
any other regulatory body regarding the duties of the Company under this
Agreement or related to the sale of the Contracts, with respect to the
operation of a Separate Account, or the purchase of the Trust shares;
provided, however, that the Trust determines in its sole judgment exercised
in good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the Company to perform its
obligations under this Agreement or of LFII to perform its obligations
under its underwriting agreement with the Trust; or
(d) at the option of the Company in the event that formal
administrative proceedings are instituted against the Trust by the NASD,
the SEC, or any state securities or insurance department or any other
regulatory body; provided, however, that the Company determines in its sole
judgment exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the Trust to
perform its obligations under this Agreement; or
(e) with respect to a Separate Account, upon requisite authority to
substitute the shares of another investment company for shares of the
corresponding Series of the Trust in accordance with the terms of the
Contracts for which those Series shares had been selected to serve as the
underlying investment media. The Company will give thirty (30) days' prior
written notice to the Trust of the date of any proposed action to replace
the Trust shares; or
(f) at the option of the Company, in the event any of the Trust's
shares are not registered, issued or sold in accordance with applicable
federal and any state law or such law precludes the use of such shares as
the underlying investment media of the Contracts issued or to be issued by
the Company; or
(g) at the option of the Company, if the Trust ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes that
the Trust may fail to so qualify; or
(h) at the option of the Company, if the Trust fails to meet the
diversification requirements specified in Article VI. hereof; or
(i) at the option of either the Trust or LFII, if (1) the Trust or
LFII, respectively, shall determine, in their sole judgment reasonably
exercised in good faith, that the Company has suffered a material adverse
change in its business or financial condition or is the subject of material
adverse publicity and such material adverse publicity will have a material
adverse impact upon the business and operations of either the Trust or
LFII, (2) the Trust or LFII shall notify the Company in writing of such
determination and its intent to terminate this Agreement, and (3) after
considering the actions taken by the Company and any other changes in
circumstances since the giving of such notice, such determination of the
Trust or LFII shall continue to apply on the sixtieth (60th) day following
the giving of such notice, which sixtieth (60th) day shall be the effective
date of termination; or
(j) at the option of the Company, if (1) the Company shall determine,
in its sole judgment reasonably exercised in good faith, that either the
Trust or LFII has suffered a material adverse change in its business or
financial condition or is the subject of material adverse publicity and
such material adverse publicity will have a material adverse impact upon
the business and operations of the Company, (2) the Company shall notify
the Trust and LFII in writing of such determination and its intent to
terminate the Agreement, and (3) after considering the actions taken by the
Trust and/or LFII and any other changes in circumstances since the giving
of such notice, such determination shall continue to apply on the sixtieth
(60th) day following the giving of such notice, which sixtieth (60th) day
shall be the effective date of termination; or
(k) At the option of the Company, upon the Trust's breach of any
material provision of this Agreement, which breach has not been cured to
the satisfaction of the Company within ten days after written notice of
such breach is delivered to the Trust;
(l) At the option of the Trust or LFII, upon the Company's breach of
any material provision of this Agreement, which breach has not been cured
to the satisfaction of the Trust or LFII, as the case may be, within ten
days after written notice of such breach is delivered to the Company.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1.(a). may be exercised for any
reason or for no reason.
10.3. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to terminate
which notice shall set forth the basis for such termination. Furthermore,
(a) in the event that any termination is based upon the provisions of
Article VII., or the provision of Section 10.1.(a)., 10.1.(i)., 10.1.(j).,
10.1.(k)., or 10.1.(l). of this Agreement, such prior written notice shall
be given in advance of the effective date of termination as required by
such provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1.(c). or 10.1.(d). of this Agreement, such prior written notice
shall be given at least ninety (90) days before the effective date of
termination.
10.4. Effect of Termination. Notwithstanding any termination of this
Agreement, the Trust and LFII shall at the option of the Company, continue to
make available additional shares of the Trust pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as "Existing
Products"). Specifically, without limitation, the Owners of the Existing
Products shall be permitted to reallocate investments in the Trust, redeem
investments in the Trust and/or invest in the Trust upon the making of
additional purchase payments under the Existing Products. The parties agree that
this Section 10.4. shall not apply to any termination under Article VII. and the
effect of such Article VII. terminations shall be governed by Article VII. of
this Agreement.
10.5. The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets held
in a Separate Account) except (i) as necessary to implement Owner-initiated
transactions, or (ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application (hereinafter referred
to as a "Legally Required Redemption"). ) Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent Owners
from allocating payments to a Series that was otherwise available under the
Contracts without first giving the Trustee or LFII thirty (30) days notice of
their intention to do so.
