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 May 1, 1999, 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 MAY 1, 1999.
TABLE OF CONTENTS
Page
COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Reduction or Elimination of the Withdrawal Charge . . . . .4
CALCULATION OF PERFORMANCE INFORMATION. . . . . . . . . . . . . . .. 4
Total Return. . . . . . . . . . . . . . . . . . . . . . . .4
Historical Unit Values. . . . . . . . . . . . . . . . . . .5
Reporting Agencies. . . . . . . . . . . . . . . . . . . . .6
Performance Information . . . . . . . . . . . . . . . . . .7
FEDERAL TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . 7
General . . . . . . . . . . . . . . . . . . . . . . . . . .7
Diversification . . . . . . . . . . . . . . . . . . . . . .8
Multiple Contracts. . . . . . . . . . . . . . . . . . . . 10
Contracts Owned by Other than Natural Persons . . . . . . 10
Tax Treatment of Assignments or Transfer of Ownership . . 10
Income Tax Withholding. . . . . . . . . . . . . . . . . . 10
Tax Treatment of Withdrawals - Non-Qualified Contracts. . 11
Qualified Plans . . . . . . . . . . . . . . . . . . . . 12
Tax Treatment of Withdrawals - Qualified Contracts. . . . 14
Tax-Sheltered Annuities - Withdrawal Limitations. . . . . 16
ANNUITY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 16
Variable Annuity. . . . . . . . . . . . . . . . . . . . . 16
Fixed Annuity . . . . . . . . . . . . . . . . . . . . . . 17
Annuity Unit Value. . . . . . . . . . . . . . . . . . . . 17
Net Investment Factor . . . . . . . . . . . . . . . . . . 17
Mortality and Expense Guarantee . . . . . . . . . . . . . 17
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . 18
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 $300 billion
of life insurance in force and approximately $24 billion in assets. It provides
life and health insurance, retirement plans, and related financial services to
individuals and groups.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1998 and 1997,
and the related consolidated statements of income, shareholder's equity, and
cash flows for each of the years in the three-year period ended December 31,
1998, and the statement of assets and liabilities of the Separate Account as of
December 31, 1998, and the related statement of operations for the year then
ended and the statements of changes in net assets for the two years then ended,
have been included herein in reliance upon the reports of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
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.
CALCULATION OF 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 Charge to arrive at
the ending hypothetical value. The average annual total return is then
determined by computing the fixed interest rate that a $1,000 purchase payment
would have to earn annually, compounded annually, to grow to the hypothetical
value at the end of the time periods described. The formula used in these
calculations is:
n
P (1 + T) = ERV
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
Withdrawal Charge. The deduction of any Withdrawal Charge would reduce any
percentage increase or make greater any percentage decrease.
You 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 your total return may be in any future period.
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.
Performance Information
The Accumulation Units which invest in the Portfolios managed by Fidelity
Management & Research Company, A I M Advisors, Inc., Massachusetts Financial
Services Company, Franklin Advisers, Inc., Franklin Mutual Advisers, Inc.,
Templeton Investment Counsel, Inc. and Templeton Asset Management Ltd. have no
meaningful investment performance history yet while the Accumulation Units which
invest in the Portfolio managed by Conning Asset Management Company have a short
investment performance history. (These funds are referred to collectively as the
"Existing Funds.") However, certain Portfolios of the Existing Funds have been
in existence for some time and consequently have an investment performance
history. In order to demonstrate how the investment experience of the Existing
Funds affect Accumulation Unit values, performance information was developed.
The information is based upon the historical experience of the Existing Funds
and is for the periods shown. The prospectus contains a chart of performance
information.
Future performance of the Existing Funds 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 of the Existing Funds 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.
FEDERAL 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 Internal Revenue Code of 1986, as amended ("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. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
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 or Transfer of Ownership
An assignment, pledge or transfer of ownership of a Contract may be a taxable
event. Owners should therefore consult competent tax advisers should they wish
to assign, pledge or transfer ownership of 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); or d) hardship withdrawals. 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.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
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. 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.
b. 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 taxable 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.
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 59 1/2, on the individual's death or disability, or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers that occurred in
1998, the individual may pay that tax ratably over the four taxable year period
beginning with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
c. Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, 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 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 (Pension and Profit-Sharing Plans),
403(b)(Tax-Sheltered Annuities) and 408 and 408A (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 or Annuitant (as applicable) 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 or Annuitant (as
applicable) for the taxable year; and (i) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) 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.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
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 transfers between Tax-Sheltered Annuity 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:
(1) the dollar amount of the first Annuity Payment is divided by the value of
an Annuity Unit as of the Annuity Date. This establishes the number of
Annuity Units for each monthly payment. The number of Annuity Units remains
fixed during the Annuity Payment period.
(2) the fixed number of Annuity Units is multiplied by the Annuity Unit value
for the last Valuation Period of the month preceding the month for which
the payment is due. This result is the dollar amount of the payment.
The total dollar amount of each Variable Annuity Payment is the sum of all
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 Value
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:
(a) the Accumulation Unit value as of the close of the current Valuation
Period, by
(b) the Accumulation Unit value as of the close of the immediately preceding
Valuation Period.
The Net Investment Factor may be greater or less than one, as the Annuity Unit
value may increase or decrease.
Mortality and Expense Guarantee
The Company guarantees that the dollar amount of each Annuity Payment after the
first Annuity Payment will not be affected by variations in mortality or expense
experience.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts.
COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Statements
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Contract Owners of Cova Variable Annuity Account One, Board of
Directors and Shareholder of Cova Financial Services Life Insurance
Company:
We have audited the accompanying statements of assets and liabilities of
the Quality Income, Money Market, High Yield, Stock Index, Growth and
Income, Bond Debenture, Developing Growth, Large Cap Research, Mid-Cap
Value, Quality Bond, Small Cap Stock, Large Cap Stock, Select Equity,
International Equity, Balanced, Small Cap Equity, Equity Income, and Growth
and Income Equity sub-accounts (investment options within the Cova Series
Trust); the Growth and Income sub-account (investment option within the
Lord Abbett Series Fund, Inc.); the Money Market sub-account (investment
option within the General American Capital Company); the Multi-Style
Equity, Aggressive Equity, Non-US, and Core Bond sub-accounts (investment
options within the Russell Insurance Funds); the AIM V.I. Value, AIM V.I.
Capital Appreciation, and AIM V.I. International Equity sub-accounts
(investment options within the AIM Variable Insurance Funds, Inc.); the
Premier Growth and Real Estate Investment sub-accounts (investment option
within the Alliance Variable Products Series Fund, Inc.); Newport Tiger
sub-account (investment option within the Liberty Variable Investment
Trust); the Growth and Income, International Equity, and Global Income
sub-accounts (investment options within the Goldman Sachs Variable
Insurance Trust); the Kemper-Dreman High Return Equity, Kemper Small Cap
Growth, Kemper Small Cap Value, and Kemper Government Securities
sub-accounts (investment options within the Investors Fund Series); the MFS
Bond, MFS Research, MFS Growth with Income, MFS Emerging Growth, MFS /
Foreign & Colonial Emerging Markets Equity, MFS High Income, and MFS World
Government sub-accounts (investment options within the MFS Variable
Insurance Trust); the Oppenheimer Growth, Oppenheimer Growth & Income,
Oppenheimer High Income, Oppenheimer Bond, and Oppenheimer Strategic Bond
sub-accounts (investment options within the Oppenheimer Variable Account
Funds); the Putnam Growth and Income, Putnam New Value, Putnam Vista,
Putnam International Growth, and Putnam International New Opportunities
sub-accounts (investment options within the Putnam Variable Trust); the
Templeton International, Templeton Developing Markets, and Mutual Shares
Investments sub-accounts (investment options within the Templeton Variable
Products Series Fund); and the Growth, Contrafund, Growth Opportunities,
Growth & Income, and Equity-Income sub-accounts (investment options within
the Variable Insurance Products Fund, Fund II, and Fund III) of Cova
Variable Annuity Account One of Cova Financial Services Life Insurance
Company (the Separate Account), as of December 31, 1998, and the related
statement of operations for the year then ended and the statements of
changes in net assets for the two years then ended. These financial
statements are the responsibility of the Separate Account's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with transfer agents. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the sub-accounts of
Cova Variable Annuity Account One of Cova Financial Services Life Insurance
Company as of December 31, 1998, and the results of their operations and
the changes in their net assets for each of the years presented, in
conformity with generally accepted accounting principles.
Chicago, Illinois
March 1, 1999
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Assets and Liabilities
December 31, 1998
(In thousands of dollars)
<S> <C>
Assets:
Investments:
Cova Series Trust (Trust):
Quality Income Portfolio - 3,558,351 shares at a net asset value of $10.99 per share (cost: $37,784) $ 39,092
Money Market Portfolio - 7,890,611 shares at a net asset value of $1.00 per share (cost: 7,891
$7,891)
High Yield Portfolio - 2,687,415 shares at a net asset value of $10.72 per share (cost: 28,801
$28,627)
Stock Index Portfolio - 4,387,719 shares at a net asset value of $22.24 per share (cost: 97,591
$71,753)
VKAC Growth and Income Portfolio - 2,881,569 shares at a net asset value of $17.81 per share (cost: 51,313
$39,792)
Bond Debenture Portfolio - 8,923,056 shares at a net asset value of $12.38 per share (cost: $106,952) 110,475
Developing Growth Portfolio - 1,321,613 shares at a net asset value of $11.24 per share (cost: $13,966) 14,856
Large Cap Research Portfolio - 1,083,984 shares at a net asset value of $11.96 per share (cost: $11,685) 12,969
Mid-Cap Value Portfolio - 1,620,159 shares at a net asset value of $10.58 per share (cost: $16,986) 17,146
Quality Bond Portfolio - 3,597,178 shares at a net asset value of $11.02 per share (cost: 39,640
$38,042)
Small Cap Stock Portfolio - 5,812,593 shares at a net asset value of $11.98 per share (cost: $69,302) 69,648
Large Cap Stock Portfolio - 4,491,961 shares at a net asset value of $18.12 per share (cost: $64,837) 81,372
Select Equity Portfolio - 11,154,141 shares at a net asset value of $16.08 per share (cost: $145,732) 179,317
International Equity Portfolio - 7,330,424 shares at a net asset value of $12.86 per share (cost: 94,249
$84,971)
Balanced Portfolio - 295,831 shares at a net asset value of $11.40 per share (cost: 3,372
$3,199)
Small Cap Equity Portfolio - 130,453 shares at a net asset value of $10.17 per share 1,327
(cost: $1,293)
Equity Income Portfolio - 297,898 shares at a net asset value of $11.63 per share (cost: 3,463
$3,393)
Growth and Income Equity Portfolio - 652,151 shares at a net asset value of $12.00 per share (cost: 7,823
$7,257)
Lord Abbett Series Fund, Inc. (Lord Abbett):
Growth and Income Portfolio - 32,409,746 shares at a net asset value of $20.65 per share (cost: 669,229
$554,776)
General American Capital Company (GACC):
Money Market Portfolio - 855,290 shares at a net asset value of $19.25 per share (cost: 16,465
$16,234)
Russell Insurance Funds (Russell):
Multi-Style Equity Fund - 1,845,200 shares at a net asset value of $16.02 per share 29,560
(cost: $26,361)
Aggressive Equity Fund - 420,730 shares at a net asset value of $12.70 per share (cost: 5,343
$5,268)
Non-US Fund - 930,176 shares at a net asset value of $11.09 per share (cost: $9,904) 10,316
Core Bond Fund - 1,596,523 shares at a net asset value of $10.68 per share (cost: $16,783) 17,051
AIM Variable Insurance Funds, Inc. (AIM):
AIM V.I. Value Fund - 259,667 shares at a net asset value of $26.25 per share (cost: 6,816
$6,148)
AIM V.I. Capital Appreciation Fund - 85,709 shares at a net asset value of $25.20 per share (cost: 2,160
$1,996)
AIM V.I. International Equity Fund - 118,489 shares at a net asset value of $19.62 per share (cost: 2,325
$2,244)
Alliance Variable Products Series Fund, Inc. (Alliance):
Premier Growth Portfolio - 314,149 shares at a net asset value of $31.03 per share (cost: 9,748
$8,226)
Real Estate Investment Portfolio - 156,353 shares at a net asset value of $9.78 per share (cost: $1,699) 1,529
Liberty Variable Investment Trust (Liberty):
Newport Tiger Fund, Variable Series - 187,736 shares at a net asset value of $1.57 per share (cost: 295
$241)
Goldman Sachs Variable Insurance Trust (Goldman Sachs):
Growth and Income Fund - 443,463 shares at a net asset value of $10.45 per share (cost: 4,634
$4,841)
International Equity Fund - 108,025 shares at a net asset value of $11.91 per share 1,287
(cost: $1,231)
Global Income Fund - 19,676 shares at a net asset value of $10.32 per share (cost: $204) 203
Investors Fund Series (Kemper):
Kemper Dreman High Return Equity Portfolio - 94,043 shares at a net asset value of $1.03 per share 97
(cost: $96)
Kemper Small Cap Growth Portfolio - 452,858 shares at a net asset value of $1.97 per share (cost: $786) 893
Kemper Small Cap Value Portfolio - 2,013,651 shares at a net asset value of $1.07 per share (cost: 2,145
$2,300)
Kemper Government Securities Portfolio - 521,770 shares at a net asset value of $1.21 per share (cost: 630
$621)
MFS Variable Insurance Trust (MFS):
MFS Bond Series - 15,247 shares at a net asset value of $11.38 per share (cost: $173) 174
MFS Research Series - 297,006 shares at a net asset value of $19.05 per share (cost: 5,658
$5,177)
MFS Growth with Income Series - 348,890 shares at a net asset value of $20.11 per share (cost: $6,442) 7,016
MFS Emerging Growth Series - 332,636 shares at a net asset value of $21.47 per share (cost: $6,157) 7,142
MFS / Foreign & Colonial Emerging Markets Equity Series - 81,505 shares at a net asset value of $5.90 per
share
(cost: $575) 481
MFS High Income Series - 187,184 shares at a net asset value of $11.53 per share (cost: 2,158
$2,192)
MFS World Governments Series - 2,042 shares at a net asset value of $10.88 per share (cost: $21) 22
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Assets and Liabilities
December 31, 1998
(In thousands of dollars)
<S> <C>
Assets, continued:
Investments, continued:
Oppenheimer Variable Account Funds (Oppenheimer):
Oppenheimer Growth Fund - 32,413 shares at a net asset value of $36.67 per share (cost: $ 1,189
$1,055)
Oppenheimer Growth & Income Fund - 143,624 shares at a net asset value of $20.48 per share (cost: 2,941
$2,969)
Oppenheimer High Income Fund - 70,492 shares at a net asset value of $11.02 per share (cost: $792) 777
Oppenheimer Bond Fund - 343,696 shares at a net asset value of $12.32 per share (cost: 4,234
$4,139)
Oppenheimer Strategic Bond Fund - 213,879 shares at a net asset value of $5.12 per share (cost: $1,092) 1,095
Putnam Variable Trust (Putnam):
Putnam Growth and Income Fund - 441,423 shares at a net asset value of $28.77 per share (cost: $12,040) 12,700
Putnam New Value Fund - 36,681 shares at a net asset value of $12.03 per share (cost: 441
$435)
Putnam Vista Fund - 121,228 shares at a net asset value of $14.72 per share (cost: $1,612) 1,785
Putnam International Growth Fund - 458,993 shares at a net asset value of $13.52 per share (cost: 6,206
$5,853)
Putnam International New Opportunities Fund - 52,407 shares at a net asset value of $11.49 per share 602
(cost: $562)
Templeton Variable Products Series Fund (Templeton):
Templeton International Fund - 72,830 shares at a net asset value of $20.69 per share (cost: $1,459) 1,507
Templeton Developing Markets Fund - 132,446 shares at a net asset value of $5.13 per share (cost: $635) 679
Mutual Shares Investments Fund - 105,064 shares at a net asset value of $9.72 per share (cost: $989) 1,021
Variable Insurance Products Fund, Fund II and Fund III (Fidelity):
Growth Portfolio - 1,967 shares at a net asset value of $44.87 per share (cost: $76) 88
Contrafund Portfolio - 16,359 shares at a net asset value of $24.44 per share (cost: $352) 400
Growth Opportunities Portfolio - 4,888 shares at a net asset value of $22.88 per share 112
(cost: $99)
Growth & Income Portfolio - 52,766 shares at a net asset value of $16.15 per share (cost: 852
$758)
Equity-Income Portfolio - 10,089 shares at a net asset value of $25.42 per share (cost: 256
$239)
----------
Total assets $ 1,700,607
==========
Liabilities:
Trust Quality Income $ 2
Trust High Yield 1
Trust Stock Index 4
Trust VKAC Growth and Income 2
Trust Bond Debenture 4
Trust Developing Growth 1
Trust Large Cap Research 1
Trust Mid-Cap Value 1
Trust Quality Bond 2
Trust Small Cap Stock 3
Trust Large Cap Stock 3
Trust Select Equity 7
Trust International Equity 4
Lord Abbett Growth and Income 26
GACC Money Market 1
Russell Multi-Style Equity 1
Russell Core Bond 1
Putnam Growth and Income 1
----------
Total liabilities $ 65
==========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Assets and Liabilities
December 31, 1998
(In thousands of dollars)
<S> <C>
Net assets:
Accumulation units:
Trust Quality Income - 2,223,679 accumulation units at $17.539854 per unit $ 39,004
Trust Money Market - 609,566 accumulation units at $12.882171 per unit 7,853
Trust High Yield - 1,205,159 accumulation units at $23.857965 per unit 28,754
Trust Stock Index - 3,092,969 accumulation units at $31.522392 per unit 97,498
Trust VKAC Growth and Income - 2,101,219 accumulation units at $24.396666 per unit 51,263
Trust Bond Debenture - 8,184,894 accumulation units at $13.496500 per unit 110,468
Trust Developing Growth - 1,342,201 accumulation units at $11.067854 per unit 14,855
Trust Large Cap Research - 1,094,920 accumulation units at $11.825550 per unit 12,947
Trust Mid-Cap Value - 1,642,553 accumulation units at $10.437949 per unit 17,145
Trust Quality Bond - 3,323,343 accumulation units at $11.914489 per unit 39,596
Trust Small Cap Stock - 5,532,610 accumulation units at $12.582860 per unit 69,616
Trust Large Cap Stock - 4,178,035 accumulation units at $19.428499 per unit 81,173
Trust Select Equity - 10,544,818 accumulation units at $16.987204 per unit 179,127
Trust International Equity - 7,309,325 accumulation units at $12.889315 per unit 94,212
Trust Balanced - 286,511 accumulation units at $11.767845 per unit 3,372
Trust Small Cap Equity - 129,636 accumulation units at $10.238676 per unit 1,327
Trust Equity Income - 286,953 accumulation units at $12.068849 per unit 3,463
Trust Growth and Income Equity - 641,789 accumulation units at $12.188331 per unit 7,823
Lord Abbett Growth and Income - 19,470,393 accumulation units at $34.325425 per unit 668,329
GACC Money Market - 1,473,737 accumulation units at $11.109943 per unit 16,373
Russell Multi-Style Equity - 2,328,430 accumulation units at $12.694810 per unit 29,559
Russell Aggressive Equity - 536,278 accumulation units at $9.963254 per unit 5,343
Russell Non-US - 925,792 accumulation units at $11.142092 per unit 10,316
Russell Core Bond - 1,609,851 accumulation units at $10.591175 per unit 17,050
AIM Value - 521,890 accumulation units at $13.060203 per unit 6,816
AIM Capital Appreciation - 183,488 accumulation units at $11.770729 per unit 2,160
AIM International Equity - 204,072 accumulation units at $11.391449 per unit 2,325
Alliance Premier Growth - 667,854 accumulation units at $14.595485 per unit 9,748
Alliance Real Estate Investment - 191,411 accumulation units at $7.988435 per unit 1,529
Liberty Newport Tiger - 31,936 accumulation units at $9.228765 per unit 295
Goldman Sachs Growth and Income - 467,675 accumulation units at $9.908613 per unit 4,634
Goldman Sachs International Equity - 112,824 accumulation units at $11.402925 per unit 1,287
Goldman Sachs Global Income - 18,833 accumulation units at $10.781765 per unit 203
Kemper Dreman High Return Equity - 9,223 accumulation units at $10.487302 per unit 97
Kemper Small Cap Growth - 76,492 accumulation units at $11.676086 per unit 893
Kemper Small Cap Value - 245,092 accumulation units at $8.753222 per unit 2,145
Kemper Government Securities - 59,712 accumulation units at $10.556498 per unit 630