ARTICLE XI. NOTICES
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
c/o Colonial Investors Service Center, Inc.
One Financial Center
Boston, Massachusetts 02211
Attention: General Counsel
If to the Company:
Cova Financial Services Life Insurance Company
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181
Attention: General Counsel
If to LFII:
Liberty Financial Investments, Inc.
One Financial Center
Boston, Massachusetts 02111
Attention: General Counsel
ARTICLE XII. MISCELLANEOUS
-------------
12.1. All persons dealing with Trust must look solely to the property of
the Trust for the enforcement of any claims against the Trust hereunder and
otherwise understand that neither the Trustees, officers, agents or shareholders
of the Trust have any personal liability for any obligations entered into by or
on behalf of the Trust.
12.2. Subject to the requirements of legal process and regulatory
authority, each Party hereto shall treat as confidential the names and addresses
of the Owners and all information reasonably identified as confidential in
writing be any other party hereto and, except as permitted by this Agreement,
shall not disclose, disseminate or utilize such names and addresses and other
confidential information until such time as it may come into the public domain
without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be effected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, the Internal Revenue Service and state insurance regulators) and shall
permit such authorities reasonable access to its books and records in connection
with any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.7. The Trust and LFII agree that to the extent any advisory or other
fees received by the Trust, LFII, CISC or LASC are determined to be unlawful in
appropriate legal or administrative proceedings, the Trust shall indemnify and
reimburse the Company for any out of pocket expenses and actual damages the
Company has incurred as a result of any such proceeding; provided, however, that
the provision of Section 8.2.(b). of this and 8.2.(c). shall apply to such
indemnification and reimbursement obligation. Such indemnification and
reimbursement obligation shall be in addition to any other indemnification and
reimbursement obligations of the Trust under this Agreement.
12.8. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligation,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.9. No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
parties hereto.
12.10. This Agreement may not be assigned without the prior written consent
of the parties hereto.
12.11. In the event of the termination of this Agreement, Article 8 and
Section 12.6 and 12.7 shall remain in effect after such termination.
[this space intentionally left blank]
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
COVA FINANCIAL SERVICES LIFE
INSURANCE COMPANY
By its authorized officer,
By:__________________________
Title:_______________________
Date:________________________
LIBERTY VARIABLE INVESTMENT TRUST
By its authorized officer,
By:______________________________
Title:___________________________
Date:____________________________
LIBERTY FINANCIAL INVESTMENTS, INC.
By its authorized officer,
By:______________________________
Title:___________________________
Date:____________________________
SCHEDULE A
----------
Cova Variable Annuity Account One - Newport Tiger Fund, Variable Series
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
January 26, 1998
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 Flexible 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 Variable Annuity Account One is a Unit Investment Trust as
that term is defined in Section 4(2) of the Investment Company Act of 1940
(the "Act"), and is currently registered with the Securities and Exchange
Commission, pursuant to Section 8(a) of the Act.
2. 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 Auditors
The Board of Directors and Shareholder
Cova Financial Services Life Insurance Company
We consent to the reference to our firm under the caption "Experts" in the
statement of additional information and to the use of our report with respect
to the consolidated financial statements of Cova Financial Services Life
Insurance Company and subsidiaries as of December 31, 1996, and for the
seven-month period ended December 31, 1995, and the preacquisition five-month
period ended May 31, 1995, and the year ended December 31, 1994, dated March 7,
1997, and our report with respect to the financial statements of Cova Variable
Annuity Account One as of December 31, 1996, and for the years ended December
31, 1996 and 1995, dated February 13, 1997, in the Post-Effective Amendment
No. 1 to the Registration Statement (Form N-4 No. 333-34741 of Cova Variable
Annuity Account One.