MFS Bond - 16,538 accumulation units at $10.491811 per unit 174
MFS Research - 464,786 accumulation units at $12.172796 per unit 5,658
MFS Growth with Income - 581,434 accumulation units at $12.066568 per unit 7,016
MFS Emerging Growth - 539,659 accumulation units at $13.233235 per unit 7,142
MFS / F&C Emerging Markets Equity - 73,171 accumulation units at $6.571830 per unit 481
MFS High Income - 219,209 accumulation units at $9.845193 per unit 2,158
MFS World Governments - 2,082 accumulation units at $10.669943 per unit 22
Oppenheimer Growth - 97,161 accumulation units at $12.232731 per unit 1,189
Oppenheimer Growth & Income - 284,830 accumulation units at $10.326519 per unit 2,941
Oppenheimer High Income - 78,513 accumulation units at $9.893828 per unit 777
Oppenheimer Bond - 401,990 accumulation units at $10.533011 per unit 4,234
Oppenheimer Strategic Bond - 107,869 accumulation units at $10.151332 per unit 1,095
Putnam Growth and Income - 1,115,668 accumulation units at $11.382650 per unit 12,699
Putnam New Value - 42,091 accumulation units at $10.483517 per unit 441
Putnam Vista - 151,405 accumulation units at $11.785702 per unit 1,785
Putnam International Growth - 530,055 accumulation units at $11.707003 per unit 6,206
Putnam International New Opportunities - 52,809 accumulation units at $11.402252 per unit 602
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Assets and Liabilities
December 31, 1998
(In thousands of dollars)
<S> <C>
Net assets, continued:
Accumulation units, continued:
Templeton International - 164,775 accumulation units at $9.144522 per unit $ 1,507
Templeton Developing Markets - 89,960 accumulation units at $7.552448 per unit 679
Templeton Mutual Shares Investments - 106,035 accumulation units at $9.630622 per unit 1,021
Fidelity VIP Growth - 6,748 accumulation units at $13.077878 per unit 88
Fidelity VIP II Contrafund - 32,354 accumulation units at $12.357373 per unit 400
Fidelity VIP III Growth Opportunities - 9,523 accumulation units at $11.742360 per unit 112
Fidelity VIP III Growth & Income - 69,833 accumulation units at $12.202502 per unit 852
Fidelity VIP Equity-Income - 24,132 accumulation units at $10.626607 per unit 256
Annuitization units:
Trust Quality Income - 6,383 annuity units at $13.420183 per unit 86
Trust Money Market - 3,661 annuity units at $10.319723 per unit 38
Trust High Yield - 2,504 annuity units at $18.254328 per unit 46
Trust Stock Index - 3,489 annuity units at $25.505004 per unit 89
Trust VKAC Growth and Income - 2,405 annuity units at $20.029452 per unit 48
Trust Bond Debenture - 264 annuity units at $12.439290 per unit 3
Trust Large Cap Research - 1,824 annuity units at $11.357085 per unit 21
Trust Quality Bond - 3,838 annuity units at $10.981198 per unit 42
Trust Small Cap Stock - 2,555 annuity units at $11.597212 per unit 29
Trust Large Cap Stock - 10,956 annuity units at $17.906619 per unit 196
Trust Select Equity - 11,716 annuity units at $15.656564 per unit 183
Trust International Equity - 2,825 annuity units at $11.879669 per unit 33
Lord Abbett Growth and Income - 33,266 annuity units at $26.263244 per unit 874
GACC Money Market - 8,875 annuity units at $10.294566 per unit 91
----------
Total net assets $ 1,700,542
==========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
(In thousands of dollars)
Trust
-----------------------------------------------------------------------
VKAC
Growth
Quality Money High Stock and Bond Developing
Income Market Yield Index Income Debenture Growth
------------------------- -------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income -
dividends $ 2,356 784 1,365 468 306 2,261 --
------- -------- ------- -------- -------- ----------- ------------
Expenses:
Mortality and expense risk fee 553 179 394 1,135 621 993 89
Administrative fee 66 22 48 136 75 119 10
------- -------- ------- -------- -------- ----------- ------------
Total expenses 619 201 442 1,271 696 1,112 99
------- -------- ------- -------- -------- ----------- ------------
Net investment
income (loss) 1,737 583 923 (803) (390) 1,149 (99)
------- -------- ------- -------- -------- ----------- ------------
Net realized gain (loss) on investments:
Realized gain (loss) on
sale of fund shares 455 -- 135 6,103 1,440 19 (14)
Realized gain distributions -- -- -- 15,804 5,687 880 4
------- -------- ------- -------- -------- ----------- ------------
Net realized gain (loss) 455 -- 135 21,907 7,127 899 (10)
------- -------- ------- -------- -------- ----------- ------------
Change in unrealized
appreciation during the year 6 -- (668) 838 634 1,565 883
------- -------- ------- -------- -------- ----------- ------------
Net increase (decrease)
in net assets from
operations $ 2,198 583 390 21,942 7,371 3,613 774
======= ======== ======= ======== ======== =========== ============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
(In thousands of dollars)
Trust
--------------------------------------------------------------------
Small Large
Large Cap Mid-Cap Quality Cap Cap Select
Research Value Bond Stock Stock Equity
--------------- --------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income -
dividends $ 15 13 557 86 120 413
--------------- -------- ------- -------- -------- --------
Expenses:
Mortality and expense risk fee 72 109 326 783 580 1,700
Administrative fee 9 13 39 94 70 204
--------------- --------- ------- -------- -------- --------
Total expenses 81 122 365 877 650 1,904
--------------- --------- ------- -------- -------- --------
Net investment
income (loss) (66) (109) 192 (791) (530) (1,491)
--------------- --------- ------- -------- -------- --------
Net realized gain (loss) on investments:
Realized gain (loss) on
sale of fund shares 5 (3) 36 (125) 16 210
Realized gain distributions -- -- -- 2,193 396 8,232
--------------- --------- ------- -------- -------- --------
Net realized gain (loss) 5 (3) 36 2,068 412 8,442
--------------- --------- ------- -------- -------- --------
Change in unrealized
appreciation during the year 1,278 120 1,412 (6,177) 13,680 20,065
--------------- --------- ------- -------- -------- --------
Net increase (decrease)
in net assets from
operations $ 1,217 8 1,640 (4,900) 13,562 27,016
=============== ========= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
(In thousands of dollars)
Trust
--------------------------------------------------------
Growth
Small and
International Cap Equity Income
Equity Balanced Equity Income Equity
------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Income -
dividends $ 1,435 46 - 37 29
------------- ---------- ------- -------- --------
Expenses:
Mortality and expense risk fee 1,007 20 9 23 53
Administrative fee 121 3 1 3 6
------------- ---------- ------- -------- --------
Total expenses 1,128 23 10 26 59
------------- ---------- ------- -------- --------
Net investment
income (loss) 307 23 (10) 11 (30)
------------- ---------- ------- -------- --------
Net realized gain (loss)
on investments:
Realized gain (loss) on
sale of fund shares 310 (1) (3) - 7
Realized gain distributions 18 41 14 80 160
------------- ---------- ------- -------- --------
Net realized gain (loss) 328 40 11 80 167
------------- ---------- ------- -------- --------
Change in unrealized
appreciation during the year 7,969 173 39 49 548
------------- ---------- ------- -------- --------
Net increase (decrease)
in net assets from
operations $ 8,604 236 40 140 685
============= ========== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
(In thousands of dollars)
Lord Abbett
------------
Growth GACC Russell
----------- ----------------------------------------------
and Money Multi-Style Aggressive Core
Income Market Equity Equity Non-US Bond
-------- ----------- ----------- ------------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Income -
dividends $ 9,871 -- 54 2 10 294
-------- ----------- ----------- ------------ ---------- -------
Expenses:
Mortality and expense risk fee 7,241 144 164 30 57 103
Administrative fee 869 17 19 3 7 13
-------- ----------- ----------- ------------ ---------- -------
Total expenses 8,110 161 183 33 64 116
-------- ----------- ----------- ------------ ---------- -------
Net investment
income (loss) 1,761 (161) (129) (31) (54) 178
-------- ----------- ----------- ------------ ---------- -------
Net realized gain (loss) on investments:
Realized gain (loss) on
sale of fund shares 2,081 436 1 (44) 2 1
Realized gain distributions 31,739 -- 39 26 3 6
-------- ----------- ----------- ------------ ---------- -------
Net realized gain (loss) 33,820 436 40 (18) 5 7
-------- ----------- ----------- ------------ ---------- -------
Change in unrealized
appreciation during the year 26,592 185 3,199 75 412 268
-------- ----------- ----------- ------------ ---------- -------
Net increase (decrease)
in net assets from
operations $ 62,173 460 3,110 26 363 453
======== =========== =========== ============ ========== =======
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
(In thousands of dollars)
AIM Alliance
--------------------------------------- -------------------------
Capital International Premier Real Estate
Value Appreciation Equity Growth Investment
------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income -
dividends $ 29 3 18 3 11
--------- ------------- ------------- ----------- -----------
Expenses:
Mortality and expense risk fee 33 12 17 43 9
Administrative fee 4 2 2 5 1
--------- ------------- ------------- ----------- -----------
Total expenses 37 14 19 48 10
--------- ------------- ------------- ----------- -----------
Net investment
income (loss) (8) (11) (1) (45) 1
--------- ------------- ------------- ----------- -----------
Net realized gain (loss) on investments:
Realized gain (loss) on
sale of fund shares (10) (3) (3) (4) (2)
Realized gain distributions 260 53 -- -- 5
--------- ------------- ------------- ----------- -----------
Net realized gain (loss) 250 50 (3) (4) 3
--------- ------------- ------------- ----------- -----------
Change in unrealized
appreciation during the year 668 164 81 1,522 (170)
--------- ------------- ------------- ----------- -----------
Net increase (decrease)
in net assets from
operations $ 910 203 77 1,473 (166)
========= ============= ============= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
(In thousands of dollars)
Goldman Sachs
------------------------------------
Liberty
--------- Growth
Newport and International Global
Tiger Income Equity Income
--------- ------------ ------------- -------
<S> <C> <C> <C> <C>
Income -
dividends $ 6 41 -- 7
--------- ------------ ------------- -------
Expenses:
Mortality and expense risk fee 2 26 6 1
Administrative fee -- 3 1 --
--------- ------------ ------------- -------
Total expenses 2 29 7 1
--------- ------------ ------------- -------
Net investment
income (loss) 4 12 (7) 6
--------- ------------ ------------- -------
Net realized gain (loss) on investments:
Realized gain (loss) on
sale of fund shares (30) (12) -- 1
Realized gain distributions -- -- 10 2
--------- ------------ ------------- -------
Net realized gain (loss) (30) (12) 10 3
--------- ------------ ------------- -------
Change in unrealized
appreciation during the year 54 (207) 56 (1)
--------- ------------ ------------- -------
Net increase (decrease)
in net assets from
operations $ 28 (207) 59 8
========= ============ ============= =======
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
(In thousands of dollars)
MFS
----------------------------
Kemper
---------------------------------------------------- Growth
Dreman High Small Cap Small Cap Government with
Return Equity Growth Value Securities Bond Research Income
-------------------------- ---------- ------------ ------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income -
dividends $ -- -- -- 2 -- 1 --
-------------- ---------- ---------- ------------ ------- ------------------
Expenses:
Mortality and expense risk fee -- 4 12 2 -- 26 34
Administrative fee -- 1 1 -- -- 3 4
-------------- ---------- ---------- ------------ ------- ------------------
Total expenses -- 5 13 2 -- 29 38
-------------- ---------- ---------- ------------ ------- ------------------
Net investment
income (loss) -- (5) (13) -- -- (28) (38)
-------------- ---------- ---------- ------------ ------- ------------------
Net realized gain (loss) on investments:
Realized gain (loss) on
sale of fund shares -- (27) (4) -- -- (2) --
Realized gain distributions -- 24 12 -- -- 18 --
-------------- ---------- ---------- ------------ ------- ------------------
Net realized gain (loss) -- (3) 8 -- -- 16 --
-------------- ---------- ---------- ------------ ------- ------------------
Change in unrealized
appreciation during the year 1 107 (155) 9 1 481 574
-------------- ---------- ---------- ------------ ------- ------------------
Net increase (decrease)
in net assets from
operations $ 1 99 (160) 9 1 469 536
============== ========== ========== ============ ======= ==================
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
(In thousands of dollars)
MFS
--------------------------------------------------
F&C
Emerging
Emerging Markets High World
Growth Equity Income Governments
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Income -
dividends $ -- 8 16 --
---------- ---------- ---------- --------------
Expenses:
Mortality and expense risk fee 33 4 10 --
Administrative fee 4 1 1 --
---------- ---------- ---------- --------------
Total expenses 37 5 11 --
---------- ---------- ---------- --------------
Net investment
income (loss) (37) 3 5 --
---------- ---------- ---------- --------------
Net realized gain (loss) on investments:
Realized gain (loss) on
sale of fund shares (11) (97) (2) --
Realized gain distributions 9 -- 5 --
---------- ---------- ---------- --------------
Net realized gain (loss) (2) (97) 3 --
---------- ---------- ---------- --------------
Change in unrealized
appreciation during the year 985 (94) (34) 1
---------- ---------- ---------- --------------
Net increase (decrease)
in net assets from
operations $ 946 (188) (26) 1
========== ========== ========== ==============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
(In thousands of dollars)
OPPENHEIMER
-----------------------------------------------------
GROWTH
AND HIGH STRATEGIC
GROWTH INCOME INCOME BOND BOND
---------- ---------- ----------- ----- --------
<S> <C> <C> <C> <C> <C>
Income -
dividends $ 1 2 4 5 3
---------- ---------- ----------- ----- --------
Expenses:
Mortality and expense risk fee 6 19 5 22 5
Administrative fee 1 2 -- 2 1
---------- ---------- ----------- ----- --------
Total expenses 7 21 5 24 6
---------- ---------- ----------- ----- --------
Net investment
income (loss) (6) (19) (1) (19) (3)
---------- ---------- ----------- ----- --------
Net realized gain (loss) on investments:
Realized gain (loss) on
sale of fund shares (1) (37) (1) -- --
Realized gain distributions 8 39 4 5 2
---------- -------- ----------- ----- --------
Net realized gain (loss) 7 2 3 5 2
---------- ---------- ----------- ----- --------
Change in unrealized
appreciation during the year 134 (28) (15) 95 3
---------- ---------- ----------- ----- --------
Net increase (decrease)
in net assets from
operations $ 135 (45) (13) 81 2
========== ========== =========== ===== ========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
(In thousands of dollars)
Putnam
---------------------------------------------------------------------
Growth International
and New International New
Income Value Vista Growth Opportunities
---------- ---------- ---------- -------------- -----------------
<S> <C> <C> <C>
Income -
dividends $ 30 5 -- 20 --
---------- ---------- ---------- -------------- -----------------
Expenses:
Mortality and expense risk fee 68 3 8 33 4
Administrative fee 8 -- 1 4 --
---------- ---------- ---------- -------------- -----------------
Total expenses 76 3 9 37 4
---------- ---------- ---------- -------------- -----------------
Net investment
income (loss) (46) 2 (9) (17) (4)
---------- ---------- ---------- -------------- -----------------
Net realized gain (loss) on investments:
Realized gain (loss) on
sale of fund shares (8) -- (1) (39) 24
Realized gain distributions 200 2 -- -- --
---------- ---------- ---------- -------------- -----------------
Net realized gain (loss) 192 2 (1) (39) 24
---------- ---------- ---------- -------------- -----------------
Change in unrealized
appreciation during the year 660 6 173 353 40
---------- ---------- ---------- -------------- -----------------
Net increase (decrease)
in net assets from
operations $ 806 10 163 297 60
========== ========== ========== ============== =================
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
(In thousands of dollars)
Templeton Fidelity
----------------------------------------- ------------------------
Mutual
Developing Shares
International Markets Investments Growth Contrafund
------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
Income -
dividends $ -- -- -- -- --
------------- ------------ ------------ -------- -----------
Expenses:
Mortality and expense risk fee 5 2 4 -- 2
Administrative fee 1 1 1 -- --
------------- ------------ ------------ -------- -----------
Total expenses 6 3 5 -- 2
------------- ------------ ------------ -------- -----------
Net investment
income (loss) (6) (3) (5) -- (2)
------------- ------------ ------------ -------- -----------
Net realized gain (loss) on investments:
Realized gain (loss) on
sale of fund shares 8 (4) -- (3) (2)
Realized gain distributions -- -- -- -- --
------------- ------------ ------------ -------- -----------
Net realized gain (loss) 8 (4) -- (3) (2)
------------- ------------ ------------ -------- -----------
Change in unrealized
appreciation during the year 48 44 32 12 48
------------- ------------ ------------ -------- -----------
Net increase (decrease)
in net assets from
operations $ 50 37 27 9 44
============= ============ ============ ======== ===========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1998
(In thousands of dollars)
Fidelity
------------------------------------
Growth Growth & Equity-
Opportunities Income Income Total
-------------- ---------- --------------------
<S> <C> <C> <C> <C>
Income -
dividends $ -- -- -- 20,737
-------------- ---------- -------- ---------
Expenses:
Mortality and expense risk fee -- 4 1 16,850
Administrative fee -- 1 -- 2,023
-------------- ---------- -------- ---------
Total expenses -- 5 1 18,873
-------------- ---------- -------- ---------
Net investment
income (loss) -- (5) (1) 1,864
-------------- ---------- -------- ---------
Net realized gain (loss) on investments:
Realized gain (loss) on
sale of fund shares (2) (5) (3) 10,787
Realized gain distributions -- -- -- 65,980
-------------- ---------- -------- ---------
Net realized gain (loss) (2) (5) (3) 76,767
-------------- ---------- -------- ---------
Change in unrealized
appreciation during the year 13 94 17 78,917
-------------- ---------- -------- ---------
Net increase (decrease)
in net assets from
operations $ 11 84 13 157,548
============== ========== ======== =========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
Trust
----------------------------------------------------------------------------
VKAC
Growth
Quality Money High Stock and Bond Developing
Income Market Yield Index Income Debenture Growth
-------- -------- --------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ 1,737 583 923 (803) (390) 1,149 (99)
Net realized gain (loss) 455 -- 135 21,907 7,127 899 (10)
Change in unrealized
appreciation during
the year 6 -- (668) 838 634 1,565 883
-------- -------- --------- -------- --------- --------- -----------
Net increase (decrease)
in net assets from
operations 2,198 583 390 21,942 7,371 3,613 774
-------- -------- --------- -------- --------- --------- -----------
Contract transactions:
Cova payments -- -- -- -- -- -- --
Cova transfers -- -- -- -- -- -- (112)
Payments received from contract
owners 21 6 55 69 39 21,396 6,348
Transfers between sub-accounts
(including fixed account), net (3,399) (10,098) (1,392) 3,960 1,244 38,789 6,481
Transfers for contract benefits
and terminations (8,833) (4,210) (3,514) (17,021) (3,490) (4,147) (201)
-------- -------- --------- -------- --------- --------- -----------
Net increase (decrease) in
net assets from
contract transactions (12,211) (14,302) (4,851) (12,992) (2,207) 56,038 12,516
-------- -------- --------- -------- --------- --------- -----------
Net increase (decrease)
in net assets (10,013) (13,719) (4,461) 8,950 5,164 59,651 13,290
Net assets at beginning of period 49,103 21,610 33,261 88,637 46,147 50,820 1,565
-------- -------- --------- -------- --------- --------- -----------
Net assets at end of period $ 39,090 7,891 28,800 97,587 51,311 110,471 14,855
======== ======== ========= ======== ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
Trust
----------------------------------------------------------------------------
Small Large
Large Cap Mid-Cap Quality Cap Cap Select
Research Value Bond Stock Stock Equity
------------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ (66) (109) 192 (791) (530) (1,491)
Net realized gain (loss) 5 (3) 36 2,068 412 8,442
Change in unrealized
appreciation during
the year 1,278 120 1,412 (6,177) 13,680 20,065
------------- ----------- ---------- ---------- ---------- -----------
Net increase (decrease)
in net assets from
operations 1,217 8 1,640 (4,900) 13,562 27,016
------------- ----------- ---------- ---------- ---------- -----------
Contract transactions:
Cova payments -- -- -- -- -- --
Cova transfers (102) (107) -- -- -- --
Payments received from contract
owners 6,104 7,924 9,698 8,193 18,801 21,003
Transfers between sub-accounts
(including fixed account), net 4,750 7,602 14,372 15,607 29,039 38,783
Transfers for contract benefits
and terminations (234) (317) (2,058) (2,424) (2,022) (4,555)
------------- ----------- ---------- ---------- ---------- -----------
Net increase (decrease) in
net assets from
contract transactions 10,518 15,102 22,012 21,376 45,818 55,231
------------- ----------- ---------- ---------- ---------- -----------
Net increase (decrease)
in net assets 11,735 15,110 23,652 16,476 59,380 82,247
Net assets at beginning of period 1,233 2,035 15,986 53,169 21,989 97,063
------------- ----------- ---------- ---------- ---------- -----------
Net assets at end of period $ 12,968 17,145 39,638 69,645 81,369 179,310
============= =========== ========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