/s/ KPMG PEAT MARWICK LLP
Chicago, Illinois
January 26, 1998
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE (MISSOURI)
STANDARD FIVE YEAR RETURN DATA
AS OF 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C>
Lord Abbett Growth & Income
Date Transaction Rate Amount Unit Value Units This Total Total
Unit Value Transaction Units Held Value
09/30/92 Purchase 1,000.00 13.582631 73.6234 73.6234 1,000.00
09/30/93 Contract Fee (5.12) 16.101046 (0.3181) 73.3053 1,180.29
09/30/94 Contract Fee (5.32) 16.883319 (0.3154) 72.9899 1,232.31
09/29/95 Contract Fee (5.66) 20.421830 (0.2773) 72.7126 1,484.93
09/30/96 Contract Fee (5.86) 23.418841 (0.2502) 72.4624 1,696.99
09/30/97 Contract Fee (7.25) 30.940092 (0.2343) 72.2281 2,234.75
09/30/97 Value 30.940092 0.0000 72.2281 2,234.75
09/30/97 Charge 0.05 (45.00) 30.940092 (1.4544) 70.7737 2,189.75
09/30/97 Remaining Value 30.940092 0.0000 70.7737 2,189.75
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE (MISSOURI)
STANDARD FIVE YEAR RETURNS
AVERAGE ANNUAL TOTAL RETURN
AS OF 9/30/97
<S> <C> <C> <C>
SUB-ACCOUNT PURCHASE TOTAL VALUE TOTAL
AMOUNT UNITS HELD RETURN
Lord Abbett Growth & Income 1,000.00 2,189.75 16.97%
</TABLE>
FOR ILLUSTRATIVE PURPOSES, THE ABOVE RETURNS ASSUME THAT THE ANNUAL CONTRACT
MAINTENANCE CHARGE IS PRORATED AMONG THE SUB-ACCOUNTS BASED ON THE RATIO OF EACH
SUB-ACCOUNT'S ACCOUNT VALUE TO THE TOTAL CONTRACT
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE (MISSOURI)
NON-STANDARD FIVE YEAR RETURN DATA
AS OF 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C>
Lord Abbett Growth and Income
Date Transaction Type Rate Amount Unit Value Units This Total Total
Unit Value Transaction Units Held Value
09/30/92 Purchase 1,000.00 13.582631 73.6234 73.6234 1,000.00
09/30/93 Contract Fee 16.101046 0.0000 73.6234 1,185.41
09/30/94 Contract Fee 16.883319 0.0000 73.6234 1,243.01
09/29/95 Contract Fee 20.421830 0.0000 73.6234 1,503.53
09/30/96 Contract Fee 23.418841 0.0000 73.6234 1,724.18
09/30/97 Contract Fee 30.940092 0.0000 73.6234 2,277.92
09/30/97 Value 30.940092 0.0000 73.6234 2,277.92
09/30/97 Charge 0.05 30.940092 0.0000 73.6234 2,277.92
09/30/97 Remaining Value 30.940092 0.0000 73.6234 2,277.92
Date Transaction Type Rate Amount Unit Value Units This Total Total
Unit Value Transaction Units Held Value
09/30/92 Purchase 1,000.00 10.414435 96.0206 96.0206 1,000.00
09/30/93 Contract Fee 10.585828 0.0000 96.0206 1,016.46
09/30/94 Contract Fee 10.793761 0.0000 96.0206 1,036.42
09/29/95 Contract Fee 11.302712 0.0000 96.0206 1,085.29
09/30/96 Contract Fee 11.760162 0.0000 96.0206 1,129.22
09/30/97 Contract Fee 12.244078 0.0000 96.0206 1,175.68
09/30/97 Value 12.244078 0.0000 96.0206 1,175.68
09/30/97 Charge 0.05 12.244078 0.0000 96.0206 1,175.68
09/30/97 Remaining Value 12.244078 0.0000 96.0206 1,175.68
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE (MISSOURI)
NON-STANDARD FIVE YEAR RETURN
AVERAGE ANNUAL TOTAL RETURN
AS OF 9/30/97
SUB-ACCOUNT PURCHASE TOTAL VALUE TOTAL
AMOUNT UNITS HELD RETURN
<S> <C> <C> <C>
Lord Abbett Growth & Income 1,000.00 2,277.92 17.90%
</TABLE>
FOR ILLUSTRATIVE PURPOSES, THE ABOVE RETURNS ASSUME THAT THE ANNUAL CONTRACT
MAINTENANCE CHARGE IS PRORATED AMONG THE SUB-ACCOUNTS BASED ON THE RATIO OF EACH
SUB-ACCOUNT'S ACCOUNT VALUE TO THE TOTAL CONTRACT VALUE.
<TABLE>
<CAPTION>
Cova Variable Annuity Account One (Missouri)
STANDARD INCEPTION TO DATE RETURN DATA
AS OF 09/30/97
Lord Abbett Growth & Income
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
12/11/89 Purchase 1,000.00 10.000000 100.0000 100.0000 1,000.00
12/11/90 Contract Fee (7.39) 9.991916 (0.7396) 99.2604 991.80
12/11/91 Contract Fee (5.26) 11.635826 (0.4521) 98.8083 1,149.72
12/11/92 Contract Fee (5.07) 14.232895 (0.3562) 98.4521 1,401.26
12/11/93 Contract Fee (5.10) 16.227131 (0.3143) 98.1378 1,592.50
12/11/94 Contract Fee (5.25) 16.145116 (0.3252) 97.8127 1,579.20
12/11/95 Contract Fee (5.70) 21.265128 (0.2680) 97.5446 2,074.30
12/11/96 Contract Fee (3.76) 25.168559 (0.1492) 97.3954 2,451.30
09/30/97 Value 30.940092 0.0000 97.3954 3,013.42
09/30/97 Charge 0.05 (48.57) 30.940092 (1.5698) 95.8256 2,964.85
09/30/97 Remaining Value 30.940092 0.0000 95.8256 2,964.85
JPM Quality Bond
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
04/30/96 Purchase 1,000.00 9.897228 101.0384 101.0384 1,000.00
12/11/96 Contract Fee (1.55) 10.364657 (0.1492) 100.8892 1,045.68
09/30/97 Value 10.877551 0.0000 100.8892 1,097.43
09/30/97 Charge 0.05 (46.25) 10.877551 (4.2523) 96.6368 1,051.17
09/30/97 Remaining Value 10.877551 0.0000 96.6368 1,051.17
JPM Small Capital Stock
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
04/30/96 Purchase 1,000.00 10.512560 95.1243 95.1243 1,000.00
12/11/96 Contract Fee (1.65) 11.086421 (0.1492) 94.9751 1,052.93
09/30/97 Value 13.775226 0.0000 94.9751 1,308.30
09/30/97 Charge 0.05 (46.59) 13.775226 (3.3821) 91.5930 1,261.71
09/30/97 Remaining Value 13.775226 0.0000 91.5930 1,261.71
JPM Large Capital Stock
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
04/30/96 Purchase 1,000.00 10.003025 99.9698 99.9698 1,000.00
12/11/96 Contract Fee (1.69) 11.353003 (0.1492) 99.8205 1,133.26
09/30/97 Value 14.621557 0.0000 99.8205 1,459.53
09/30/97 Charge 0.05 (46.69) 14.621557 (3.1930) 96.6275 1,412.84
09/30/97 Remaining Value 14.621557 0.0000 96.6275 1,412.84
JPM Select Equity
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
04/30/96 Purchase 1,000.00 10.083890 99.1681 99.1681 1,000.00
12/11/96 Contract Fee (1.61) 10.779321 (0.1492) 99.0188 1,067.36
09/30/97 Value 14.200213 0.0000 99.0188 1,406.09
09/30/97 Charge 0.05 (46.64) 14.200213 (3.2843) 95.7345 1,359.45
09/30/97 Remaining Value 14.200213 0.0000 95.7345 1,359.45
JPM International Equity
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
04/30/96 Purchase 1,000.00 10.214899 97.8962 97.8962 1,000.00
12/11/96 Contract Fee (1.60) 10.726728 (0.1492) 97.7470 1,048.51
09/30/97 Value 12.101316 0.0000 97.7470 1,182.87
09/30/97 Charge 0.05 (46.40) 12.101316 (3.8340) 93.9130 1,136.47
09/30/97 Remaining Value 12.101316 0.0000 93.9130 1,136.47
Lord Abbett Bond Debenture
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
04/30/96 Purchase 1,000.00 10.097690 99.0326 99.0326 1,000.00
12/11/96 Contract Fee (1.67) 11.194096 (0.1492) 98.8833 1,106.91
09/30/97 Value 12.656085 0.0000 98.8833 1,251.48
09/30/97 Charge 0.05 (46.46) 12.656085 (3.6709) 95.2124 1,205.02
09/30/97 Remaining Value 12.656085 0.0000 95.2124 1,205.02
GAIMCO Money Market
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
06/03/96 Purchase 1,000.00 10.000000 100.0000 100.0000 1,000.00
12/11/96 Contract Fee (1.52) 10.210737 (0.1492) 99.8508 1,019.55
09/30/97 Value 10.553104 0.0000 99.8508 1,053.74
09/30/97 Charge 0.05 (46.22) 10.553104 (4.3795) 95.4713 1,007.52
09/30/97 Remaining Value 10.553104 0.0000 95.4713 1,007.52
</TABLE>
<TABLE>
<CAPTION>
Cova Variable Annuity Separate Account One (Missouri)
Standard Inception to Date Return
Average Annual Total Return
As of 9/30/97
Sub-Account Purchase Total Value Total Inception Current Days Since
Amount Units Held Return Date Date Inception
<S> <C> <C> <C> <C> <C> <C>
Lord Abbett Growth & Income 1,000.00 2,964.85 14.93% 12/11/89 2,850
JPM Quality Bond 1,000.00 1,051.17 3.58% 04/30/96 518
JPM Small Capital Stock 1,000.00 1,261.71 17.80% 04/30/96 518
JPM Large Capital Stock 1,000.00 1,412.84 27.57% 04/30/96 518
JPM Select Equity 1,000.00 1,359.45 24.16% 04/30/96 518
JPM International Equity 1,000.00 1,136.47 9.43% 04/30/96 518
Lord Abbett Bond Debenture 1,000.00 1,205.02 14.04% 04/30/96 518
GAIMCO Money Market 1,000.00 1,007.52 0.57% 06/03/96 484
</TABLE>
For illustrative purposes, the above returns assume that the annual contract
maintenance charge is prorated among the sub-accounts based on the ratio of each
sub-account's account value to the total contract value.