-----------------------------------------------------------------
Growth
Small and
International Cap Equity Income
Equity Balanced Equity Income Equity
--------------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ 307 23 (10) 11 (30)
Net realized gain (loss) 328 40 11 80 167
Change in unrealized
appreciation during
the year 7,969 173 39 49 548
--------------- ----------- --------- --------- ---------
Net increase (decrease)
in net assets from
operations 8,604 236 40 140 685
--------------- ----------- --------- --------- ---------
Contract transactions:
Cova payments -- -- -- -- --
Cova transfers -- -- -- -- --
Payments received from contract
owners 8,143 1,408 442 1,820 3,014
Transfers between sub-accounts
(including fixed account), net 18,076 1,373 588 988 2,913
Transfers for contract benefits
and terminations (2,949) (46) (15) (42) (98)
--------------- ----------- --------- --------- ---------
Net increase (decrease) in
net assets from
contract transactions 23,270 2,735 1,015 2,766 5,829
--------------- ----------- --------- ---------------------
Net increase (decrease)
in net assets 31,874 2,971 1,055 2,906 6,514
Net assets at beginning of period 62,371 401 272 557 1,309
--------------- ----------- --------- --------- ---------
Net assets at end of period $ 94,245 3,372 1,327 3,463 7,823
=============== =========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
Lord Abbett
----------------
GACC Russell
Growth ---------- -------------------------------------------------
and Money Multi-Style Aggressive Core
Income Market Equity Equity Non-US Bond
---------------- ---------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ 1,761 (161) (129) (31) (54) 178
Realized gain (loss) 33,820 436 40 (18) 5 7
Change in unrealized
appreciation during
the year 26,592 185 3,199 75 412 268
---------------- ---------- ----------- ---------- --------- ----------
Net increase (decrease)
in net assets from
operations 62,173 460 3,110 26 363 453
---------------- ---------- ----------- ---------- --------- ----------
Contract transactions:
Cova payments -- -- -- -- -- --
Cova transfers -- -- -- -- -- --
Payments received from contract
owners 55,721 35,352 21,870 4,296 8,107 13,098
Transfers between sub-accounts
(including fixed account), net 102,796 (19,753) 4,748 1,041 1,920 3,732
Transfers for contract benefits
and terminations (38,987) (2,913) (169) (20) (74) (233)
---------------- ---------- ----------- ---------- --------- ----------
Net increase (decrease) in
net assets from
contract transactions 119,530 12,686 26,449 5,317 9,953 16,597
---------------- ---------- ----------- ---------- --------- ----------
Net increase (decrease)
in net assets 181,703 13,146 29,559 5,343 10,316 17,050
Net assets at beginning of period 487,500 3,318 -- -- -- --
---------------- ---------- ----------- ---------- --------- ----------
Net assets at end of period $ 669,203 16,464 29,559 5,343 10,316 17,050
================ ========== =========== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
AIM Alliance
------------------------------------------------- ------------------------------
Capital International Premier Real Estate
Value Appreciation Equity Growth Investment
---------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (8) (11) (1) (45) 1
Realized gain (loss) 250 50 (3) (4) 3
Change in unrealized
appreciation during
the year 668 164 81 1,522 (170)
---------- ---------------- ---------------- -------------- --------------
Net increase (decrease)
in net assets from
operations 910 203 77 1,473 (166)
---------- ---------------- ---------------- -------------- --------------
Contract transactions:
Cova payments -- -- -- -- --
Cova transfers -- -- -- -- --
Payments received from contract
owners 4,061 1,431 1,648 6,485 1,193
Transfers between sub-accounts
(including fixed account), net 2,030 609 609 1,828 514
Transfers for contract benefits
and terminations (185) (83) (9) (38) (12)
---------- ---------------- ---------------- -------------- --------------
Net increase (decrease) in
net assets from
contract transactions 5,906 1,957 2,248 8,275 1,695
---------- ------------- ---------------- -------------- --------------
Net increase (decrease)
in net assets 6,816 2,160 2,325 9,748 1,529
Net assets at beginning of period -- -- -- -- --
---------- ---------------- ---------------- -------------- --------------
Net assets at end of period $ 6,816 2,160 2,325 9,748 1,529
========== ================ ================ ============== ==============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
Goldman Sachs
-----------------------------------------
Liberty Growth
---------------
Newport and International Global
Tiger Income Equity Income
--------------- ----------------------------- ----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ 4 12 (7) 6
Realized gain (loss) (30) (12) 10 3
Change in unrealized
appreciation during
the year 54 (207) 56 (1)
--------------- ----------- ---------------- ----------
Net increase (decrease)
in net assets from
operations 28 (207) 59 8
--------------- ----------- ---------------- ----------
Contract transactions:
Cova payments -- -- -- --
Cova transfers -- -- -- --
Payments received from contract
owners 159 3,067 979 125
Transfers between sub-accounts
(including fixed account), net 108 1,826 255 84
Transfers for contract benefits
and terminations -- (52) (6) (14)
--------------- ----------- ---------------- ----------
Net increase (decrease) in
net assets from
contract transactions 267 4,841 1,228 195
--------------- ----------- ---------------- ----------
Net increase (decrease)
in net assets 295 4,634 1,287 203
Net assets at beginning of period -- -- -- --
--------------- ----------- ---------------- ----------
Net assets at end of period $ 295 4,634 1,287 203
=============== =========== ================ ==========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
MFS
-----------------------
Kemper
-------------- ---------------------------------------
Dreman High Small Cap Small Cap Government
Return Equity Growth Value Securities Bond Research
-------------- ------------ ------------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ -- (5) (13) -- -- (28)
Realized gain (loss) -- (3) 8 -- -- 16
Change in unrealized
appreciation during
the year 1 107 (155) 9 1 481
-------------- ------------ ------------ ----------- --------- ------------
Net increase (decrease)
in net assets from
operations 1 99 (160) 9 1 469
-------------- ------------ ------------ ----------- --------- ------------
Contract transactions:
Cova payments -- -- -- -- -- --
Cova transfers -- -- -- -- -- --
Payments received from contract
owners -- 630 1,656 503 3 3,760
Transfers between sub-accounts
(including fixed account), net 96 162 670 120 170 1,530
Transfers for contract benefits
and terminations -- 2 (21) (2) -- (101)
-------------- ------------ ------------ ----------- --------- ------------
Net increase (decrease) in
net assets from
contract transactions 96 794 2,305 621 173 5,189
-------------- ------------ ------------ ----------- --------- ------------
Net increase (decrease)
in net assets 97 893 2,145 630 174 5,658
Net assets at beginning of period -- -- -- -- -- --
-------------- ------------ ------------ ----------- --------- ------------
Net assets at end of period $ 97 893 2,145 630 174 5,658
============== ============ ============ =========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
MFS
-------------------------------------------------------------------------
F&C
Growth Emerging
with Emerging Markets High World
Income Growth Equity Income Governments
----------------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (38) (37) 3 5 --
Realized gain (loss) -- (2) (97) 3 --
Change in unrealized
appreciation during
the year 574 985 (94) (34) 1
-------- ------------ ------------ ------------ -----------------
Net increase (decrease)
in net assets from
operations 536 946 (188) (26) 1
-------- ------------ ------------ ------------ -----------------
Contract transactions:
Cova payments -- -- -- -- --
Cova transfers -- -- -- -- --
Payments received from contract
owners 4,624 5,018 421 1,634 4
Transfers between sub-accounts
(including fixed account), net 1,901 1,216 252 570 17
Transfers for contract benefits
and terminations (45) (38) (4) (20) --
-------- ------------ ------------ ------------ -----------------
Net increase (decrease) in
net assets from
contract transactions 6,480 6,196 669 2,184 21
-------- ------------ ------------ ------------ -----------------
Net increase (decrease)
in net assets 7,016 7,142 481 2,158 22
Net assets at beginning of period -- -- -- -- --
-------- ------------ ------------ ------------ -----------------
Net assets at end of period $ 7,016 7,142 481 2,158 22
======== ============ ============ ============ =================
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
OPPENHEIMER
--------------------------------------------------------------------
GROWTH
AND HIGH STRATEGIC
GROWTH INCOME INCOME BOND BOND
------------- ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (6) (19) (1) (19) (3)
Realized gain (loss) 7 2 3 5 2
Change in unrealized
appreciation during
the year 134 (28) (15) 95 3
------------- ------------ ------------ --------- -------------
Net increase (decrease)
in net assets from
operations 135 (45) (13) 81 2
------------- ------------ ------------ --------- -------------
Contract transactions:
Cova payments -- -- -- -- --
Cova transfers -- -- -- -- --
Payments received from contract
owners 838 2,140 517 3,298 725
Transfers between sub-accounts
(including fixed account), net 220 859 281 889 371
Transfers for contract benefits
and terminations (4) (13) (8) (34) (3)
------------- ------------ ------------ --------- -------------
Net increase (decrease) in
net assets from
contract transactions 1,054 2,986 790 4,153 1,093
------------- ------------ ------------ --------- -------------
Net increase (decrease)
in net assets 1,189 2,941 777 4,234 1,095
Net assets at beginning of period -- -- -- -- --
------------- ------------ ------------ --------- -------------
Net assets at end of period $ 1,189 2,941 777 4,234 1,095
============= ============ ============ ========= =============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
Putnam
---------------------------------------------------------------------------
Growth International
and New International New
Income Value Vista Growth Opportunities
------------- ------------ ---------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (46) 2 (9) (17) (4)
Net realized gain (loss) 192 2 (1) (39) 24
Change in unrealized
appreciation during
the year 660 6 173 353 40
------------- ------------ ---------- --------------- ------------------
Net increase (decrease)
in net assets from
operations 806 10 163 297 60
------------- ------------ ---------- --------------- ------------------
Contract transactions:
Cova payments -- -- -- -- --
Cova transfers -- -- -- -- --
Payments received from contract
owners 8,705 173 1,241 4,444 423
Transfers between sub-accounts
(including fixed account), net 3,257 259 385 1,511 127
Transfers for contract benefits
and terminations (69) (1) (4) (46) (8)
------------- ------------ ---------- --------------- ------------------
Net increase (decrease) in
net assets from
contract transactions 11,893 431 1,622 5,909 542
------------- ------------ ---------- --------------- ------------------
Net increase (decrease)
in net assets 12,699 441 1,785 6,206 602
Net assets at beginning of period -- -- -- -- --
------------- ------------ ---------- --------------- ------------------
Net assets at end of period $ 12,699 441 1,785 6,206 602
============= ============ ========== =============== ==================
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
Templeton Fidelity
-------------------------------------------- ----------------------
Mutual
Developing Shares
International Markets Investments Growth Contrafund
------------- ------------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ (6) (3) (5) -- (2)
Net realized gain (loss) 8 (4) -- (3) (2)
Change in unrealized
appreciation during
the year 48 44 32 12 48
------------- ------------- -------------- -------- -------------
Net increase (decrease)
in net assets from
operations 50 37 27 9 44
------------- ------------- -------------- -------- -------------
Contract transactions:
Cova payments -- -- -- -- --
Cova transfers -- -- -- -- --
Payments received from contract
owners 1,261 509 584 86 330
Transfers between sub-accounts
(including fixed account), net 201 139 415 (5) 24
Transfers for contract benefits
and terminations (5) (6) (5) (2) 2
------------- ------------- -------------- -------- -------------
Net increase (decrease) in
net assets from
contract transactions 1,457 642 994 79 356
------------- ------------- -------------- -------- -------------
Net increase (decrease)
in net assets 1,507 679 1,021 88 400
Net assets at beginning of period -- -- -- -- --
------------- ------------- -------------- -------- -------------
Net assets at end of period $ 1,507 679 1,021 88 400
============= ============= ============== ======== =============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
Fidelity
----------------------------------------------
Growth Growth & Equity-
Opportunities Income Income Total
---------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ -- (5) (1) 1,864
Net realized gain (loss) (2) (5) (3) 76,767
Change in unrealized
appreciation during
the year 13 94 17 78,917
---------------- ------------ ------------- -------------
Net increase (decrease)
in net assets from
operations 11 84 13 157,548
---------------- ------------ ------------- -------------
Contract transactions:
Cova payments -- -- -- --
Cova transfers -- -- -- (321)
Payments received from contract
owners 114 435 195 316,347
Transfers between sub-accounts
(including fixed account), net (13) 333 51 288,031
Transfers for contract benefits
and terminations -- -- (3) (99,409)
---------------- ------------ ------------- -------------
Net increase (decrease) in
net assets from
contract transactions 101 768 243 504,648
---------------- ------------ ------------- -------------
Net increase (decrease)
in net assets 112 852 256 662,196
Net assets at beginning of period -- -- -- 1,038,346
---------------- ------------ ------------- -------------
Net assets at end of period $ 112 852 256 1,700,542
================ ============ ============= =============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1997
(In thousands of dollars)
Trust
-------------------------------------------------------------------------------------
VKAC
Growth
Quality Money High Stock and Bond Developing
Income Market Yield Index Income Debenture Growth
---------- ----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income
(loss) $ 2,586 1,851 2,603 (73) (22) 1,266 (2)
Net realized gain (loss) 503 -- 835 15,992 1,404 35 --
Change in unrealized
appreciation during
the year 367 -- 351 4,729 6,685 1,687 7
---------- ----------- ----------- ----------- ----------- ---------- -----------
Net increase (decrease)
in net assets
from operations 3,456 1,851 3,789 20,648 8,067 2,988 5
---------- ----------- ----------- ----------- ----------- ---------- -----------
Contract transactions:
Cova payments -- -- -- -- -- -- 100
Cova transfers -- -- -- -- -- -- --
Payments received from
contract owners 504 45,236 795 2,638 2,541 8,751 503
Transfers between sub-
accounts (including fixed
account), net 3,092 (48,066) (11,222) (9,170) 5,116 32,608 959
Transfers for contract
benefits and terminations (9,775) (8,119) (2,972) (14,588) (1,993) (978) (2)
---------- ----------- ----------- ----------- ----------- ---------- -----------
Net increase
(decrease) in net
assets from contract
transactions (6,179) (10,949) (13,399) (21,120) 5,664 40,381 1,560
---------- ----------- ----------- ----------- ----------- ---------- -----------
Net increase
(decrease) in net
assets (2,723) (9,098) (9,610) (472) 13,731 43,369 1,565
Net assets at beginning of period 51,826 30,708 42,871 89,109 32,416 7,451 --
---------- ----------- ----------- ----------- ----------- ---------- -----------
Net assets at end of period $ 49,103 21,610 33,261 88,637 46,147 50,820 1,565
========== =========== =========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1997
(In thousands of dollars)
TRUST
--------------------------------------------------------------------------------------
Small Large
Large Cap Mid-Cap Quality Cap Cap Select International
Research Value Bond Stock Stock Equity Equity
---------- --------- ---------- --------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income
(loss) $ 1 -- 439 (260) (59) (342) (18)
Net realized gain (loss) -- -- 116 135 2,865 331 51
Change in unrealized
appreciation during
the year 6 40 156 5,990 1,324 12,310 513
--------- --------- ---------- --------- ----------- ---------- ---------------
Net increase (decrease)
in net assets
from operations 7 40 711 5,865 4,130 12,299 546
--------- --------- ---------- --------- ----------- ---------- ---------------
Contract transactions:
Cova payments 100 100 -- -- -- -- --
Cova transfers -- -- (2,144) -- (15,455) -- --
Payments received from
contract owners 359 463 2,671 9,550 7,691 19,507 11,213
Transfers between sub-
accounts (including fixed
account), net 769 1,460 10,203 24,982 10,293 44,654 37,503
Transfers for contract
benefits and terminations (2) (28) (731) (1,221) (421) (1,556) (1,224)
--------- --------- ---------- --------- ----------- ---------- ---------------
Net increase
(decrease) in net
assets from contract
transactions 1,226 1,995 9,999 33,311 2,108 62,605 47,492
--------- --------- ---------- --------- ----------- ---------- ---------------
Net increase
(decrease) in net
assets 1,233 2,035 10,710 39,176 6,238 74,904 48,038
Net assets at beginning of period -- -- 5,276 13,993 15,751 22,159 14,333
--------- --------- ---------- --------- ----------- ---------- ---------------
Net assets at end of period $ 1,233 2,035 15,986 53,169 21,989 97,063 62,371
========= ========= ========== ========= =========== ========== ===============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1997
(In thousands of dollars)
Trust
---------------------------------------------
Growth Lord Abbett
---------------------
Small and GACC
Growth ----------
Cap Equity Income and Global Money
Balanced Equity Income Equity Income Equity Market Total
-------------------- --------- ----------- --------- ------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income
(loss) $ 4 (1) 2 (1) 2,366 (9) (24) 10,307
Net realized gain (loss) 4 2 7 11 31,083 (36) 55 53,393
Change in unrealized
appreciation during
the year -- (5) 21 18 41,372 (1) 40 75,610
-------- ---------- --------- ----------- --------- ------- -------- -------------
Net increase (decrease)
in net assets
from operations 8 (4) 30 28 74,821 (46) 71 139,310
-------- ---------- --------- ----------- --------- ------- -------- -------------
Contract transactions:
Cova payments 1 1 1 1 -- -- -- 304
Cova transfers (1) (1) (1) (1) -- -- -- (17,603)
Payments received from
contract owners 184 116 219 679 47,264 5 5,197 166,086
Transfers between sub-
accounts (including fixed
account), net 235 160 309 646 94,311 (2,228) (1,996) 194,618
Transfers for contract
benefits and terminations (26) -- (1) (44) (23,254) (114) (312) (67,361)
-------- ---------- --------- ----------- --------- ------- -------- -------------
Net increase
(decrease) in net
assets from contract
transactions 393 276 527 1,281 118,321 (2,337) 2,889 276,044
-------- ---------- --------- ----------- --------- ------- -------- -------------
Net increase
(decrease) in net
assets 401 272 557 1,309 193,142 (2,383) 2,960 415,354
Net assets at beginning of period -- -- -- -- 294,358 2,383 358 622,992
-------- ---------- --------- ----------- --------- ------- -------- -------------
Net assets at end of period $ 401 272 557 1,309 487,500 -- 3,318 1,038,346
======== ========== ========= =========== ========= ======= ======== =============
</TABLE>
See accompanying notes to financial statements.
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(1) ORGANIZATION
Cova Variable Annuity Account One (the Separate Account), a unit
investment trust registered under the Investment Company Act of 1940 as
amended, was established by Cova Financial Services Life Insurance
Company (Cova) and exists in accordance with the regulations of the
Missouri Department of Insurance. The Separate Account is a funding
vehicle for variable annuity contracts issued by Cova.
<TABLE>
<CAPTION>
The Separate Account is divided into sub-accounts with the assets of
each sub-account invested in the corresponding portfolios of the
following investment companies:
<S> <C>
Cova Series Trust (Trust) 18 portfolios
Lord Abbett Series Fund, Inc. (Lord Abbett) 1 portfolio
General American Capital Company (GACC) 1 portfolio
Russell Insurance Funds (Russell) 4 portfolios
AIM Variable Insurance Funds, Inc. (AIM) 3 portfolios
Alliance Variable Products Series Fund, Inc. (Alliance) 2 portfolios
Liberty Variable Investment Trust (Liberty) 1 portfolio
Goldman Sachs Variable Insurance Trust (Goldman Sachs) 3 portfolios
Investors Fund Series (Kemper) 4 portfolios
MFS Variable Insurance Trust (MFS) 7 portfolios
Oppenheimer Variable Account Funds (Oppenheimer) 5 portfolios
Putnam Variable Trust (Putnam) 5 portfolios
Templeton Variable Products Series Fund (Templeton) 3 portfolios
Variable Insurance Products Fund, Fund II, and Fund III (Fidelity) 5 portfolios
</TABLE>
Each investment company is a diversified, open-end, management
investment company registered under the Investment Company Act of 1940
as amended. Not all sub-accounts are available for investment depending
upon the terms of the variable annuity contracts offered for sale by
Cova.
(2) SIGNIFICANT ACCOUNTING POLICIES
(A) INVESTMENT VALUATION
Investments made in the portfolios of the investment companies are
valued at the reported net asset value of such portfolios, which
value their investment securities at fair value. The average cost
method is used to compute the realized gains and losses on the
sale of portfolio shares owned by the sub-accounts. Income from
dividends and gains from realized gain distributions are recorded
on the ex-distribution date.
(B) REINVESTMENT OF DISTRIBUTIONS
With the exception of the GACC Money Market Fund, dividends and
gains from realized gain distributions are reinvested in
additional shares of the portfolio.