<TABLE>
<CAPTION>
Cova Variable Annuity Separate Account One (Missouri)
Standard Inception to Date Return
Total Return
As of 9/30/97
Sub-Account Purchase Total Value Total
Amount Units Held Return
<S> <C> <C> <C>
Lord Abbett Growth & Income 1,000.00 2,964.85 196.49%
JPM Quality Bond 1,000.00 1,051.17 5.12%
JPM Small Capital Stock 1,000.00 1,261.71 26.17%
JPM Large Capital Stock 1,000.00 1,412.84 41.28%
JPM Select Equity 1,000.00 1,359.45 35.95%
JPM International Equity 1,000.00 1,136.47 13.65%
Lord Abbett Bond Debenture 1,000.00 1,205.02 20.50%
GAIMCO Money Market 1,000.00 1,007.52 0.75%
</TABLE>
For illustrative purposes, the above returns assume that the annual contract
maintenance charge is prorated among the sub-accounts based on the ratio of each
sub-account's account value to the total contract.
<TABLE>
<CAPTION>
Cova Variable Annuity Account One (Missouri)
Standard One Year Return Data
As of 09/30/97
Lord Abbett Growth & Income
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 23.418841 42.7007 42.7007 1,000.00
09/30/97 Value 30.940092 0.0000 42.7007 1,321.16
09/30/97 Charge 0.05 (50.00) 30.940092 (1.6160) 41.0846 1,271.16
09/30/97 Contract Fee (4.28) 30.940092 (0.1384) 40.9463 1,266.88
09/30/97 Remaining Value 30.940092 0.0000 40.9463 1,266.88
JPM Quality Bond
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.107693 98.9345 98.9345 1,000.00
09/30/97 Value 10.877551 0.0000 98.9345 1,076.17
09/30/97 Charge 0.05 (50.00) 10.877551 (4.5966) 94.3379 1,026.17
09/30/97 Contract Fee (1.50) 10.877551 (0.1384) 94.1996 1,024.66
09/30/97 Remaining Value 10.877551 0.0000 94.1996 1,024.66
JPM Small Capital Stock
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.601053 94.3303 94.3303 1,000.00
09/30/97 Value 13.775226 0.0000 94.3303 1,299.42
09/30/97 Charge 0.05 (50.00) 13.775226 (3.6297) 90.7005 1,249.42
09/30/97 Contract Fee (1.91) 13.775226 (0.1384) 90.5622 1,247.51
09/30/97 Remaining Value 13.775226 0.0000 90.5622 1,247.51
Large Capital Stock
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.434763 95.8335 95.8335 1,000.00
09/30/97 Value 14.621557 0.0000 95.8335 1,401.24
09/30/97 Charge 0.05 (50.00) 14.621557 (3.4196) 92.4139 1,351.24
09/30/97 Contract Fee (2.02) 14.621557 (0.1384) 92.2756 1,349.21
09/30/97 Remaining Value 14.621557 0.0000 92.2756 1,349.21
JPM Large Capital Stock
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.098491 99.0247 99.0247 1,000.00
09/30/97 Value 14.200213 0.0000 99.0247 1,406.17
09/30/97 Charge 0.05 (50.00) 14.200213 (3.5211) 95.5036 1,356.17
09/30/97 Contract Fee (1.96) 14.200213 (0.1384) 95.3653 1,354.21
09/30/97 Remaining Value 14.200213 0.0000 95.3653 1,354.21
JPM International Equity
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.359859 96.5264 96.5264 1,000.00
09/30/97 Value 12.101316 0.0000 96.5264 1,168.10
09/30/97 Charge 0.05 (50.00) 12.101316 (4.1318) 92.3946 1,118.10
09/30/97 Contract Fee (1.67) 12.101316 (0.1384) 92.2563 1,116.42
09/30/97 Remaining Value 12.101316 0.0000 92.2563 1,116.42
Lord Abbett Bond Debenture
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.837855 92.2692 92.2692 1,000.00
09/30/97 Value 12.656085 0.0000 92.2692 1,167.77
09/30/97 Charge 0.05 (50.00) 12.656085 (3.9507) 88.3185 1,117.77
09/30/97 Contract Fee (1.75) 12.656085 (0.1384) 88.1802 1,116.02
09/30/97 Remaining Value 12.656085 0.0000 88.1802 1,116.02
GAIMCO Money Market
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.131477 98.7023 98.7023 1,000.00
09/30/97 Value 10.553104 0.0000 98.7023 1,041.62
09/30/97 Charge 0.05 (50.00) 10.553104 (4.7379) 93.9643 991.62
09/30/97 Contract Fee (1.46) 10.553104 (0.1384) 93.8260 990.16
09/30/97 Remaining Value 10.553104 0.0000 93.8260 990.16
</TABLE>
<TABLE>
<CAPTION>
Cova Variable Annuity Account One (Missouri)
Standard One Year Return
As of 9/30/97
Sub-Account Purchase Total Value Total
Amount Units Held Return
<S> <C> <C> <C>
Lord Abbett Growth & Income 1,000.00 1,266.88 26.69%
JPM Quality Bond 1,000.00 1,024.66 2.47%
JPM Small Capital Stock 1,000.00 1,247.51 24.75%
JPM Large Capital Stock 1,000.00 1,349.21 34.92%
JPM Select Equity 1,000.00 1,354.21 35.42%
JPM International Equity 1,000.00 1,166.42 11.64%
Lord Abbett Bond Debenture 1,000.00 1,166.02 11.60%
GAIMCO Money Market 1,000.00 990.16 -0.98%
</TABLE>
For illustrative purposes, the above returns assume that the annual contract
maintenance charge is prorated among the sub-accounts based on the ratio of each
sub-account's account value to the total contract value.
<TABLE>
<CAPTION>
Cova Variable Annuity Account One (Missouri)
Non-Standard Inception to Date Return Data
As of 09/30/97
Lord Abbett Growth & Income
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
12/11/89 Purchase 1,000.00 10.000000 100.0000 100.0000 1,000.00
12/11/90 Contract Fee 9.991916 0.0000 100.0000 999.19
12/11/91 Contract Fee 11.635826 0.0000 100.0000 1,163.58
12/11/92 Contract Fee 14.232895 0.0000 100.0000 1,423.29
12/11/93 Contract Fee 16.227131 0.0000 100.0000 1,622.71
12/11/94 Contract Fee 16.145116 0.0000 100.0000 1,614.51
12/11/95 Contract Fee 21.265128 0.0000 100.0000 2,126.51
12/11/96 Contract Fee 25.168559 0.0000 100.0000 2,516.86
09/30/97 Value 30.940092 0.0000 100.0000 3,094.01
09/30/97 Charge 0.05 30.940092 0.0000 100.0000 3,094.01
09/30/97 Remaining Value 30.940092 0.0000 100.0000 3,094.01
JPM Quality Bond
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
04/30/96 Purchase 1,000.00 9.897228 101.0384 101.0384 1,000.00
12/11/96 Contract Fee 10.364657 0.0000 101.0384 1,047.23
09/30/97 Value 10.877551 0.0000 101.0384 1,099.05
09/30/97 Charge 0.05 10.877551 0.0000 101.0384 1,099.05
09/30/97 Remaining Value 10.877551 0.0000 101.0384 1,099.05
JPM Small Capital Stock
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
04/30/96 Purchase 1,000.00 10.512560 95.1243 95.1243 1,000.00
12/11/96 Contract Fee 11.086421 0.0000 95.1243 1,054.59
09/30/97 Value 13.775226 0.0000 95.1243 1,310.36
09/30/97 Charge 0.05 13.775226 0.0000 95.1243 1,310.36
09/30/97 Remaining Value 13.775226 0.0000 95.1243 1,310.36
JPM Large Capital Stock
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
04/30/96 Purchase 1,000.00 10.003025 99.9698 99.9698 1,000.00
12/11/96 Contract Fee 11.353003 0.0000 99.9698 1,134.96
09/30/97 Value 14.621557 0.0000 99.9698 1,461.71
09/30/97 Charge 0.05 14.621557 0.0000 99.9698 1,461.71
09/30/97 Remaining Value 14.621557 0.0000 99.9698 1,461.71
JPM Select Equity
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
04/30/96 Purchase 1,000.00 10.083890 99.1681 99.1681 1,000.00