GACC follows the Federal income tax practice known as consent
dividending, whereby substantially all of its net investment
income and realized capital gains are deemed to pass through to
the Separate Account. As a result, GACC does not distribute
dividends and realized gains. During December of each year, the
accumulated net investment income and realized capital gains of
the GACC Money Market 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
The operations of the Separate Account are included in the federal
income tax return of Cova, which is taxed as a Life Insurance
Company under the provisions of the Internal Revenue Code (IRC).
Under current IRC provisions, Cova believes it will be treated as
the owner of the Separate Account assets for federal income tax
purposes and does not expect to incur federal income taxes on the
earnings of the Separate Account to the extent the earnings are
credited to the variable annuity contracts. Based on this, no
charge is being made currently to the Separate Account for federal
income taxes. A charge may be made in future years for any federal
income taxes that would be attributable to the contracts.
(D) ANNUITY RESERVES
Annuity reserves are computed for contracts in the payout stage
according to the 1983a Mortality Table. The assumed investment
return is 3%. The mortality risk is borne by Cova and may result
in additional transfers to the Separate Account. Conversely, if
reserves exceed amounts required, transfers may be made from the
Separate Account to Cova. The charges were not material in 1998.
(3) SEPARATE ACCOUNT EXPENSES
Cova deducts a daily charge from the net assets of the Separate Account
equivalent to an annual rate of 1.25% for the assumption of mortality
and expense risks and 0.15% for administrative expenses. 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 fee in the event of the death of the
contract owner. The administrative fees cover the cost of establishing
and maintaining the variable annuity contracts and the Separate Account.
(4) CONTRACT FEES
There are no deductions made from purchase payments for sales fees at
the time a variable annuity contract is purchased. However, if all or a
portion of the contract value is withdrawn, a withdrawal fee may be
assessed and deducted from the contract value or payment to the contract
owner. The withdrawal fee 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 the contract value exceeds $5,000, the contract
owner may make one withdrawal each contract year of up to 10% of the
aggregate purchase payments (on deposit for more than one year) without
incurring a surrender fee. In 1998, surrender fees of $436 thousand were
deducted from the contract values in the Separate Account.
An annual contract maintenance fee of $30 is imposed on all variable
annuity contracts with contract values less than $50,000 on their policy
anniversary. This fee covers the cost of contract administration for the
previous year and is prorated between the sub-accounts and the fixed
rate account 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 the available
sub-accounts of the Separate Account and the fixed rate account offered
by 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 amount
transferred, may be deducted from the contract account value. Transfers
made in the Dollar Cost Averaging program are not subject to the
transfer fee.
In 1998, contract maintenance and transfer fees of $478 thousand were
deducted from the contract values in the 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. Cova reserves the right to deduct
premium taxes when incurred.
(5) SUBSEQUENT EVENT
On January 8, 1999, the five sub-accounts investing in the Trust
portfolios managed by Van Kampen American Capital Advisory Corp. (VKAC)
- Quality Income, Money Market, High Yield, Stock Index, and VKAC Growth
and Income portfolios - ceased operations and their assets were
transferred to one new and four existing sub-accounts in accordance with
the substitution order issued by the Securities and Exchange Commission.
On January 8, 1999, the Lord Abbett Growth and Income sub-account ceased
operations and its assets were transferred to the Trust Lord Abbett
Growth and Income sub-account which commenced operations on January 8,
1999. The Trust Lord Abbett Growth and Income sub-account invests in the
Trust Lord Abbett Growth and Income Portfolio which commenced operations
on January 8, 1999. The Trust Lord Abbett Growth and Income Portfolio is
managed by Lord Abbett who also manages the Lord Abbett Growth and
Income Portfolio.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(6) UNIT FAIR VALUES
A summary of accumulation unit values, net assets, total return and
expense ratios for each sub-account follows:
COMMENCED ACCUMULATION UNIT VALUE
-----------------------------------------------------------------
operations 1998 1997 1996 1995 1994
-------------- ------------ ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Trust Quality Income* 12/11/89 $ 17.539854 16.716329 15.540273 15.331971 13.170448
Trust Money Market* 06/28/91 12.882171 12.375226 11.879722 11.425133 10.896621
Trust High Yield* 12/11/89 23.857965 23.571992 21.422784 19.522535 16.977032
Trust Stock Index* 10/31/91 31.522392 24.963514 19.036956 15.773906 11.679303
Trust VKAC Growth and Income* 05/02/92 24.396666 20.978325 17.008151 14.608904 11.195845
Trust Bond Debenture 05/01/96 13.496500 12.881792 11.294930 -- --
Trust Developing Growth 08/20/97 11.067854 10.527554 -- -- --
Trust Large Cap Research 08/20/97 11.825550 9.899560 -- -- --
Trust Mid-Cap Value 08/20/97 10.437949 10.467957 -- -- --
Trust Quality Bond 05/01/96 11.914489 11.155126 10.368764 -- --
Trust Small Cap Stock 05/01/96 12.582860 13.491466 11.308419 -- --
Trust Large Cap Stock 05/01/96 19.428499 14.889462 11.334979 -- --
Trust Select Equity 05/01/96 16.987204 14.053502 10.838053 -- --
Trust International Equity 05/01/96 12.889315 11.462435 10.967004 -- --
Trust Balanced 07/01/97 11.767845 10.531920 -- -- --
Trust Small Cap Equity 07/01/97 10.238676 10.418047 -- -- --
Trust Equity Income 07/01/97 12.068849 11.194166 -- -- --
Trust Growth and Income Equity 07/01/97 12.188331 10.756082 -- -- --
Lord Abbett Growth and Income* 12/11/89 34.325425 30.837057 25.089525 21.306277 16.642028
GACC Money Market 06/03/96 11.109943 10.667011 10.233546 -- --
Russell Multi-Style Equity 12/31/97 12.694810 10.000000 -- -- --
Russell Aggressive Equity 12/31/97 9.963254 10.000000 -- -- --
Russell Non-US 12/31/97 11.142092 10.000000 -- -- --
Russell Core Bond 12/31/97 10.591175 10.000000 -- -- --
AIM Value 12/31/97 13.060203 10.000000 -- -- --
AIM Capital Appreciation 12/31/97 11.770729 10.000000 -- -- --
AIM International Equity 12/31/97 11.391449 10.000000 -- -- --
Alliance Premier Growth 12/31/97 14.595485 10.000000 -- -- --
Alliance Real Estate Investment 12/31/97 7.988435 10.000000 -- -- --
Liberty Newport Tiger 12/31/97 9.228765 10.000000 -- -- --
Goldman Sachs Growth and Income 01/29/98 9.908613 -- -- -- --
Goldman Sachs International Equity 01/29/98 11.402925 -- -- -- --
Goldman Sachs Global Income 01/29/98 10.781765 -- -- -- --
Kemper Dreman High Return Equity 05/15/98 10.487302 -- -- -- --
Kemper Small Cap Growth 12/31/97 11.676086 10.000000 -- -- --
Kemper Small Cap Value 12/31/97 8.753222 10.000000 -- -- --
Kemper Government Securities 12/31/97 10.556498 10.000000 -- -- --
MFS Bond 05/15/98 10.491811 -- -- -- --
MFS Research 12/31/97 12.172796 10.000000 -- -- --
MFS Growth with Income 12/31/97 12.066568 10.000000 -- -- --
MFS Emerging Growth 12/31/97 13.233235 10.000000 -- -- --
MFS / F&C Emerging Markets Equity 12/31/97 6.571830 10.000000 -- -- --
MFS High Income 12/31/97 9.845193 10.000000 -- -- --
MFS World Governments 12/31/97 10.669943 10.000000 -- -- --
Oppenheimer Growth 12/31/97 12.232731 10.000000 -- -- --
Oppenheimer Growth & Income 12/31/97 10.326519 10.000000 -- -- --
Oppenheimer High Income 12/31/97 9.893828 10.000000 -- -- --
Oppenheimer Bond 12/31/97 10.533011 10.000000 -- -- --
Oppenheimer Strategic Bond 12/31/97 10.151332 10.000000 -- -- --
Putnam Growth and Income 12/31/97 11.382650 10.000000 -- -- --
Putnam New Value 12/31/97 10.483517 10.000000 -- -- --
Putnam Vista 12/31/97 11.785702 10.000000 -- -- --
Putnam International Growth 12/31/97 11.707003 10.000000 -- -- --
Putnam International New Opportunities 12/31/97 11.402252 10.000000 -- -- --
Templeton International 05/01/98 9.144522 -- -- -- --
Templeton Developing Markets 05/01/98 7.552448 -- -- -- --
Templeton Mutual Shares Investments 05/01/98 9.630622 -- -- -- --
Fidelity VIP Growth 02/17/98 13.077878 -- -- -- --
Fidelity VIP II Contrafund 02/17/98 12.357373 -- -- -- --
Fidelity VIP III Growth Opportunities 02/17/98 11.742360 -- -- -- --
Fidelity VIP III Growth & Income 02/17/98 12.202502 -- -- -- --
Fidelity VIP Equity-Income 02/17/98 10.626607 -- -- -- --
============ =========== =========== =========== ==============
</TABLE>
* Sub-account ceased operations on January 8, 1999.
** Total returns for sub-accounts that commenced operations during the year
are not annualized. Expense ratios for sub-accounts that commenced
operations during the year are annualized.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(6) UNIT FAIR VALUES
A summary of accumulation unit values, net assets, total return and
expense ratios for each sub-account follows:
NET ASSETS (IN 000'S)
-------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Trust Quality Income* $ 39,090 49,103 51,826 41,253 33,933
Trust Money Market* 7,891 21,610 30,708 34,128 75,878
Trust High Yield* 28,800 33,261 42,871 36,512 19,653
Trust Stock Index* 97,587 88,637 89,109 85,762 36,807
Trust VKAC Growth and Income* 51,311 46,147 32,416 19,617 10,941
Trust Bond Debenture 110,471 50,820 7,451 -- --
Trust Developing Growth 14,855 1,565 -- -- --
Trust Large Cap Research 12,968 1,233 -- -- --
Trust Mid-Cap Value 17,145 2,035 -- -- --
Trust Quality Bond 39,638 15,986 5,276 -- --
Trust Small Cap Stock 69,645 53,169 13,993 -- --
Trust Large Cap Stock 81,369 21,989 15,751 -- --
Trust Select Equity 179,310 97,063 22,159 -- --
Trust International Equity 94,245 62,371 14,333 -- --
Trust Balanced 3,372 401 -- -- --
Trust Small Cap Equity 1,327 272 -- -- --
Trust Equity Income 3,463 557 -- -- --
Trust Growth and Income Equity 7,823 1,309 -- -- --
Lord Abbett Growth and Income* 669,203 487,500 294,358 190,630 114,416
GACC Money Market 16,464 3,318 358 -- --
Russell Multi-Style Equity 29,559 -- -- -- --
Russell Aggressive Equity 5,343 -- -- -- --
Russell Non-US 10,316 -- -- -- --
Russell Core Bond 17,050 -- -- -- --
AIM Value 6,816 -- -- -- --
AIM Capital Appreciation 2,160 -- -- -- --
AIM International Equity 2,325 -- -- -- --
Alliance Premier Growth 9,748 -- -- -- --
Alliance Real Estate Investment 1,529 -- -- -- --
Liberty Newport Tiger 295 -- -- -- --
Goldman Sachs Growth and Income 4,634 -- -- -- --
Goldman Sachs International Equity 1,287 -- -- -- --
Goldman Sachs Global Income 203 -- -- -- --
Kemper Dreman High Return Equity 97 -- -- -- --
Kemper Small Cap Growth 893 -- -- -- --
Kemper Small Cap Value 2,145 -- -- -- --
Kemper Government Securities 630 -- -- -- --
MFS Bond 174 -- -- -- --
MFS Research 5,658 -- -- -- --
MFS Growth with Income 7,016 -- -- -- --
MFS Emerging Growth 7,142 -- -- -- --
MFS / F&C Emerging Markets Equity 481 -- -- -- --
MFS High Income 2,158 -- -- -- --
MFS World Governments 22 -- -- -- --
Oppenheimer Growth 1,189 -- -- -- --
Oppenheimer Growth & Income 2,941 -- -- -- --
Oppenheimer High Income 777 -- -- -- --
Oppenheimer Bond 4,234 -- -- -- --
Oppenheimer Strategic Bond 1,095 -- -- -- --
Putnam Growth and Income 12,699 -- -- -- --
Putnam New Value 441 -- -- -- --
Putnam Vista 1,785 -- -- -- --
Putnam International Growth 6,206 -- -- -- --
Putnam International New Opportunities 602 -- -- -- --
Templeton International 1,507 -- -- -- --
Templeton Developing Markets 679 -- -- -- --
Templeton Mutual Shares Investments 1,021 -- -- -- --
Fidelity VIP Growth 88 -- -- -- --
Fidelity VIP II Contrafund 400 -- -- -- --
Fidelity VIP III Growth Opportunities 112 -- -- -- --
Fidelity VIP III Growth & Income 852 -- -- -- --
Fidelity VIP Equity-Income 256 -- -- -- --
=========== =========== =========== =========== ===========
</TABLE>
* Sub-account ceased operations on January 8, 1999.
** Total returns for sub-accounts that commenced operations during the year
are not annualized. Expense ratios for sub-accounts that commenced
operations during the year are annualized.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(6) UNIT FAIR VALUES
A summary of accumulation unit values, net assets, total return and
expense ratios for each sub-account follows:
TOTAL RETURN**
--------------------------------------------------------
1998 1997 1996 1995 1994
--------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Trust Quality Income* 4.93 % 7.57 1.36 16.41 (5.70)
Trust Money Market* 4.10 4.17 3.98 4.85 2.70
Trust High Yield* 1.21 10.03 9.73 14.99 (5.79)
Trust Stock Index* 26.27 31.13 20.69 35.06 (1.58)
Trust VKAC Growth and Income* 16.30 23.34 16.42 30.49 (6.07)
Trust Bond Debenture 4.77 14.05 11.86 -- --
Trust Developing Growth 5.13 5.28 -- -- --
Trust Large Cap Research 19.46 (1.00) -- -- --
Trust Mid-Cap Value (0.29) 4.68 -- -- --
Trust Quality Bond 6.81 7.58 4.76 -- --
Trust Small Cap Stock (6.74) 19.31 7.57 -- --
Trust Large Cap Stock 30.49 31.36 13.32 -- --
Trust Select Equity 20.88 29.67 7.48 -- --
Trust International Equity 12.45 4.52 7.36 -- --
Trust Balanced 11.74 5.32 -- -- --
Trust Small Cap Equity (1.72) 4.18 -- -- --
Trust Equity Income 7.81 11.94 -- -- --
Trust Growth and Income Equity 13.32 7.56 -- -- --
Lord Abbett Growth and Income* 11.31 22.91 17.76 28.03 1.32
GACC Money Market 4.15 4.24 2.34 -- --
Russell Multi-Style Equity 26.95 -- -- -- --
Russell Aggressive Equity (0.37) -- -- -- --
Russell Non-US 11.42 -- -- -- --
Russell Core Bond 5.91 -- -- -- --
AIM Value 30.60 -- -- -- --
AIM Capital Appreciation 17.71 -- -- -- --
AIM International Equity 13.91 -- -- -- --
Alliance Premier Growth 45.96 -- -- -- --
Alliance Real Estate Investment (20.12) -- -- -- --
Liberty Newport Tiger (7.71) -- -- -- --
Goldman Sachs Growth and Income (0.91) -- -- -- --
Goldman Sachs International Equity 14.03 -- -- -- --
Goldman Sachs Global Income 7.82 -- -- -- --
Kemper Dreman High Return Equity 4.87 -- -- -- --
Kemper Small Cap Growth 16.76 -- -- -- --
Kemper Small Cap Value (12.47) -- -- -- --
Kemper Government Securities 5.57 -- -- -- --
MFS Bond 4.92 -- -- -- --
MFS Research 21.73 -- -- -- --
MFS Growth with Income 20.67 -- -- -- --
MFS Emerging Growth 32.33 -- -- -- --
MFS / F&C Emerging Markets Equity (34.28) -- -- -- --
MFS High Income (1.55) -- -- -- --
MFS World Governments 6.70 -- -- -- --
Oppenheimer Growth 22.33 -- -- -- --
Oppenheimer Growth & Income 3.27 -- -- -- --
Oppenheimer High Income (1.06) -- -- -- --
Oppenheimer Bond 5.33 -- -- -- --
Oppenheimer Strategic Bond 1.51 -- -- -- --
Putnam Growth and Income 13.83 -- -- -- --
Putnam New Value 4.83 -- -- -- --
Putnam Vista 17.86 -- -- -- --
Putnam International Growth 17.07 -- -- -- --
Putnam International New Opportunities 14.02 -- -- -- --
Templeton International (8.55) -- -- -- --
Templeton Developing Markets (24.48) -- -- -- --
Templeton Mutual Shares Investments (3.69) -- -- -- --
Fidelity VIP Growth 30.78 -- -- -- --
Fidelity VIP II Contrafund 23.57 -- -- -- --
Fidelity VIP III Growth Opportunities 17.42 -- -- -- --
Fidelity VIP III Growth & Income 22.03 -- -- -- --
Fidelity VIP Equity-Income 6.27 -- -- -- --
========= ========== ========== ========== =========
</TABLE>
* Sub-account ceased operations on January 8, 1999.
** Total returns for sub-accounts that commenced operations during the year
are not annualized. Expense ratios for sub-accounts that commenced
operations during the year are annualized.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(6) UNIT FAIR VALUES
A summary of accumulation unit values, net assets, total return and
expense ratios for each sub-account follows:
SEPARATE ACCOUNT EXPENSES
TO AVERAGE NET ASSETS**
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Trust Quality Income* 1.40 1.40 1.40 1.40 1.40
Trust Money Market* 1.40 1.40 1.40 1.40 1.40
Trust High Yield* 1.40 1.40 1.40 1.40 1.40
Trust Stock Index* 1.40 1.40 1.40 1.40 1.40
Trust VKAC Growth and Income* 1.40 1.40 1.40 1.40 1.40
Trust Bond Debenture 1.40 1.40 1.40 -- --
Trust Developing Growth 1.40 1.40 -- -- --
Trust Large Cap Research 1.40 1.40 -- -- --
Trust Mid-Cap Value 1.40 1.40 -- -- --
Trust Quality Bond 1.40 1.40 1.40 -- --
Trust Small Cap Stock 1.40 1.40 1.40 -- --
Trust Large Cap Stock 1.40 1.40 1.40 -- --
Trust Select Equity 1.40 1.40 1.40 -- --
Trust International Equity 1.40 1.40 1.40 -- --
Trust Balanced 1.40 1.40 -- -- --
Trust Small Cap Equity 1.40 1.40 -- -- --
Trust Equity Income 1.40 1.40 -- -- --
Trust Growth and Income Equity 1.40 1.40 -- -- --
Lord Abbett Growth and Income* 1.40 1.40 1.40 1.40 1.40
GACC Money Market 1.40 1.40 1.40 -- --
Russell Multi-Style Equity 1.40 -- -- -- --
Russell Aggressive Equity 1.40 -- -- -- --
Russell Non-US 1.40 -- -- -- --
Russell Core Bond 1.40 -- -- -- --
AIM Value 1.40 -- -- -- --
AIM Capital Appreciation 1.40 -- -- -- --
AIM International Equity 1.40 -- -- -- --
Alliance Premier Growth 1.40 -- -- -- --
Alliance Real Estate Investment 1.40 -- -- -- --
Liberty Newport Tiger 1.40 -- -- -- --
Goldman Sachs Growth and Income 1.40 -- -- -- --
Goldman Sachs International Equity 1.40 -- -- -- --
Goldman Sachs Global Income 1.40 -- -- -- --
Kemper Dreman High Return Equity 1.40 -- -- -- --
Kemper Small Cap Growth 1.40 -- -- -- --
Kemper Small Cap Value 1.40 -- -- -- --
Kemper Government Securities 1.40 -- -- -- --
MFS Bond 1.40 -- -- -- --
MFS Research 1.40 -- -- -- --
MFS Growth with Income 1.40 -- -- -- --
MFS Emerging Growth 1.40 -- -- -- --
MFS / F&C Emerging Markets Equity 1.40 -- -- -- --
MFS High Income 1.40 -- -- -- --
MFS World Governments 1.40 -- -- -- --
Oppenheimer Growth 1.40 -- -- -- --
Oppenheimer Growth & Income 1.40 -- -- -- --
Oppenheimer High Income 1.40 -- -- -- --
Oppenheimer Bond 1.40 -- -- -- --
Oppenheimer Strategic Bond 1.40 -- -- -- --
Putnam Growth and Income 1.40 -- -- -- --
Putnam New Value 1.40 -- -- -- --
Putnam Vista 1.40 -- -- -- --
Putnam International Growth 1.40 -- -- -- --
Putnam International New Opportunities 1.40 -- -- -- --
Templeton International 1.40 -- -- -- --
Templeton Developing Markets 1.40 -- -- -- --
Templeton Mutual Shares Investments 1.40 -- -- -- --
Fidelity VIP Growth 1.40 -- -- -- --
Fidelity VIP II Contrafund 1.40 -- -- -- --
Fidelity VIP III Growth Opportunities 1.40 -- -- -- --
Fidelity VIP III Growth & Income 1.40 -- -- -- --
Fidelity VIP Equity-Income 1.40 -- -- -- --
======== ======== ======== ======== ========
</TABLE>
* Sub-account ceased operations on January 8, 1999.