12/11/96 Contract Fee 10.779321 0.0000 99.1681 1,068.96
09/30/97 Value 14.200213 0.0000 99.1681 1,408.21
09/30/97 Charge 0.05 14.200213 0.0000 99.1681 1,408.21
09/30/97 Remaining Value 14.200213 0.0000 99.1681 1,408.21
JPM International Equity
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
04/30/96 Purchase 1,000.00 10.214899 97.8962 97.8962 1,000.00
12/11/96 Contract Fee 10.726728 0.0000 97.8962 1,050.11
09/30/97 Value 12.101316 0.0000 97.8962 1,184.67
09/30/97 Charge 0.05 12.101316 0.0000 97.8962 1,184.67
09/30/97 Remaining Value 12.101316 0.0000 97.8962 1,184.67
Lord Abbett Bond Debenture
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
04/30/96 Purchase 1,000.00 10.097690 99.0326 99.0326 1,000.00
12/11/96 Contract Fee 11.194096 0.0000 99.0326 1,108.58
09/30/97 Value 12.656085 0.0000 99.0326 1,253.36
09/30/97 Charge 0.05 12.656085 0.0000 99.0326 1,253.36
09/30/97 Remaining Value 12.656085 0.0000 99.0326 1,253.36
GAIMCO Money Market
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
06/03/96 Purchase 1,000.00 10.000000 100.0000 100.0000 1,000.00
12/11/96 Contract Fee 10.210737 0.0000 100.0000 1,021.07
09/30/97 Value 10.553104 0.0000 100.0000 1,055.31
09/30/97 Charge 0.05 10.553104 0.0000 100.0000 1,055.31
09/30/97 Remaining Value 10.553104 0.0000 100.0000 1,055.31
09/30/97 Charge 0.05 11.156281 0.0000 100.0000 1,115.63
09/30/97 Remaining Value 11.156281 0.0000 100.0000 1,115.63
</TABLE>
<TABLE>
<CAPTION>
Cova Variable Annuity Separate Account One (Missouri)
Non-Standard Inception to Date Return
Average Annual Total Return
As of 9/30/97
Sub-Account Purchase Total Value Total Inception Portfolio
Amount Units Held Return Date Return
<S> <C> <C> <C> <C> <C>
Lord Abbett Growth & Income 1,000.00 3,094.01 15.56% 12/11/89 16.96%
JPM Quality Bond 1,000.00 1,099.05 6.88% 04/30/96 8.28%
JPM Small Capital Stock 1,000.00 1,310.36 20.98% 04/30/96 22.38%
JPM Large Capital Stock 1,000.00 1,461.71 30.67% 04/30/96 32.07%
JPM Select Equity 1,000.00 1,408.21 27.28% 04/30/96 28.68%
JPM International Equity 1,000.00 1,184.67 12.68% 04/30/96 14.08%
Lord Abbett Bond Debenture 1,000.00 1,253.36 17.25% 04/30/96 18.65%
GAIMCO Money Market 1,000.00 1,055.31 4.14% 06/03/96 5.54%
</TABLE>
For illustrative purposes, the above returns assume that the annual contract
maintenance charge is prorated among the sub-accounts based on the ratio of each
sub-account's account value to the total contract value.
<TABLE>
<CAPTION>
Cova Variable Annuity Separate Account One (Missouri)
Non-Standard Inception to Date Return
Total Return
As of 9/30/97
Sub-Account Purchase Total Value Total
Amount Units Held Return
<S> <C> <C> <C>
Lord Abbett Growth & Income 1,000.00 3,094.01 209.40%
JPM Quality Bond 1,000.00 1,099.05 9.91%
JPM Small Capital Stock 1,000.00 1,310.36 31.04%
JPM Large Capital Stock 1,000.00 1,461.71 46.17%
JPM Select Equity 1,000.00 1,408.21 40.82%
JPM International Equity 1,000.00 1,184.67 18.47%
Lord Abbett Bond Debenture 1,000.00 1,253.36 25.34%
GAIMCO Money Market 1,000.00 1,055.31 5.53%
</TABLE>
For illustrative purposes, the above returns assume that the annual contract
maintenance charge is prorated among the sub-accounts based on the ratio of each
sub-account's account value to the total contract.
<TABLE>
<CAPTION>
Cova Variable Annuity Account One (Missouri)
Non-Standard One Year Return Data
As of 09/30/97
Lord Abbett Growth & Income
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 23.418841 42.7007 42.7007 1,000.00
09/30/97 Value 30.940092 0.0000 42.7007 1,321.16
09/30/97 Charge 0.05 30.940092 0.0000 42.7007 1,321.16
09/30/97 Contract Fee 30.940092 0.0000 42.7007 1,321.16
09/30/97 Remaining Value 30.940092 0.0000 42.7007 1,321.16
JPM Quality Bond
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.107693 98.9345 98.9345 1,000.00
09/30/97 Value 10.877551 0.0000 98.9345 1,076.17
09/30/97 Charge 0.05 10.877551 0.0000 98.9345 1,076.17
09/30/97 Contract Fee 10.877551 0.0000 98.9345 1,076.17
09/30/97 Remaining Value 10.877551 0.0000 98.9345 1,076.17
JPM Small Capital Stock
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.601053 94.3303 94.3303 1,000.00
09/30/97 Value 13.775226 0.0000 94.3303 1,299.42
09/30/97 Charge 0.05 13.775226 0.0000 94.3303 1,299.42
09/30/97 Contract Fee 13.775226 0.0000 94.3303 1,299.42
09/30/97 Remaining Value 13.775226 0.0000 94.3303 1,299.42
Large Capital Stock
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.434763 95.8335 95.8335 1,000.00
09/30/97 Value 14.621557 0.0000 95.8335 1,401.24
09/30/97 Charge 0.05 14.621557 0.0000 95.8335 1,401.24
09/30/97 Contract Fee 14.621557 0.0000 95.8335 1,401.24
09/30/97 Remaining Value 14.621557 0.0000 95.8335 1,401.24
JPM Large Capital Stock
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.098491 99.0247 99.0247 1,000.00
09/30/97 Value 14.200213 0.0000 99.0247 1,406.17
09/30/97 Charge 0.05 14.200213 0.0000 99.0247 1,406.17
09/30/97 Contract Fee 14.200213 0.0000 99.0247 1,406.17
09/30/97 Remaining Value 14.200213 0.0000 99.0247 1,406.17
JPM International Equity
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.359859 96.5264 96.5264 1,000.00
09/30/97 Value 12.101316 0.0000 96.5264 1,168.10
09/30/97 Charge .05 12.101316 0.0000 96.5264 1,168.10
09/30/97 Contract Fee 12.101316 0.0000 96.5264 1,168.10
09/30/97 Remaining Value 12.101316 0.0000 96.5264 1,168.10
Lord Abbett Bond Debenture
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.837855 92.2692 92.2692 1,000.00
09/30/97 Value 12.656085 0.0000 92.2692 1,167.77
09/30/97 Charge 0.05 12.656085 0.0000 92.2692 1,167.77
09/30/97 Contract Fee 12.656085 0.0000 92.2692 1,167.77
09/30/97 Remaining Value 12.656085 0.0000 92.2692 1,167.77
GAIMCO Money Market
Date Transaction Rate Amount Unit Value Units This Total Total
Transaction Units Held Value
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/96 Purchase 1,000.00 10.131477 98.7023 98.7023 1,000.00
09/30/97 Value 10.553104 0.0000 98.7023 1,041.62
09/30/97 Charge 0.05 10.553104 0.0000 98.7023 1,041.62
09/30/97 Contract Fee 10.553104 0.0000 98.7023 1,041.62
09/30/97 Remaining Value 10.553104 0.0000 98.7023 1,041.62
</TABLE>
<TABLE>
<CAPTION>
Cova Variable Annuity Account One (Missouri)
Non-Standard One Year Return
As of 9/30/97
Sub-Account Purchase Total Value Total Portfolio
Amount Units Held Return Return
<S> <C> <C> <C> <C>
Lord Abbett Growth & Income 1,000.00 1,321.16 32.12% 33.52%
JPM Quality Bond 1,000.00 1,076.17 7.62% 9.02%
JPM Small Capital Stock 1,000.00 1,299.42 29.94% 31.34%
JPM Large Capital Stock 1,000.00 1,401.24 40.12% 41.52%
JPM Select Equity 1,000.00 1,406.17 40.62% 42.02%
JPM International Equity 1,000.00 1,168.10 16.81% 18.21%
Lord Abbett Bond Debenture 1,000.00 1,167.77 16.78% 18.18%
GAIMCO Money Market 1,000.00 1,041.62 4.16% 5.56%
</TABLE>
For illustrative purposes, the above returns assume that the annual contract
maintenance charge is prorated among the sub-accounts based on the ratio of each
sub-account's account value to the total contract value