** Total returns for sub-accounts that commenced operations during the year
are not annualized. Expense ratios for sub-accounts that commenced
operations during the year are annualized.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION
The table below summarizes the realized gain (loss) on the sale of fund
shares and the change in unrealized appreciation for each sub-account
during the year.
1998 1997
-------------- -------------
(in thousands of dollars)
<S> <C> <C>
Realized gain (loss) on sale of fund shares:
Trust Quality Income:
Aggregate proceeds from sales of fund shares $ 13,031 33,851
Aggregate cost of fund shares redeemed 12,576 33,348
-------------- -------------
Realized gain (loss) $ 455 503
============== =============
Trust Money Market:
Aggregate proceeds from sales of fund shares $ 14,519 63,852
Aggregate cost of fund shares redeemed 14,519 63,852
-------------- -------------
Realized gain (loss) $ -- --
============== =============
Trust High Yield:
Aggregate proceeds from sales of fund shares $ 6,314 27,472
Aggregate cost of fund shares redeemed 6,179 26,637
-------------- -------------
Realized gain (loss) $ 135 835
============== =============
Trust Stock Index:
Aggregate proceeds from sales of fund shares $ 23,196 55,951
Aggregate cost of fund shares redeemed 17,093 40,242
-------------- -------------
Realized gain (loss) $ 6,103 15,709
============== =============
Trust VKAC Growth and Income:
Aggregate proceeds from sales of fund shares $ 6,244 4,135
Aggregate cost of fund shares redeemed 4,804 3,229
-------------- -------------
Realized gain (loss) $ 1,440 906
============== =============
Trust Bond Debenture:
Aggregate proceeds from sales of fund shares $ 9,489 646
Aggregate cost of fund shares redeemed 9,470 619
-------------- -------------
Realized gain (loss) $ 19 27
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Realized gain (loss) on sale of fund shares, continued:
Trust Developing Growth:
Aggregate proceeds from sales of fund shares $ 138 --
Aggregate cost of fund shares redeemed 152 --
-------------- -------------
Realized gain (loss) $ (14) --
============== =============
Trust Large Cap Research:
Aggregate proceeds from sales of fund shares $ 161 1
Aggregate cost of fund shares redeemed 156 1
-------------- -------------
Realized gain (loss) $ 5 --
============== =============
Trust Mid-Cap Value:
Aggregate proceeds from sales of fund shares $ 82 --
Aggregate cost of fund shares redeemed 85 --
-------------- -------------
Realized gain (loss) $ (3) --
============== =============
Trust Quality Bond:
Aggregate proceeds from sales of fund shares $ 1,335 3,837
Aggregate cost of fund shares redeemed 1,299 3,786
-------------- -------------
Realized gain (loss) $ 36 51
============== =============
Trust Small Cap Stock:
Aggregate proceeds from sales of fund shares $ 3,113 513
Aggregate cost of fund shares redeemed 3,238 467
-------------- -------------
Realized gain (loss) $ (125) 46
============== =============
Trust Large Cap Stock:
Aggregate proceeds from sales of fund shares $ 147 7,686
Aggregate cost of fund shares redeemed 131 6,018
-------------- -------------
Realized gain (loss) $ 16 1,668
============== =============
Trust Select Equity:
Aggregate proceeds from sales of fund shares $ 1,485 305
Aggregate cost of fund shares redeemed 1,275 275
-------------- -------------
Realized gain (loss) $ 210 30
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Realized gain (loss) on sale of fund shares, continued:
Trust International Equity:
Aggregate proceeds from sales of fund shares $ 4,919 616
Aggregate cost of fund shares redeemed 4,609 601
-------------- -------------
Realized gain (loss) $ 310 15
============== =============
Trust Balanced:
Aggregate proceeds from sales of fund shares $ 30 38
Aggregate cost of fund shares redeemed 31 37
-------------- -------------
Realized gain (loss) $ (1) 1
============== =============
Trust Small Cap Equity:
Aggregate proceeds from sales of fund shares $ 39 2
Aggregate cost of fund shares redeemed 42 2
-------------- -------------
Realized gain (loss) $ (3) --
============== =============
Trust Equity Income:
Aggregate proceeds from sales of fund shares $ 75 3
Aggregate cost of fund shares redeemed 75 3
-------------- -------------
Realized gain (loss) $ -- --
============== =============
Trust Growth and Income Equity:
Aggregate proceeds from sales of fund shares $ 211 34
Aggregate cost of fund shares redeemed 204 33
-------------- -------------
Realized gain (loss) $ 7 1
============== =============
Lord Abbett Growth and Income:
Aggregate proceeds from sales of fund shares $ 12,298 3,701
Aggregate cost of fund shares redeemed 10,217 2,859
-------------- -------------
Realized gain (loss) $ 2,081 842
============== =============
GACC Money Market:
Aggregate proceeds from sales of fund shares $ 37,059 2,883
Aggregate cost of fund shares redeemed 36,623 2,828
-------------- -------------
Realized gain (loss) $ 436 55
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Realized gain (loss) on sale of fund shares, continued:
Russell Multi-Style Equity:
Aggregate proceeds from sales of fund shares $ 62 --
Aggregate cost of fund shares redeemed 61 --
-------------- -------------
Realized gain (loss) $ 1 --
============== =============
Russell Aggressive Equity:
Aggregate proceeds from sales of fund shares $ 203 --
Aggregate cost of fund shares redeemed 247 --
-------------- -------------
Realized gain (loss) $ (44) --
============== =============
Russell Non-US:
Aggregate proceeds from sales of fund shares $ 92 --
Aggregate cost of fund shares redeemed 90 --
-------------- -------------
Realized gain (loss) $ 2 --
============== =============
Russell Core Bond:
Aggregate proceeds from sales of fund shares $ 523 --
Aggregate cost of fund shares redeemed 522 --
-------------- -------------
Realized gain (loss) $ 1 --
============== =============
AIM Value:
Aggregate proceeds from sales of fund shares $ 253 --
Aggregate cost of fund shares redeemed 263 --
-------------- -------------
Realized gain (loss) $ (10) --
============== =============
AIM Capital Appreciation:
Aggregate proceeds from sales of fund shares $ 72 --
Aggregate cost of fund shares redeemed 75 --
-------------- -------------
Realized gain (loss) $ (3) --
============== =============
AIM International Equity:
Aggregate proceeds from sales of fund shares $ 8,246 --
Aggregate cost of fund shares redeemed 8,249 --
-------------- -------------
Realized gain (loss) $ (3) --
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Realized gain (loss) on sale of fund shares, continued:
Alliance Premier Growth:
Aggregate proceeds from sales of fund shares $ 54 --
Aggregate cost of fund shares redeemed 58 --
-------------- -------------
Realized gain (loss) $ (4) --
============== =============
Alliance Real Estate:
Aggregate proceeds from sales of fund shares $ 28 --
Aggregate cost of fund shares redeemed 30 --
-------------- -------------
Realized gain (loss) $ (2) --
============== =============
Liberty Newport Tiger:
Aggregate proceeds from sales of fund shares $ 416 --
Aggregate cost of fund shares redeemed 446 --
-------------- -------------
Realized gain (loss) $ (30) --
============== =============
Goldman Sachs Growth and Income:
Aggregate proceeds from sales of fund shares $ 126 --
Aggregate cost of fund shares redeemed 138 --
-------------- -------------
Realized gain (loss) $ (12) --
============== =============
Goldman Sachs International:
Aggregate proceeds from sales of fund shares $ 29 --
Aggregate cost of fund shares redeemed 29 --
-------------- -------------
Realized gain (loss) $ -- --
============== =============
Goldman Sachs Global Income:
Aggregate proceeds from sales of fund shares $ 17 --
Aggregate cost of fund shares redeemed 16 --
-------------- -------------
Realized gain (loss) $ 1 --
============== =============
Kemper Dreman High Return Equity:
Aggregate proceeds from sales of fund shares $ -- --
Aggregate cost of fund shares redeemed -- --
-------------- -------------
Realized gain (loss) $ -- --
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Realized gain (loss) on sale of fund shares, continued:
Kemper Small Cap Growth:
Aggregate proceeds from sales of fund shares $ 1,008 --
Aggregate cost of fund shares redeemed 1,035 --
-------------- -------------
Realized gain (loss) $ (27) --
============== =============
Kemper Small Cap Value:
Aggregate proceeds from sales of fund shares $ 21 --
Aggregate cost of fund shares redeemed 25 --
-------------- -------------
Realized gain (loss) $ (4) --
============== =============
Kemper Government Securities:
Aggregate proceeds from sales of fund shares $ 17 --
Aggregate cost of fund shares redeemed 17 --
-------------- -------------
Realized gain (loss) $ -- --
============== =============
MFS Bond:
Aggregate proceeds from sales of fund shares $ -- --
Aggregate cost of fund shares redeemed -- --
-------------- -------------
Realized gain (loss) $ -- --
============== =============
MFS Research:
Aggregate proceeds from sales of fund shares $ 120 --
Aggregate cost of fund shares redeemed 122 --
-------------- -------------
Realized gain (loss) $ (2) --
============== =============
MFS Growth with Income:
Aggregate proceeds from sales of fund shares $ 28 --
Aggregate cost of fund shares redeemed 28 --
-------------- -------------
Realized gain (loss) $ -- --
============== =============
MFS Emerging Growth:
Aggregate proceeds from sales of fund shares $ 129 --
Aggregate cost of fund shares redeemed 140 --
-------------- -------------
Realized gain (loss) $ (11) --
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Realized gain (loss) on sale of fund shares, continued: MFS / F&C
Emerging Markets Equity:
Aggregate proceeds from sales of fund shares $ 1,059 --
Aggregate cost of fund shares redeemed 1,156 --
-------------- -------------
Realized gain (loss) $ (97) --
============== =============
MFS High Income:
Aggregate proceeds from sales of fund shares $ 61 --
Aggregate cost of fund shares redeemed 63 --
-------------- -------------
Realized gain (loss) $ (2) --
============== =============
MFS World Governments:
Aggregate proceeds from sales of fund shares $ -- --
Aggregate cost of fund shares redeemed -- --
-------------- -------------
Realized gain (loss) $ -- --
============== =============
Oppenheimer Growth:
Aggregate proceeds from sales of fund shares $ 187 --
Aggregate cost of fund shares redeemed 188 --
-------------- -------------
Realized gain (loss) $ (1) --
============== =============
Oppenheimer Growth & Income:
Aggregate proceeds from sales of fund shares $ 326 --
Aggregate cost of fund shares redeemed 363 --
-------------- -------------
Realized gain (loss) $ (37) --
============== =============
Oppenheimer High Income:
Aggregate proceeds from sales of fund shares $ 31 --
Aggregate cost of fund shares redeemed 32 --
-------------- -------------
Realized gain (loss) $ (1) --
============== =============
Oppenheimer Bond:
Aggregate proceeds from sales of fund shares $ 49 --
Aggregate cost of fund shares redeemed 49 --
-------------- -------------
Realized gain (loss) $ -- --
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Realized gain (loss) on sale of fund shares, continued:
Oppenheimer Strategic Bond:
Aggregate proceeds from sales of fund shares $ 3 --
Aggregate cost of fund shares redeemed 3 --
-------------- -------------
Realized gain (loss) $ -- --
============== =============
Putnam Growth and Income:
Aggregate proceeds from sales of fund shares $ 294 --
Aggregate cost of fund shares redeemed 302 --
-------------- -------------
Realized gain (loss) $ (8) --
============== =============
Putnam New Value:
Aggregate proceeds from sales of fund shares $ 3 --
Aggregate cost of fund shares redeemed 3 --
-------------- -------------
Realized gain (loss) $ -- --
============== =============
Putnam Vista:
Aggregate proceeds from sales of fund shares $ 27 --
Aggregate cost of fund shares redeemed 28 --
-------------- -------------
Realized gain (loss) $ (1) --
============== =============
Putnam International Growth:
Aggregate proceeds from sales of fund shares $ 4,315 --
Aggregate cost of fund shares redeemed 4,354 --
-------------- -------------
Realized gain (loss) $ (39) --
============== =============
Putnam International New Opportunities:
Aggregate proceeds from sales of fund shares $ 2,989 --
Aggregate cost of fund shares redeemed 2,965 --
-------------- -------------
Realized gain (loss) $ 24 --
============== =============
Templeton International:
Aggregate proceeds from sales of fund shares $ 6,057 --
Aggregate cost of fund shares redeemed 6,049 --
-------------- -------------
Realized gain (loss) $ 8 --
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Realized gain (loss) on sale of fund shares, continued:
Templeton Developing Markets:
Aggregate proceeds from sales of fund shares $ 357 --
Aggregate cost of fund shares redeemed 361 --
-------------- -------------
Realized gain (loss) $ (4) --
============== =============
Templeton Mutual Shares Investments:
Aggregate proceeds from sales of fund shares $ 7 --
Aggregate cost of fund shares redeemed 7 --
-------------- -------------
Realized gain (loss) $ -- --
============== =============
Fidelity Growth:
Aggregate proceeds from sales of fund shares $ 34 --
Aggregate cost of fund shares redeemed 37 --
-------------- -------------
Realized gain (loss) $ (3) --
============== =============
Fidelity Contrafund:
Aggregate proceeds from sales of fund shares $ 17 --
Aggregate cost of fund shares redeemed 19 --
-------------- -------------
Realized gain (loss) $ (2) --
============== =============
Fidelity Growth Opportunities:
Aggregate proceeds from sales of fund shares $ 24 --
Aggregate cost of fund shares redeemed 26 --
-------------- -------------
Realized gain (loss) $ (2) --
============== =============
Fidelity Growth & Income:
Aggregate proceeds from sales of fund shares $ 69 --
Aggregate cost of fund shares redeemed 74 --
-------------- -------------
Realized gain (loss) $ (5) --
============== =============
Fidelity Equity-Income:
Aggregate proceeds from sales of fund shares $ 27 --
Aggregate cost of fund shares redeemed 30 --
-------------- -------------
Realized gain (loss) $ (3) --
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Unrealized appreciation (depreciation):
Trust Quality Income:
Appreciation (Depreciation), end of period $ 1,308 1,302
Appreciation (Depreciation), beginning of period 1,302 935
-------------- -------------
Unrealized appreciation (depreciation) $ 6 367
============== =============
Trust Money Market:
Appreciation (Depreciation), end of period $ -- --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ -- --
============== =============
Trust High Yield:
Appreciation (Depreciation), end of period $ 174 842
Appreciation (Depreciation), beginning of period 842 491
-------------- -------------
Unrealized appreciation (depreciation) $ (668) 351
============== =============
Trust Stock Index:
Appreciation (Depreciation), end of period $ 25,838 25,000
Appreciation (Depreciation), beginning of period 25,000 20,271
-------------- -------------
Unrealized appreciation (depreciation) $ 838 4,729
============== =============
Trust VKAC Growth & Income:
Appreciation (Depreciation), end of period $ 11,521 10,887
Appreciation (Depreciation), beginning of period 10,887 4,202
-------------- -------------
Unrealized appreciation (depreciation) $ 634 6,685
============== =============
Trust Bond Debenture:
Appreciation (Depreciation), end of period $ 3,523 1,958
Appreciation (Depreciation), beginning of period 1,958 271
-------------- -------------
Unrealized appreciation (depreciation) $ 1,565 1,687
============== =============
Trust Developing Growth:
Appreciation (Depreciation), end of period $ 890 7
Appreciation (Depreciation), beginning of period 7 --
-------------- -------------
Unrealized appreciation (depreciation) $ 883 7
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Unrealized appreciation (depreciation), continued:
Trust Large Cap Research:
Appreciation (Depreciation), end of period $ 1,284 6
Appreciation (Depreciation), beginning of period 6 --
-------------- -------------
Unrealized appreciation (depreciation) $ 1,278 6
============== =============
Trust Mid-Cap Value:
Appreciation (Depreciation), end of period $ 160 40
Appreciation (Depreciation), beginning of period 40 --
-------------- -------------
Unrealized appreciation (depreciation) $ 120 40
============== =============
Trust Quality Bond:
Appreciation (Depreciation), end of period $ 1,598 186
Appreciation (Depreciation), beginning of period 186 30
-------------- -------------
Unrealized appreciation (depreciation) $ 1,412 156
============== =============
Trust Small Cap Stock:
Appreciation (Depreciation), end of period $ 346 6,523
Appreciation (Depreciation), beginning of period 6,523 533
-------------- -------------
Unrealized appreciation (depreciation) $ (6,177) 5,990
============== =============
Trust Large Cap Stock:
Appreciation (Depreciation), end of period $ 16,535 2,855
Appreciation (Depreciation), beginning of period 2,855 1,531
-------------- -------------
Unrealized appreciation (depreciation) $ 13,680 1,324
============== =============
Trust Select Equity:
Appreciation (Depreciation), end of period $ 33,585 13,520
Appreciation (Depreciation), beginning of period 13,520 1,210
-------------- -------------
Unrealized appreciation (depreciation) $ 20,065 12,310
============== =============
Trust International Equity:
Appreciation (Depreciation), end of period $ 9,278 1,309
Appreciation (Depreciation), beginning of period 1,309 796
-------------- -------------
Unrealized appreciation (depreciation) $ 7,969 513
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Unrealized appreciation (depreciation), continued:
Trust Balanced:
Appreciation (Depreciation), end of period $ 173 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 173 --
============== =============
Trust Small Cap Equity:
Appreciation (Depreciation), end of period $ 34 (5)
Appreciation (Depreciation), beginning of period (5) --
-------------- -------------
Unrealized appreciation (depreciation) $ 39 (5)
============== =============
Trust Equity Income:
Appreciation (Depreciation), end of period $ 70 21
Appreciation (Depreciation), beginning of period 21 --
-------------- -------------
Unrealized appreciation (depreciation) $ 49 21
============== =============
Trust Growth and Income Equity:
Appreciation (Depreciation), end of period $ 566 18
Appreciation (Depreciation), beginning of period 18 --
-------------- -------------
Unrealized appreciation (depreciation) $ 548 18
============== =============
Lord Abbett Growth and Income:
Appreciation (Depreciation), end of period $ 114,453 87,861
Appreciation (Depreciation), beginning of period 87,861 46,489
-------------- -------------
Unrealized appreciation (depreciation) $ 26,592 41,372
============== =============
GACC Money Market:
Appreciation (Depreciation), end of period $ 231 46
Appreciation (Depreciation), beginning of period 46 6
-------------- -------------
Unrealized appreciation (depreciation) $ 185 40
============== =============
Russell Multi-Style Equity:
Appreciation (Depreciation), end of period $ 3,199 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 3,199 --
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Unrealized appreciation (depreciation), continued:
Russell Aggressive Equity:
Appreciation (Depreciation), end of period $ 75 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 75 --
============== =============
Russell Non-US:
Appreciation (Depreciation), end of period $ 412 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 412 --
============== =============
Russell Core Bond:
Appreciation (Depreciation), end of period $ 268 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 268 --
============== =============
AIM Value:
Appreciation (Depreciation), end of period $ 668 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 668 --
============== =============
AIM Capital Appreciation:
Appreciation (Depreciation), end of period $ 164 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 164 --
============== =============
AIM International Equity:
Appreciation (Depreciation), end of period $ 81 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 81 --
============== =============
Alliance Premier Growth:
Appreciation (Depreciation), end of period $ 1,522 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 1,522 --
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Unrealized appreciation (depreciation), continued:
Alliance Real Estate Investment:
Appreciation (Depreciation), end of period $ (170) --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ (170) --
============== =============
Liberty Newport Tiger:
Appreciation (Depreciation), end of period $ 54 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 54 --
============== =============
Goldman Sachs Growth and Income:
Appreciation (Depreciation), end of period $ (207) --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ (207) --
============== =============
Goldman Sachs International:
Appreciation (Depreciation), end of period $ 56 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 56 --
============== =============
Goldman Sachs Global Income:
Appreciation (Depreciation), end of period $ (1) --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ (1) --
============== =============
Kemper Dreman High Return Equity:
Appreciation (Depreciation), end of period $ 1 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 1 --
============== =============
Kemper Small Cap Growth:
Appreciation (Depreciation), end of period $ 107 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 107 --
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Unrealized appreciation (depreciation), continued:
Kemper Small Cap Value:
Appreciation (Depreciation), end of period $ (155) --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ (155) --
============== =============
Kemper Government Securities:
Appreciation (Depreciation), end of period $ 9 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 9 --
============== =============
MFS Bond:
Appreciation (Depreciation), end of period $ 1 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 1 --
============== =============
MFS Research:
Appreciation (Depreciation), end of period $ 481 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 481 --
============== =============
MFS Growth with Income:
Appreciation (Depreciation), end of period $ 574 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 574 --
============== =============
MFS Emerging Growth:
Appreciation (Depreciation), end of period $ 985 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 985 --
============== =============
MFS / F&C Emerging Markets Equity:
Appreciation (Depreciation), end of period $ (94) --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ (94) --
============== =============
MFS High Income:
Appreciation (Depreciation), end of period $ (34) --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ (34) --
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Unrealized appreciation (depreciation), continued:
MFS World Governments:
Appreciation (Depreciation), end of period $ 1 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 1 --
============== =============
Oppenheimer Growth:
Appreciation (Depreciation), end of period $ 134 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 134 --
============== =============
Oppenheimer Growth & Income:
Appreciation (Depreciation), end of period $ (28) --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ (28) --
============== =============
Oppenheimer High Income:
Appreciation (Depreciation), end of period $ (15) --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ (15) --
============== =============
Oppenheimer Bond:
Appreciation (Depreciation), end of period $ 95 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 95 --
============== =============
Oppenheimer Strategic Bond:
Appreciation (Depreciation), end of period $ 3 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 3 --
============== =============
Putnam Growth and Income:
Appreciation (Depreciation), end of period $ 660 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 660 --
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Unrealized appreciation (depreciation), continued:
Putnam New Value:
Appreciation (Depreciation), end of period $ 6 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 6 --
============== =============
Putnam Vista:
Appreciation (Depreciation), end of period $ 173 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 173 --
============== =============
Putnam International Growth:
Appreciation (Depreciation), end of period $ 353 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 353 --
============== =============
Putnam International New Opportunities:
Appreciation (Depreciation), end of period $ 40 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 40 --
============== =============
Templeton International:
Appreciation (Depreciation), end of period $ 48 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 48 --
============== =============
Templeton Developing Markets:
Appreciation (Depreciation), end of period $ 44 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 44 --
============== =============
Templeton Mutual Shares Investments:
Appreciation (Depreciation), end of period $ 32 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 32 --
============== =============
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
-------------- -------------
(in thousands of dollars)
Unrealized appreciation (depreciation), continued:
Fidelity Growth:
Appreciation (Depreciation), end of period $ 12 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 12 --
============== =============
Fidelity Contrafund:
Appreciation (Depreciation), end of period $ 48 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 48 --
============== =============
Fidelity Growth Opportunities:
Appreciation (Depreciation), end of period $ 13 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 13 --
============== =============
Fidelity Growth & Income:
Appreciation (Depreciation), end of period $ 94 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 94 --
============== =============
Fidelity Equity-Income:
Appreciation (Depreciation), end of period $ 17 --
Appreciation (Depreciation), beginning of period -- --
-------------- -------------
Unrealized appreciation (depreciation) $ 17 --
============== =============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(8) UNIT TRANSACTIONS
The change in the number of units is as follows:
TRUST
-------------------------------------------------------------------------------------
VKAC
Quality Money High Stock Growth and Bond
Income Market Yield Index Income Debenture
------------- ------------ ----------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 3,334,960 2,584,926 2,001,184 4,680,855 1,905,896 659,663
Cova units purchased -- -- -- -- -- --
Cova units redeemed -- -- -- -- -- --
Contract units purchased 33,059 3,712,455 36,057 125,947 130,796 715,126
Contract units transferred, net 186,523 (3,871,127) (492,448) (604,754) 262,932 2,650,173
Contract units redeemed (623,489) (683,810) (135,503) (654,828) (101,374) (79,865)
------------- ------------ ----------- ----------- ---------------- ---------------
Unit balance at 12/31/97 2,931,053 1,742,444 1,409,290 3,547,220 2,198,250 3,945,097
Cova units purchased -- -- -- -- -- --
Cova units redeemed -- -- -- -- -- --
Contract units purchased 1,214 491 1,763 2,532 1,131 1,632,919
Contract units transferred, net (196,389) (799,477) (59,692) 159,577 54,353 2,939,109
Contract units redeemed (512,199) (333,892) (146,202) (616,360) (152,515) (332,231)
------------- ------------ ----------- ----------- ---------------- ---------------
Unit balance at 12/31/98 2,223,679 609,566 1,205,159 3,092,969 2,101,219 8,184,894
============= ============ =========== =========== ================ ===============
Annuitization phase:
Unit balance at 12/31/96 -- -- -- -- -- --
Units purchased 8,913 4,793 2,641 4,293 1,875 --
Units redeemed (844) (231) (412) (196) (72) --
------------- ------------ ----------- ----------- ---------------- ---------------
Unit balance at 12/31/97 8,069 4,562 2,229 4,097 1,803 --
Units purchased -- -- 798 -- 798 272
Units redeemed (1,686) (901) (523) (608) (196) (8)
------------- ------------ ----------- ----------- ---------------- ---------------
Unit balance at 12/31/98 6,383 3,661 2,504 3,489 2,405 264
============= ============ =========== =========== ================ ===============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(8) UNIT TRANSACTIONS
The change in the number of units is as follows:
Trust
----------------------------------------------------------------------
Developing Large Cap Mid-Cap Quality
Growth Research Value Bond
---------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 -- -- -- 508,830
Cova units purchased 10,000 10,000 10,000 --
Cova units redeemed -- -- -- (205,846)
Contract units purchased 47,968 36,718 45,300 256,670
Contract units transferred, net 91,012 78,115 141,816 940,454
Contract units redeemed (322) (274) (2,730) (67,027)
---------------- ------------- ------------- ------------
Unit balance at 12/31/97 148,658 124,559 194,386 1,433,081
Cova units purchased -- -- -- --
Cova units redeemed (10,000) (10,000) (10,000) --
Contract units purchased 596,000 569,392 755,701 833,031
Contract units transferred, net 630,230 437,664 736,868 1,236,444
Contract units redeemed (22,687) (26,695) (34,402) (179,213)
---------------- ------------- ------------- ------------
Unit balance at 12/31/98 1,342,201 1,094,920 1,642,553 3,323,343
================ ============= ============= ============
Annuitization phase:
Unit balance at 12/31/96 -- -- -- --
Units purchased -- -- -- --
Units redeemed -- -- -- --
---------------- ------------- ------------- ------------
Unit balance at 12/31/97 -- -- -- --
Units purchased -- 2,090 -- 3,947
Units redeemed -- (266) -- (109)
---------------- ------------- ------------- ------------
Unit balance at 12/31/98 -- 1,824 -- 3,838
================ ============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
(8) UNIT TRANSACTIONS
The change in the number of units is as follows:
Trust
---------------------------------------------------------------------------
Small Cap Large Cap Select International
Stock Stock Equity Equity
-------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 1,237,405 1,389,606 2,044,523 1,306,892
Cova units purchased -- -- -- --
Cova units redeemed -- (1,132,414) -- --
Contract units purchased 786,201 538,054 1,538,506 974,793
Contract units transferred, net 2,007,064 715,241 3,437,076 3,266,860
Contract units redeemed (90,427) (36,558) (116,499) (107,953)
-------------- -------------- -------------- ------------------
Unit balance at 12/31/97 3,940,243 1,473,929 6,903,606 5,440,592
Cova units purchased -- -- -- --
Cova units redeemed -- -- -- --
Contract units purchased 619,802 1,118,109 1,382,912 651,488
Contract units transferred, net 1,172,828 1,713,122 2,562,725 1,460,450
Contract units redeemed (200,263) (127,125) (304,425) (243,205)
-------------- -------------- -------------- ------------------
Unit balance at 12/31/98 5,532,610 4,178,035 10,544,818 7,309,325
============== ============== ============== ==================
Annuitization phase:
Unit balance at 12/31/96 -- -- -- --
Units purchased 804 3,384 3,617 822
Units redeemed (31) (356) (380) (32)
-------------- -------------- -------------- ------------------
Unit balance at 12/31/97 773 3,028 3,237 790
Units purchased 1,944 9,187 9,682 2,208
Units redeemed (162) (1,259) (1,203) (173)
-------------- -------------- -------------- ------------------
Unit balance at 12/31/98 2,555 10,956 11,716 2,825
============== ============== ============== ==================
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
TRUST LORD ABBETT GACC
------------------------------------------------------ --------------- --------------
Growth and Growth
Small Cap Equity Income and Money
Balanced Equity Income Equity Income Market
------------ ------------- ----------- ------------ ------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 -- -- -- -- 11,732,301 34,964
Cova units purchased 100 100 100 100 -- --
Cova units redeemed (100) (100) (100) (100) -- --
Contract units purchased 17,711 10,694 17,814 46,324 1,642,859 509,800
Contract units transferred, net 22,818 15,454 31,967 79,433 3,230,021 (204,185)
Contract units redeemed (2,450) -- (56) (4,084) (816,777) (29,528)
------------ ------------- ----------- ------------ ------------------ --------------
Unit balance at 12/31/97 38,079 26,148 49,725 121,673 15,788,404 311,051
Cova units purchased -- -- -- -- -- --
Cova units redeemed -- -- -- -- -- --
Contract units purchased 128,875 44,062 157,967 269,879 1,737,150 3,293,174
Contract units transferred, net 124,051 61,306 83,645 260,136 3,166,896 (1,834,605)
Contract units redeemed (4,494) (1,880) (4,384) (9,899) (1,222,057) (295,883)
------------ ------------- ----------- ------------ ------------------ --------------
Unit balance at 12/31/98 286,511 129,636 286,953 641,789 19,470,393 1,473,737
============ ============= =========== ============ ================== ==============
Annuitization phase:
Unit balance at 12/31/96 -- -- -- -- -- --
Units purchased -- -- -- -- 28,068 --
Units redeemed -- -- -- -- (2,022) --
------------ ------------- ----------- ------------ ------------------ --------------
Unit balance at 12/31/97 -- -- -- -- 26,046 --
Units purchased -- -- -- -- 10,428 9,003
Units redeemed -- -- -- -- (3,208) (128)
------------ ------------- ----------- ------------ ------------------ --------------
Unit balance at 12/31/98 -- -- -- -- 33,266 8,875
============ ============= =========== ============ ================== ==============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
RUSSELL AIM
-------------------------------------------------------------- -------------
Multi-Style Aggressive Core
Equity Equity Non-US Bond Value
--------------- ----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 -- -- -- -- --
Cova units purchased -- -- -- -- --
Cova units redeemed -- -- -- -- --
Contract units purchased -- -- -- -- --
Contract units transferred, net -- -- -- -- --
Contract units redeemed -- -- -- -- --
--------------- ----------------- ----------- ------------- -----------
Unit balance at 12/31/97 -- -- -- -- --
Cova units purchased 10 10 10 10 10
Cova units redeemed (10) (10) (10) (10) (10)
Contract units purchased 1,960,886 438,734 773,431 1,318,370 365,254
Contract units transferred, net 416,532 107,823 180,088 360,854 177,976
Contract units redeemed (48,988) (10,279) (27,727) (69,373) (21,340)
--------------- ----------------- ----------- ------------- -----------
Unit balance at 12/31/98 2,328,430 536,278 925,792 1,609,851 521,890
=============== ================= =========== ============= ===========
Annuitization phase:
Unit balance at 12/31/96 -- -- -- -- --
Units purchased -- -- -- -- --
Units redeemed -- -- -- -- --
--------------- ----------------- ----------- ------------- -----------
Unit balance at 12/31/97 -- -- -- -- --
Units purchased -- -- -- -- --
Units redeemed -- -- -- -- --
--------------- ----------------- ----------- ------------- -----------
Unit balance at 12/31/98 -- -- -- -- --
=============== ================= =========== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
AIM ALLIANCE
------------------------------------- -----------------------------
Capital International Premier Real Estate
Appreciation Equity Growth Investment
---------------- ----------------- ------------ ----------------
<S> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 -- -- -- --
Cova units purchased -- -- -- --
Cova units redeemed -- -- -- --
Contract units purchased -- -- -- --
Contract units transferred, net -- -- -- --
Contract units redeemed -- -- -- --
---------------- ----------------- ------------ ----------------
Unit balance at 12/31/97 -- -- -- --
Cova units purchased 10 10 10 10
Cova units redeemed (10) (10) (10) (10)
Contract units purchased 134,252 148,215 523,722 136,005
Contract units transferred, net 57,235 57,321 149,553 58,393
Contract units redeemed (7,999) (1,464) (5,421) (2,987)
---------------- ----------------- ------------ ----------------
Unit balance at 12/31/98 183,488 204,072 667,854 191,411
================ ================= ============ ================
Annuitization phase:
Unit balance at 12/31/96 -- -- -- --
Units purchased -- -- -- --
Units redeemed -- -- -- --
---------------- ----------------- ------------ ----------------
Unit balance at 12/31/97 -- -- -- --
Units purchased -- -- -- --
Units redeemed -- -- -- --
---------------- ----------------- ------------ ----------------
Unit balance at 12/31/98 -- -- -- --
================ ================= ============ ================
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
LIBERTY GOLDMAN SACHS KEMPER
------------ ---------------------------------------------------- ------------------
Growth
Newport and Global Dreman High
Tiger Income International Income Return Equity
----------- ------------------ ------------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 -- -- -- -- --
Cova units purchased -- -- -- -- --
Cova units redeemed -- -- -- -- --
Contract units purchased -- -- -- -- --
Contract units transferred, net -- -- -- -- --
Contract units redeemed -- -- -- -- --
----------- ------------------ ------------------ ----------- ------------------
Unit balance at 12/31/97 -- -- -- -- --
Cova units purchased 10 10 10 10 10
Cova units redeemed (10) (10) (10) (10) --
Contract units purchased 18,873 298,119 89,807 12,114 --
Contract units transferred, net 13,289 178,567 23,575 8,062 9,213
Contract units redeemed (226) (9,011) (558) (1,343) --
----------- ------------------ ------------------ ----------- ------------------
Unit balance at 12/31/98 31,936 467,675 112,824 18,833 9,223
=========== ================== ================== =========== ==================
Annuitization phase:
Unit balance at 12/31/96 -- -- -- -- --
Units purchased -- -- -- -- --
Units redeemed -- -- -- -- --
----------- ------------------ ------------------ ----------- ------------------
Unit balance at 12/31/97 -- -- -- -- --
Units purchased -- -- -- -- --
Units redeemed -- -- -- -- --
----------- ------------------ ------------------ ----------- ------------------
Unit balance at 12/31/98 -- -- -- -- --
=========== ================== ================== =========== ==================
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
KEMPER MFS
------------------------------------------------- -----------------------------
Small Cap Small Cap Government
Growth Value Securities Bond Research
------------- ------------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 -- -- -- -- --
Cova units purchased -- -- -- -- --
Cova units redeemed -- -- -- -- --
Contract units purchased -- -- -- -- --
Contract units transferred, net -- -- -- -- --
Contract units redeemed -- -- -- -- --
------------- ------------- ---------------- ---------- ------------
Unit balance at 12/31/97 -- -- -- -- --
Cova units purchased 10 10 10 10 10
Cova units redeemed (10) (10) (10) -- (10)
Contract units purchased 61,682 178,532 48,334 245 337,107
Contract units transferred, net 15,201 69,892 11,575 16,283 137,437
Contract units redeemed (391) (3,332) (197) -- (9,758)
------------- ------------- ---------------- ---------- ------------
Unit balance at 12/31/98 76,492 245,092 59,712 16,538 464,786
============= ============= ================ ========== ============
Annuitization phase:
Unit balance at 12/31/96 -- -- -- -- --
Units purchased -- -- -- -- --
Units redeemed -- -- -- -- --
------------- ------------- ---------------- ---------- ------------
Unit balance at 12/31/97 -- -- -- -- --
Units purchased -- -- -- -- --
Units redeemed -- -- -- -- --
------------- ------------- ---------------- ---------- ------------
Unit balance at 12/31/98 -- -- -- -- --
============= ============= ================ ========== ============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
MFS
-----------------------------------------------------------
F&C
Growth Emerging
with Emerging Markets High
Income Growth Equity Income
----------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 -- -- -- --
Cova units purchased -- -- -- --
Cova units redeemed -- -- -- --
Contract units purchased -- -- -- --
Contract units transferred, net -- -- -- --
Contract units redeemed -- -- -- --
----------- -------------- -------------- -----------
Unit balance at 12/31/97 -- -- -- --
Cova units purchased 10 10 10 10
Cova units redeemed (10) (10) (10) (10)
Contract units purchased 416,517 438,345 45,159 164,144
Contract units transferred, net 171,689 106,215 28,739 57,879
Contract units redeemed (6,772) (4,901) (727) (2,814)
----------- -------------- -------------- -----------
Unit balance at 12/31/98 581,434 539,659 73,171 219,209
=========== ============== ============== ===========
Annuitization phase:
Unit balance at 12/31/96 -- -- -- --
Units purchased -- -- -- --
Units redeemed -- -- -- --
----------- -------------- -------------- -----------
Unit balance at 12/31/97 -- -- -- --
Units purchased -- -- -- --
Units redeemed -- -- -- --
----------- -------------- -------------- -----------
Unit balance at 12/31/98 -- -- -- --
=========== ============== ============== ===========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
MFS Oppenheimer Putnam
------------- -------------------------------------------------------------- -------------
Growth Growth
World and High Strategic and
Governments Growth Income Income Bond Bond Income
------------- ---------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 -- -- -- -- -- -- --
Cova units purchased -- -- -- -- -- -- --
Cova units redeemed -- -- -- -- -- -- --
Contract units purchased -- -- -- -- -- -- --
Contract units transferred, net -- -- -- -- -- -- --
Contract units redeemed -- -- -- -- -- -- --
------------- ---------- ----------- ----------- ----------- ----------- -------------
Unit balance at 12/31/97 -- -- -- -- -- -- --
Cova units purchased 10 10 10 10 10 10 10
Cova units redeemed -- (10) (10) (10) (10) (10) (10)
Contract units purchased 423 83,004 211,120 51,949 320,045 71,817 820,015
Contract units transferred, net 1,674 19,949 78,591 27,811 86,123 36,774 304,805
Contract units redeemed (25) (5,792) (4,881) (1,247) (4,178) (722) (9,152)
------------- ---------- ----------- ----------- ----------- ----------- -------------
Unit balance at 12/31/98 2,082 97,161 284,830 78,513 401,990 107,869 1,115,668
============= ========== =========== =========== =========== =========== =============
Annuitization phase:
Unit balance at 12/31/96 -- -- -- -- -- -- --
Units purchased -- -- -- -- -- -- --
Units redeemed -- -- -- -- -- -- --
--------- ---------- ----------- ----------- ----------- ----------- -------------
Unit balance at 12/31/97 -- -- -- -- -- -- --
Units purchased -- -- -- -- -- -- --
Units redeemed -- -- -- -- -- -- --
------------- ---------- ----------- ----------- ----------- ----------- -------------
Unit balance at 12/31/98 -- -- -- -- -- -- --
============= ========== =========== =========== =========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
Putnam
----------------------------------------------------------------------
International
New International New
Value Vista Growth Opportunities
----------- ----------- -------------------- ------------------
<S> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 -- -- -- --
Cova units purchased -- -- -- --
Cova units redeemed -- -- -- --
Contract units purchased -- -- -- --
Contract units transferred, net -- -- -- --
Contract units redeemed -- -- -- --
----------- ----------- -------------------- ------------------
Unit balance at 12/31/97 -- -- -- --
Cova units purchased 10 10 10 10
Cova units redeemed (10) (10) (10) (10)
Contract units purchased 16,925 116,318 394,877 38,270
Contract units transferred, net 25,293 36,195 141,372 14,803
Contract units redeemed (127) (1,108) (6,194) (264)
----------- ----------- -------------------- ------------------
Unit balance at 12/31/98 42,091 151,405 530,055 52,809
=========== =========== ==================== ==================
Annuitization phase:
Unit balance at 12/31/96 -- -- -- --
Units purchased -- -- -- --
Units redeemed -- -- -- --
----------- ----------- -------------------- ------------------
Unit balance at 12/31/97 -- -- -- --
Units purchased -- -- -- --
Units redeemed -- -- -- --
----------- ----------- -------------------- ------------------
Unit balance at 12/31/98 -- -- -- --
=========== =========== ==================== ==================
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
TEMPLETON FIDELITY
------------------------------------------------------- ----------
Mutual
Developing Shares
International Markets Investments Growth
----------------- -------------- ----------------- ----------
<S> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 -- -- -- --
Cova units purchased -- -- -- --
Cova units redeemed -- -- -- --
Contract units purchased -- -- -- --
Contract units transferred, net -- -- -- --
Contract units redeemed -- -- -- --
----------------- -------------- ----------------- ----------
Unit balance at 12/31/97 -- -- -- --
Cova units purchased 10 10 10 10
Cova units redeemed (10) (10) (10) (10)
Contract units purchased 140,734 72,847 61,499 8,130
Contract units transferred, net 26,597 18,743 45,054 (1,021)
Contract units redeemed (2,556) (1,630) (518) (361)
----------------- -------------- ----------------- ----------
Unit balance at 12/31/98 164,775 89,960 106,035 6,748
================= ============== ================= ==========
Annuitization phase:
Unit balance at 12/31/96 -- -- -- --
Units purchased -- -- -- --
Units redeemed -- -- -- --
----------------- -------------- ----------------- ----------
Unit balance at 12/31/97 -- -- -- --
Units purchased -- -- -- --
Units redeemed -- -- -- --
----------------- -------------- ----------------- ----------
Unit balance at 12/31/98 -- -- -- --
================= ============== ================= ==========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1998 and 1997
FIDELITY
---------------------------------------------------------------
Growth Growth & Equity-
Contrafund Opportunities Income Income
-------------------------------------------------- ----------
<S> <C> <C> <C> <C>
Accumulation phase:
Unit balance at 12/31/96 -- -- -- --
Cova units purchased -- -- -- --
Cova units redeemed -- -- -- --
Contract units purchased -- -- -- --
Contract units transferred, net -- -- -- --
Contract units redeemed -- -- -- --
--------------- ------------------ ------------ ----------
Unit balance at 12/31/97 -- -- -- --
Cova units purchased 10 10 10 10
Cova units redeemed (10) (10) (10) (10)
Contract units purchased, net 30,391 11,440 53,646 20,381
Contract units transferred 2,056 (1,406) 30,141 4,635
Contract units redeemed (93) (511) (13,954) (884)
--------------- ------------------ ------------ ----------
Unit balance at 12/31/98 32,354 9,523 69,833 24,132
=============== ================== ============ ==========
Annuitization phase:
Unit balance at 12/31/96 -- -- -- --
Units purchased -- -- -- --
Units redeemed -- -- -- --
--------------- ------------------ ------------ ----------
Unit balance at 12/31/97 -- -- -- --
Units purchased -- -- -- --
Units redeemed -- -- -- --
--------------- ------------------ ------------ ----------
Unit balance at 12/31/98 -- -- -- --
=============== ================== ============ ==========
</TABLE>
COVA FINANCIAL SERVICES
LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(With Independent Auditors' Report Thereon)
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) (the Company) as of December 31, 1998 and
1997, and the related consolidated statements of income, shareholder's
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998. 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, 1998 and 1997, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
March 4, 1999
<TABLE>
<CAPTION>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Balance Sheets
December 31, 1998 and 1997
ASSETS 1998 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Investments:
Debt securities available-for-sale, at fair value (cost of
$1,375,198 in 1998 and $1,269,362 in 1997) $ 1,371,513 1,280,247
Equity securities, at fair value 9,037 --
Mortgage loans, net of allowance for potential loan loss
of $510 in 1998 and $237 in 1997 312,865 348,206
Policy loans 26,295 24,228
------------- -------------
Total investments 1,719,710 1,652,681
Cash and cash equivalents - interest-bearing 94,770 12,910
Cash - noninterest-bearing 5,008 3,666
Receivable from sale of securities 5,845 1,870
Accrued investment income 21,505 20,602
Deferred policy acquisition costs 131,973 84,326
Present value of future profits 42,230 41,486
Goodwill 18,585 19,717
Deferred tax asset, net 4,786 7,933
Receivable from OakRe 720,904 1,426,261
Due from affiliates 246,198 127,599
Other assets 829 2,184
Separate account assets 1,832,396 1,108,125
------------- -------------
Total assets $ 4,844,739 4,509,360
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Balance Sheets, Continued
December 31, 1998 and 1997
LIABILITIES AND SHAREHOLDER'S EQUITY 1998 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Liabilities:
Policyholder deposits $ 2,643,124 3,098,287
Future policy benefits 54,336 38,361
Payable on return of collateral on loaned securities 25,923 --
Payable on purchase of securities 1,040 7,261
Federal and state income taxes payable 446 1,312
Accounts payable and other liabilities 18,714 21,912
Future purchase price payable to OakRe 6,976 12,173
Guaranty fund assessments 9,700 9,700
Separate account liabilities 1,832,394 1,107,816
------------ -------------
Total liabilities 4,592,653 4,296,822
------------ -------------
Shareholder's equity:
Common stock, $2 par value. (Authorized
5,000,000 shares; issued and outstanding
2,899,466 shares in 1998 and 1997) 5,799 5,799
Additional paid-in capital 220,491 191,491
Retained earnings 26,410 12,516
Accumulated other comprehensive
income - net of tax (614) 2,732
------------ -------------
Total shareholder's equity 252,086 212,538
------------ -------------
Total liabilities and shareholder's equity $ 4,844,739 4,509,360
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Income
Years ended December 31, 1998, 1997, and 1996
1998 1997 1996
----------- ----------- ----------
(in thousands)
<S> <C> <C> <C>
Revenues:
Premiums $ 23,875 9,368 3,154
Net investment income 127,812 111,661 70,629
Net realized gains (losses) on sales
of investments (1,600) 563 472
Separate account fees 20,820 12,455 7,205
Other income 5,372 4,950 3,304
----------- ----------- ----------
Total revenues 176,279 138,997 84,764
----------- ----------- ----------
Benefits and expenses:
Interest on policyholder deposits 93,759 81,129 50,100
Current and future policy benefits 25,225 11,496 5,130
Operating and other expenses 27,190 21,758 16,557
Amortization of purchased
intangible assets 3,445 3,668 2,332
Amortization of deferred policy
acquisition costs 9,393 6,307 4,389
----------- ----------- ----------
Total benefits and expenses 159,012 124,358 78,508
----------- ----------- ----------
Income before income taxes 17,267 14,639 6,256
----------- ----------- ----------
Income tax expense (benefit):
Current (1,576) 1,951 1,740
Deferred 4,949 3,710 915
----------- ----------- ----------
Total income tax expense 3,373 5,661 2,655
----------- ----------- ----------
Net income $ 13,894 8,978 3,601
=========== =========== ==========
</TABLE>
See accompanying notes to 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
Years ended December 31, 1998, 1997, and 1996
1998 1997 1996
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Common stock, balance at beginning
and end of period $ 5,799 5,799 5,799
----------- ----------- -----------
Additional paid-in capital:
Balance at beginning of period 191,491 166,491 129,586
Capital contribution 29,000 25,000 36,905
----------- ----------- -----------
Balance at end of period 220,491 191,491 166,491
----------- ----------- -----------
Retained earnings (deficit):
Balance at beginning of period 12,516 3,538 (63)
Net income 13,894 8,978 3,601
----------- ----------- -----------
Balance at end of period 26,410 12,516 3,538
----------- ----------- -----------
Accumulated other comprehensive income:
Balance at beginning of period 2,732 (784) 2,764
Change in unrealized appreciation
(depreciation) of debt and equity
securities (14,571) 14,077 (13,915)
Deferred federal income tax impact 1,801 (1,893) 1,910
Change in deferred policy acquisition costs attributable
to unrealized depreciation (appreciation) 6,996 (5,342) 1,561
Change in present value of future profits
attributable to unrealized depreciation (appreciation) 2,428 (3,326) 6,896
----------- ----------- -----------
Balance at end of period (614) 2,732 (784)
----------- ----------- -----------
Total shareholder's equity $ 252,086 212,538 175,044
=========== =========== ===========
Total comprehensive income:
Net income $ 13,894 8,978 3,601
Other comprehensive income (change in net unrealized
appreciation (depreciation) of debt and equity securities) (3,346) 3,516 (3,548)
----------- ----------- -----------
Total comprehensive income $ 10,548 12,494 53
=========== =========== ===========
</TABLE>
See accompanying notes to 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
Years ended December 31, 1998, 1997, and 1996
1998 1997 1996
------------- ------------ ------------
(in thousands)
<S> <C> <C> <C>
Reconciliations of net income to net cash provided by
operating activities:
Net income $ 13,894 8,978 3,601
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in future policy benefits 15,975 6,019 680
Increase (decrease) in payables and
accrued liabilities (3,198) (1,194) 2,900
Increase in accrued investment income (903) (5,591) (4,778)
Amortization of intangible assets and 12,838 9,975 6,721
deferred policy acquisition costs
Amortization and accretion of securities
premiums and discounts (1,767) 1,664 2,751
Recapture commissions paid to OakRe (5,197) (4,837) (4,483)
Net realized loss (gain) on sale of investments 1,600 (563) (472)
Interest accumulated on policyholder deposits 93,759 81,129 50,100
Increase (decrease) in current and
deferred federal income taxes 2,281 5,917 (351)
Separate account net income (12) (2,637) (2,008)
Commissions and expenses deferred (50,044) (46,142) (34,803)
Other (3,566) (3,537) (578)
------------- ------------ ------------
Net cash provided by operating activities 75,660 49,181 19,280
------------- ------------ ------------
Cash flows from investing activities:
Cash used in the purchase of investment securities (733,049) (809,814) (715,274)
Proceeds from investment securities sold and matured 642,481 382,783 262,083
Other (1,159) 15,400 (14,166)
------------- ------------ ------------
Net cash used in investing activities $ (91,727) (411,631) (467,357)
------------- ------------ ------------
</TABLE>
See accompanying notes to 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, Continued
Years ended December 31, 1998, 1997, and 1996
1998 1997 1996
------------- ------------ ------------
(in thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Policyholder deposits $ 1,014,075 841,174 446,784
Transfers from OakRe 812,520 637,168 574,010
Transfer to separate accounts (789,872) (450,303) (126,797)
Return of policyholder deposits (889,202) (597,425) (491,025)
Proceeds from security collaterals on securities lending 25,923 -- --
Transfers to RGA (103,175) (120,411) --
Capital contributions received 29,000 25,000 20,000
------------- ------------ ------------
Net cash provided by financing activities 99,269 335,203 422,972
------------- ------------ ------------
Increase (decrease) in cash and
cash equivalents 83,202 (27,247) (25,105)
Cash and cash equivalents at beginning of period 16,576 43,823 62,256
CFLIC contributed cash (note 9) -- -- 6,672
------------- ------------ ------------
Cash and cash equivalents at end of period $ 99,778 16,576 43,823
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(1) NATURE OF BUSINESS AND ORGANIZATION
NATURE OF THE BUSINESS
Cova Financial Services Life Insurance Company (CFSLIC) and
subsidiaries (the Company) market and service single premium
deferred annuities, immediate annuities, variable annuities, term
life, single premium variable universal life, 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. Single premium whole life insurance policies
provide policy beneficiaries with mortality benefits amounting to
a multiple, which declines with age, of the original premium.
Under the deferred fixed 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.
Under the variable annuity contracts, policyholder deposits are
allocated to various separate account sub-accounts or the general
accounts. A sub-account is valued at the sum of market values of
the securities in its underlying investment portfolio. The
contract value allocated to a sub-account will fluctuate based on
the performance of the sub-accounts. The contract value allocated
to the general accounts is credited with a fixed interest rate for
a specified period. The Company may assess surrender fees against
amounts withdrawn prior to the end of the withdrawal charge
period. Policyholders also may incur certain federal income tax
penalties on withdrawals.
Under the single premium variable life contracts, policyholder
deposits are allocated to various separate account sub-accounts.
The account value allocated to a sub-account will fluctuate based
on the performance of the sub-accounts. The Company guarantees a
minimum death benefit to be paid to the beneficiaries upon the
death of the insured. The Company may assess surrender fees
against amounts withdrawn prior to the end of the surrender charge
period. A deferred premium tax may also be assessed against
amounts withdrawn in the first ten years. Policyholders may also
incur certain federal income tax penalties on withdrawals.
Under the term life insurance policies, policyholders pay a level
premium over a certain period of time to guarantee a death benefit
will be paid to the beneficiaries upon the death of the insured.
This policy has no cash accumulation available to the
policyholder.
Although the Company markets its products through numerous
distributors, including regional brokerage firms, national
brokerage firms, and banks, approximately 89%, 73%, and 66% of the
Company's sales have been through two specific brokerage firms, A.
G. Edwards & Sons, Incorporated and Edward Jones & Company in
1998, 1997, and 1996, respectively.
ORGANIZATION
CFSLIC, formerly Xerox Financial Services Life Insurance Company
(XFSLIC), is a wholly owned subsidiary of Cova Corporation, a
subsidiary of General American Life Insurance Company (GALIC), a
Missouri domiciled life insurance company. When Cova Corporation
purchased CSFLIC from Xerox Financial Services, Inc. (XFSI), a
wholly owned subsidiary of Xerox Corporation, it entered into a
financing reinsurance transaction with OakRe Life Insurance
Company (OakRe), a subsidiary of XFSLIC, to assume the economic
benefits and risks of the existing single premium deferred annuity
deposits (SPDAs) of CFSLIC. Ownership of OakRe was retained by
XFSI subsequent to the sale of XFSLIC 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 by the end of
the year 2000, from 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.
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 ended
December 31, 1998 and 1997.
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 CFLIC 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) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEBT SECURITIES
Investments in all debt 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
securities at December 31, 1998 and 1997 were classified as
available-for-sale. Securities available-for-sale are carried at
fair value, with unrealized holding gains and losses reported as
accumulated other comprehensive income in the shareholder's
equity, net of deferred effects of income tax and related effects
on deferred acquisition costs and present value of future profits.
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 fair 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.
EQUITY SECURITIES
Equity securities represent investments in nonredeemable preferred
stock and common stock warrants. These securities are carried at
fair value, which is determined primarily through published quotes
of trading values. Changes to adjust the carrying value are
reported directly in shareholder's equity. Other-than-temporary
declines below cost are recorded as realized losses.
MORTGAGE LOANS AND POLICY LOANS
Mortgage loans and policy loans are carried at their unpaid
principal balances. An allowance for mortgage loan losses is
established based on an evaluation of the mortgage loan portfolio,
past credit loss experience, and current economic conditions.
Reserves for loans are established when the Company determines
that collection of all amounts due under the contractual terms is
doubtful and are calculated in conformity with Statement of
Financial Accounting Standards (SFAS) No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan -Income
Recognition and Disclosures.
The Company had no impaired loans, and the valuation allowance for
potential losses on mortgage loans was $510,000 and $237,000, at
December 31, 1998 and 1997, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include currency and demand deposits in
banks, U.S. Treasury bills, money market accounts, and commercial
paper with maturities under 90 days, which are not otherwise
restricted.
SEPARATE ACCOUNT ASSETS
Separate accounts contain segregated assets of the Company that
are specifically assigned to variable annuity or life
policyholders in the separate accounts and are not available to
other creditors of the Company. The earnings of separate account
investments are also assigned to the policyholders in the separate
accounts, and are not guaranteed or supported by the other general
investments of the Company. The Company earns mortality and
expense risk fees from the separate account and assesses
withdrawal charges in the event of early withdrawals. Separate
account assets are carried at fair 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. The Company's capital investment in the separate
accounts as of December 31, 1998 and 1997, is presented in note 3.
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 policy 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 are not recognized currently in
income but as an offset to the accumulated other comprehensive
income component of shareholder's 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.
<TABLE>
<CAPTION>
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.
1998 1997 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred policy acquisition costs, beginning of period $ 84,326 49,833 14,468
Commissions and expenses deferred 50,044 46,142 34,803
Amortization (9,393) (6,307) (4,389)
Deferred policy acquisition costs attributable to
unrealized depreciation (appreciation) 6,996 (5,342) 1,561
Effects on deferred policy acquisition costs of CFLIC
consolidation -- -- 3,390
------------ ------------ -------------
Deferred policy acquisition costs, end of period $ 131,973 84,326 49,833
============ ============ =============
</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
The Company established an intangible asset which represents
the present value of future profits (PVFP) 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
pretax rate of 18% (12% net after tax).
In addition, as the Company has the option of retaining its
SPDA policies after they reach their next interest rate reset
date and are recaptured from OakRe, a component of this asset
represents estimates of future profits on recaptured business.
This asset will be amortized in proportion to estimated future
gross profits derived from investment income, realized gains
and losses on sales of securities, unrealized securities
appreciation and depreciation, 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 inception. The amortization and
adjustments resulting from unrealized appreciation and
depreciation are not recognized currently in income but as an
offset to the accumulated other comprehensive income reflected
as a separate component of shareholder's 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, is projected to be 4.8%, 6.2%, 6.9%, 7.3%, and
7.1% for the years ended December 31, 1999 through 2003,
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
reallocation of the net purchased intangible asset between
PVFP, goodwill, and the future payable. This final allocation
and the resulting impact on inception to date amortization was
recorded, in its entirety, in 1996.
<TABLE>
<CAPTION>
The components of PVFP are shown below. The effects on PVFP of
the consolidation of CFLIC (see note 9) with the Company are
presented separately.
1998 1997 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
PVFP - beginning of period $ 41,486 46,389 38,155
Net amortization (1,684) (1,577) (473)
Present value of future profits attributable to unrealized
depreciation (appreciation) 2,428 (3,326) 6,896
Adjustment due to revised push-down purchase accounting
-- -- 698
Effects on present value of future profits of CFLIC
consolidation -- -- 1,113
------------ ------------ -------------
PVFP - end of period $ 42,230 41,486 46,389
============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
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 shown below. The effects on goodwill of the
consolidation of CFLIC (see note 9) with the Company are presented separately.
1998 1997 1996
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill - beginning of period $ 19,717 20,849 23,358
Amortization (1,132) (1,132) (916)
Adjustment due to revised push-down purchase accounting
-- -- (3,626)
Effects on goodwill of CFLIC consolidation -- -- 2,033
----------- ------------ ------------
Goodwill - end of period $ 18,585 19,717 20,849
=========== ============ ============
</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 3.50% thereafter. On policies that are
recaptured and subsequently exchanged to a variable annuity
policy, the Company will pay a commission to OakRe of 0.50%.
The Company has recorded a future payable that represents the
present value of the anticipated future commission payments
payable to OakRe over the remaining life of the financial
reinsurance agreement discounted at an estimated borrowing
rate of 6.50%. 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 end of
the year 2000.
<TABLE>
<CAPTION>
The components of this future payable are shown below. The effects on the future
payable on the consolidation of CFLIC (see note 9) with the Company are
presented separately.
1998 1997 1996
----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Future payable - beginning of period $ 12,173 16,051 23,967
Interest added 629 959 943
Payments to OakRe (5,826) (4,837) (4,483)
Adjustment due to revised push-down purchase
accounting -- -- (5,059)
Effects on goodwill of CFLIC consolidation -- -- 683
----------- ------------ -----------
Future payable - end of period $ 6,976 12,173 16,051
=========== ============ ===========
</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 Company's assets as of the date of
acquisition was revalued based upon fair market values. The
principal effect of the election was to establish a tax asset on
the tax-basis consolidated balance sheet of approximately $37.9
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 Company's policyholder
deposits as of December 31, 1998 was 5.86%.
FUTURE POLICY BENEFITS
Reserves are held for future policy 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.
PREMIUM REVENUE
The Company recognizes premium revenue at the time of issue on
annuity policies that subject it to longevity risks. Amounts
collected on annuity policies not subject to longevity risk are
recorded as increases in the policyholder deposits liability. For
term and single premium variable life products, premiums are
recognized as revenue when due.
OTHER INCOME
Other income consists primarily of policy surrender charges,
servicing fee from OakRe for administrating their policies, and
advisory fees received from GALIC for advisory services rendered
on their individual annuity products.
FEDERAL INCOME TAXES
The Company files a consolidated income tax return with its
subsidiaries. Allocations of federal income taxes are based upon
separate return calculations.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
consolidated financial statement carrying amount of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. 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 in 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 valuation
- Amortization of deferred policy acquisition costs
- Amortization of present value of future profits
- Recoverability of goodwill
The fair value of the Company's investments is subject to the risk
that interest rates will change and cause a temporary increase or
decrease in the liquidation value of debt securities. To the
extent that fluctuations in interest rates cause the cash flows of
assets and liabilities to change, the Company might have to
liquidate assets prior to their maturity and recognize a gain or
loss. Interest rate exposure for the investment portfolio is
managed through asset/liability management techniques which
attempt to control the risks presented by differences in the
probable cash flows and reinvestment of assets with the timing of
crediting rate changes in the Company's policies and contracts.
Changes in the estimated prepayments of mortgage-backed securities
also may cause retrospective changes in the amortization period of
securities and the related recognition of income.
The amortization of deferred policy 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 PVFP is based on
estimates of long-term future profits from existing policies when
the Company was purchased by GALIC and policies recaptured from
OakRe. 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.
The Company has considered the recoverability of goodwill and has
concluded that no circumstances have occurred which would give
rise to impairment of goodwill at December 31, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial
Instruments, 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 No. 107 excludes certain financial instruments
and all nonfinancial instruments from its disclosure requirements.
Because of this, and further because the value of a business is
also based upon its anticipated earning power, the aggregate fair
value amounts represented do not present the underlying value of
the Company.
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 value amounts reported in the consolidated
balance sheets for these instruments approximate their fair
values. Short-term debt securities are considered
available-for-sale.
Investment Securities and Mortgage Loans
(Including Mortgage-backed Securities)
Fair values of 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,
certain mortgage-backed securities, and mortgage loans, 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 3 for fair
value disclosures).
Policy Loans
Fair values of policy loans approximate carrying value as the
interest rates on the majority of policy loans are reset
periodically and, therefore, approximate current interest
rates.
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
5 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, 1998 and 1997, the cash
surrender value of policyholder deposits was approximately
$103.2 million and $151.5 million less than their stated
carrying value. Of the contracts permitting surrender,
substantially all 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
Effective in December 1998, the Company entered into a financing
reinsurance agreement with GALIC. The reinsurance agreement
provides that the Company will reinsurance a block of annuity
business issued by GALIC on a 36% coinsurance basis. The Company
recognized income and a corresponding receivable for $1.6 million
related to the reinsurance agreement.
The financing reinsurance agreement entered into with OakRe as a
condition to the purchase of the Company 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.
During 1997, the Company entered into a financing reinsurance
agreement with RGA Reinsurance Company (RGA), an affiliate,
related to certain of the Company's single premium deferred
annuity products. The agreement contains recapture provisions, at
the option of the Company, beginning in 1999 at a rate of 20% per
year. Deposits recorded under the contract were approximately $219
million and $120 million and are reflected as policyholder
deposits in the consolidated balance sheets at December 31, 1998
and 1997, respectively.
RECENTLY ADOPTED ACCOUNTING STANDARDS
On January 1, 1998, SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,
became fully effective. Previously, the Financial Accounting
Standards Board (the FASB) had deferred until that date certain
provisions of SFAS No. 125 pertaining to repurchase agreements,
securities lending, and similar financing transactions. As a
result of adopting the deferred provisions of SFAS No. 125, the
Company has recognized on its December 31, 1998 consolidated
balance sheet cash of approximately $25,923,000 related to
collateral controlled on securities lending transactions and a
corresponding obligation to return such collateral at the
termination of such transactions. Restatement of prior period
financial statements is not permitted.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes
standards for the reporting and display of comprehensive income
and its components in the financial statements. SFAS No. 130 is
effective for the fiscal year beginning after December 15, 1997.
Reclassification of financial statements for earlier periods
provided is required for comparative purposes. The Company has
elected to adopt SFAS No. 130 in 1998. The adoption of SFAS No.
130 has no impact on the Company's consolidated net income or
shareholder's equity. The Company's only component of accumulated
other comprehensive income relates to unrealized appreciation and
depreciation on debt and equity securities.
RECENTLY ISSUED ACCOUNTING STANDARD
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998. SFAS No. 133 requires all
derivative instruments to be recorded on the balance sheet at
estimated fair value. The Company's present accounting policies
would apply such accounting treatment only to marketable
securities as defined under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, and to off-balance
sheet derivative instruments. SFAS No. 133 will broaden the
definition of derivative instruments to include all classes of
financial assets and liabilities. It also will require separate
disclosure of identifiable derivative instruments embedded in
hybrid securities. Change in the fair value of derivative
instruments is to be recorded each period either in current
earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and, if it
is, on the type of hedge transaction.
SFAS No. 133 is effective for the Company beginning January 1,
2000. The Company's management is currently evaluating the impact
of SFAS No. 133; at present, the management does not believe it
will have a material effect on the Company's consolidated
financial position or results of operations.
OTHER
Certain 1997 and 1996 amounts have been reclassified to conform to
the 1998 presentation.
<TABLE>
<CAPTION>
(3) 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's equity. The amortized cost, estimated
fair value, and carrying value of investments at December 31, 1998 and
1997, are as follows:
1998
-----------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
-------------- -------------- --------------- --------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government
treasuries $ 28,288 249 (84) 28,453 28,453
Collateralized mortgage
obligations 303,577 3,067 (1,571) 305,073 305,073
Corporate, state,
municipalities, and
political subdivisions 1,043,333 19,736 (25,082) 1,037,987 1,037,987
-------------- -------------- --------------- --------------- --------------
Total debt securities 1,375,198 23,052 (26,737) 1,371,513 1,371,513
Equity securities 9,037 -- -- 9,037 9,037
Mortgage loans (net) 312,865 17,500 -- 330,365 312,865
Policy loans 26,295 -- -- 26,295 26,295
-------------- -------------- --------------- --------------- --------------
Total investments $ 1,723,395 40,552 (26,737) 1,737,210 1,719,710
============== ============== =============== =============== ==============
Company's beneficial interest
in separate accounts
$ 2 -- -- 2 2
============== ============== =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
-------------- -------------- --------------- --------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government
treasuries $ 8,067 121 -- 8,188 8,188
Collateralized mortgage
obligations 370,802 4,504 (524) 374,782 374,782
Corporate, state,
municipalities, and
political subdivisions 890,493 14,867 (8,083) 897,277 897,277
-------------- -------------- --------------- --------------- --------------
Total debt securities 1,269,362 19,492 (8,607) 1,280,247 1,280,247
Mortgage loans (net) 348,206 24,346 -- 372,552 348,206
Policy loans 24,228 -- -- 24,228 24,228
-------------- -------------- --------------- --------------- --------------
Total investments $ 1,641,796 43,838 (8,607) 1,677,027 1,652,681
============== ============== =============== =============== ==============
Company's beneficial interest
in separate accounts
$ 300 9 -- 309 309
============== ============== =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
The amortized cost and estimated fair value of debt securities at December 31,
1998, 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.
1998
------------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Less than one year $ 55,653 54,942
Due after one year through five years 504,712 498,469
Due after five years through ten years 390,086 392,828
Due after ten years 121,170 120,201
Mortgage-backed securities 303,577 305,073
-------------- --------------
Total $ 1,375,198 1,371,513
============== ==============
</TABLE>
At December 31, 1998, approximately 89.8% of the Company's debt
securities are investment grade or are nonrated but considered to be of
investment grade. Of the 10.2% noninvestment grade debt securities, 7.4%
are rated as BB, 2.4% are rated as B, and 0.4% are rated C and treated
as impaired.
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 counterparties to these agreements.
Securities loaned at December 31, 1998 had market values totaling
$25,247,750. Cash of $25,923,295 was held as collateral to secure this
agreement.
Income on the Company's security lending program in 1998 was immaterial.
The Company had two impaired debt securities, of which one became
nonincome producing on December 31, 1998. All debt securities were
income producing at December 31, 1997.
<TABLE>
<CAPTION>
The components of investment income, realized capital gains (losses), and
unrealized appreciation (depreciation) are as follows:
1998 1997 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income on debt securities $ 94,876 84,203 53,632
Income on short-term investments 2,720 2,265 2,156
Income on interest rate swaps 71 43 --
Income on policy loans 1,980 1,852 1,454
Interest on mortgage loans 28,650 24,890 13,633
Income on separate account investments 13 2,637 772
Loss on derivatives -- (2,035) (1,640)
Miscellaneous interest 1,644 (258) 1,773
------------ ------------ -------------
Total investment income 129,954 113,597 71,780
Investment expenses (2,142) (1,936) (1,151)
------------ ------------ -------------
Net investment income $ 127,812 111,661 70,629
Net realized capital gains (losses) are as follows:
Debt securities $ (1,600) 537 469
Mortgage loans -- 27 4
Short-term investments -- (1) (1)
------------ ------------ -------------
Net realized gains (losses) on investments $ (1,600) 563 472
============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized appreciation (depreciation) are as follows:
Debt securities $ (3,685) 10,885 (3,192)
Effects on deferred acquisition costs
amortization 3,215 (3,781) 1,561
Effects on PVFP amortization (473) (2,901) 425
------------ ------------ -------------
Unrealized appreciation (depreciation)
before income tax (943) 4,203 (1,206)
Unrealized income tax benefit (expense) 329 (1,471) 422
------------ ------------ -------------
Net unrealized appreciation (depreciation)
on investments $ (614) 2,732 (784)
============ ============ =============
</TABLE>
Proceeds from sales, redemptions, and paydowns of investments in debt
securities during 1998 were $486,264,174. Gross gains of $5,102,040 and
gross losses of $6,601,099 were realized on those sales. Included in
these amounts were $1,002,539 of gross gains and $6,011,305 of gross
losses realized on the sale of noninvestment grade securities. Net
realized losses include a 1998 impairment adjustment totaling
approximately $100,000 related to two debt securities held by the
Company.
Proceeds from sales, redemptions, and paydowns of investments in debt
securities during 1997 were $358,658,091. Gross gains of $1,765,242 and
gross losses of $254,493 were realized on those sales. Included in these
amounts were $681,159 of gross gains and $122,480 of gross losses
realized on the sale of noninvestment grade securities. Net realized
gains include a 1997 impairment adjustment totaling approximately
$974,000 related to one debt security held by the Company.
Proceeds from sales, redemptions, and paydowns 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
noninvestment grade securities.
Securities with a carrying value of approximately $6,400,000 at
December 31, 1998 were deposited with government authorities as
required by law.
(4) SECURITIES GREATER THAN 10% OF SHAREHOLDER'S EQUITY
The Company does not have any individual security that exceeds 10% of
shareholder's equity at December 31, 1998 and 1997.
(5) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
A derivative financial instrument, in very general terms, refers to a
security whose value is derived from the value of an underlying asset,
reference rate, or index.
The Company has a variety of reasons to use derivative instruments, such
as to attempt to protect the Company against possible changes in the
market value of its portfolio and to manage the portfolio's effective
yield, maturity, and duration. All of the Company's holdings are marked
to fair value monthly with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when the disposition closes a hedge. In
this instance, the recognition of gain or loss is postponed until the
disposal of the security underlying the option or futures contract.
Summarized below are the specific types of derivative instruments used
by the Company.
INTEREST RATE SWAPS
At December 31, 1998, the Company had two outstanding interest
rate swap agreements which expire at 2002 and 2003. Under the
agreements, the Company receives a fixed rate of 6.63% and 6.70%
on a notional amount of $7 and $8 million, respectively, and pays
a floating rate based on London Interbank Offered Rate (LIBOR).
The estimated fair value of the agreements at December 31, 1998
was a net unrealized gain of approximately $0.6 million which is
recognized in the accompanying consolidated balance sheet.
At December 31, 1997, the Company has one outstanding interest
rate swap agreement which expires in 2002. Under the agreement,
the Company receives a fixed rate of 6.63% on $7.0 million and
pays a floating rate based on LIBOR. At December 31, 1997, the
estimated fair value of the agreement was immaterial.
Under interest rate swaps, the Company agrees with counterparties
to exchange, at specific intervals, the payments between floating
and fixed-rate interest amounts calculated by reference to
notional amounts. Net interest payments are recognized within net
investment income in the consolidated statement of income.
FUTURES
In order to limit exposure to market fluctuations related to
temporary seed money invested within the separate account, the
Company entered into financial futures contracts during 1997 and
1996. No financial futures contracts were held during 1998. The
Company recorded $-0-, $2,035,309, and $1,639,717 of losses from
terminated contracts as a component of net investment income
during 1998, 1997 and 1996, respectively. The Company also
recorded gains of $-0-, $2,636,999, and $2,007,720 as a component
of net investment income from market appreciation on the
underlying hedged securities within the separate account during
1998, 1997, and 1996, respectively.
A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon
price. The Company utilized futures on the S&P 500 index in 1997.
Upon entering into futures contracts, the Company maintains, in a
segregated account with its custodian, securities with a value
equal to an agreed upon portion of the notional obligation under
the futures contracts. During the period the futures contract is
open, payments are received from or made to the broker daily based
upon changes in the value of the contract with the related income
or loss reflected in the consolidated statement of income as a
contra to changes in fair value of the hedged securities.
The Company is exposed to credit related risk in the event of
nonperformance by counterparties to financial instruments but does
not expect any counterparties to fail to meet their obligations.
It is the Company's policy to deal only with highly rated
companies.
<TABLE>
<CAPTION>
(6) COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
1998 1997 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income $ 13,894 8,978 3,601
------------ ------------ -------------
Other comprehensive income (loss), before tax -
unrealized appreciation (depreciation) of debt and
equity securities arising during period:
Unrealized holding appreciation (depreciation)
of debt and equity securities (12,971) 13,514 (14,387)
Adjustment to deferred acquisition costs
attributable to unrealized
(appreciation) depreciation 6,228 (5,128) 1,614
Adjustment to PVFP attributable to unrealized
(appreciation) depreciation 2,161 (3,193) 7,130
------------ ------------ -------------
Total unrealized appreciation (depreciation)
arising during period (4,582) 5,193 (5,643)
Less reclassification adjustments for realized (gains) losses
included in net income:
Adjustment for (gains) losses included in
net realized gains (losses) on sales
of investments 1,600 (563) (472)
Adjustment for (gains) losses included in
amortization of PVFP (768) 214 53
Adjustment for (gains) losses included in
amortization of deferred acquisition costs (267) 133 234
------------ ------------ -------------
Total reclassification adjustments for (gains)
losses included in net income 565 (216) (185)
------------ ------------ -------------
Other comprehensive income (loss) before related
income tax expense (benefit) (5,147) 5,409 (5,458)
Related income tax expense (benefit) (1,801) 1,893 (1,910)
------------ ------------ -------------
Other comprehensive income (loss), net of tax (3,346) 3,516 (3,548)
------------ ------------ -------------
Comprehensive income $ 10,548 12,494 53
============ ============ =============
</TABLE>
(7) POSTRETIREMENT 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 1998, 1997, and 1996, the Company was allocated a
portion of benefit costs including severance pay, accumulated vacations,
and disability benefits. At December 31, 1998, 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 subsidiaries, CFLIC and 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 $0.2 million of state
income tax recoveries.
<TABLE>
<CAPTION>
Income taxes are recorded in the consolidated statement of income and directly
in certain shareholder's equity accounts. Income tax expense for the years ended
December 31 is allocated as follows:
1998 1997 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Statements of income:
Operating income (excluding realized
investment gains and losses) $ 3,906 5,464 2,493
Realized investment gains (losses) (533) 197 162
------------ ------------ -------------
Income tax expense (benefit)
included in the consolidated
statements of income 3,373 5,661 2,655
Shareholder's equity -
change in deferred federal income
taxes related to unrealized
appreciation (depreciation)
on securities (1,801) 1,893 (1,910)
------------ ------------ -------------
Total income tax expense $ 1,572 7,554 745
============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
The actual federal income tax expense differed from the expected tax expense
computed by applying the U.S. federal statutory rate to income before taxes on
income as follows:
1998 1997 1996
------------------ ------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax expense $ 6,043 35.0% $ 5,124 35.0% $ 2,190 35.0%
State income taxes, net (8) -- (33) (0.2) 77 1.2
Amortization of intangible assets 396 2.3 396 2.7 320 5.1
Dividend received deduction - separate
account (3,183) (18.5) -- -- -- --
Other 125 0.7 174 1.2 68 1.1
--------- -------- -------- ---------- --------- ----------
Total $ 3,373 19.5% $ 5,661 38.7% $ 2,655 42.4%
========= ======== ======== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997 follows:
1998 1997
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Policy reserves $ 31,003 25,312
Liability for commissions on recapture 2,896 4,715
Tax basis of intangible assets purchased 5,351 5,791
DAC "Proxy Tax" 20,619 14,594
Other deferred tax assets 2,690 31
----------- ------------
Total deferred tax assets 62,559 50,443
----------- ------------
Deferred tax liabilities:
PVFP 11,013 9,734
Unrealized (depreciation) appreciation on investments (330) 1,472
Deferred policy acquisition costs 46,190 29,514
Other deferred tax liabilities 900 1,790
----------- ------------
Total deferred tax liabilities 57,773 42,510
----------- ------------
Net deferred tax assets $ 4,786 7,933
=========== ============
</TABLE>
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
On December 31, 1997, CLMC and Navisys Incorporated, affiliated
companies, purchased certain assets of Johnson & Higgins/Kirke Van
Orsdel, Inc. (J&H/KVI), an unaffiliated Delaware corporation, for
$2,500,000. The purchased assets are the administrative and service
systems that provide the marketing, underwriting, claims, and
administrative functions for the Company's life and annuity products. On
January 1, 1998, the purchased assets of J&H/KVI were merged into Cova
Life Administrative Service Company (CLASC). Navisys Incorporated
purchased 51% of CLASC, the remaining 49% was purchased by CLMC.
The Company has entered into management, operations, and servicing
agreements with its affiliated companies. The affiliated companies are
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 Company's ultimate parent, GALIC. CLASC provides
various services for the Company including underwriting, claims, and
administrative functions. Expenses and fees paid to affiliated companies
in 1998, 1997, and 1996 for the Company were $20,923,330, $9,400,517,
and $6,618,303, respectively.
In 1998 and 1997, the Company received approximately $3.2 million and
$1.1 million, respectively, in advisory fees from GALIC related to
advisory services on GALIC's individual annuity products.
On December 31, 1996, Cova Corporation transferred its ownership of
CFLIC to the Company. The transfer of ownership was recorded as
additional paid-in capital and increased shareholder's equity on the
Company's 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
CFLIC's balance sheet is fully consolidated with the Company's December
31, 1996 balance sheet, CFLIC's 1996 income and cash flows statements
have not been consolidated with the Company's 1996 income or cash flows
statements. However, CFLIC's December 31, 1996 cash balance of $6.7
million is included in the Company's consolidated cash flows statement.
(10) STATUTORY SURPLUS AND DIVIDEND RESTRICTION
GAAP differs 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 tax under GAAP
reporting, the nonrecognition 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, adjustments to record the carrying values of debt
securities and certain equity securities at fair value 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 shareholder's equity to the net purchase price. Statutory
accounting does not recognize the purchase method of accounting.
<TABLE>
<CAPTION>
As of December 31, the differences between statutory capital and surplus
and shareholder's equity determined in conformity with GAAP are as
follows:
1998 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Statutory capital and surplus $ 104,740 90,439
Reconciling items:
GAAP investment valuation reserves (510) (237)
Statutory asset valuation reserve 19,206 18,301
Statutory interest maintenance reserve 5,983 3,080
GAAP investment adjustments to fair value (3,685) 10,885
GAAP deferred policy acquisition costs 131,973 84,326
GAAP basis policy reserves (52,305) (39,921)
GAAP deferred federal income taxes (net) 4,786 7,933
GAAP guarantee assessment adjustment (9,700) (9,700)
GAAP goodwill 18,373 19,457
GAAP present value of future profits 42,230 41,486
GAAP future purchase price payable (6,976) (12,173)
Other (2,029) (1,338)
------------- -------------
GAAP shareholder's equity $ 252,086 212,538
============= =============
</TABLE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
Statutory net losses for CFSLIC for the years ended
December 31, 1998, 1997, and 1996 were $2,830,105,
$9,816,357, and $13,575,788, 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. Due to the
1998 statutory net loss and the Company's negative earned surplus at
December 31, 1998, no dividends are permissible in 1999 without prior
approval of the insurance commissioner.
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,
1998, the Company's total adjusted capital and authorized control level
RBC were $123,947,126 and $27,386,910, respectively. This level of
adjusted capital qualifies under all tests.
(11) GUARANTY FUND ASSESSMENTS
The Company participates with 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 Company's authority to
issue new business, the Company is contingently liable for its share of
claims covered by the guaranty associations for insolvencies incurred
through 1998, 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 assets as a credit against premium of other state taxes over, most
commonly, five years.
In November 1998, the National Organization of Life and Health Guaranty
Associations 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
$9,700,000 in future assessments on insolvencies that occurred before
December 31, 1998. 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 $9,700,000. The Company paid
approximately $1,500,000, $3,000,000, and $2,000,000 in guaranty fund
assessments in 1998, 1997, and 1996, respectively. These payments were
substantially reimbursed by OakRe. 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 remaining 20%. The
credits retained for 1998 were not material.
(12) SUBSEQUENT EVENT
On January 31, 1999, the Company modified its financing reinsurance
agreement with RGA related to the Company's certain single premium
deferred annuity products. Under the modified financing reinsurance
agreement, the Company will no longer reinsure any new single premium
deferred annuity product policies with RGA.
