File Nos. 333-90405
811-5200
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 39 [X]
(Check appropriate box or boxes.)
COVA VARIABLE ANNUITY ACCOUNT ONE
__________________________________
(Exact Name of Registrant)
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
_______________________________________________
(Name of Depositor)
One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644
______________________________________________________ __________
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (800) 831-5433
Name and Address of Agent for Service
Lorry J. Stensrud, President
Cova Financial Services Life Insurance Company
One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644
(800) 523-1661
Copies to:
Judith A. Hasenauer and Bernard J. Spaulding
Blazzard, Grodd & Hasenauer, P.C. Senior Vice President,
P.O Box 5108 General Counsel and Secretary
Westport, CT 06881 Cova Financial Services
(203) 226-7866 Life Insurance Company
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X___ on May 1, 2000 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
_____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Registered:
Individual Variable Annuity Contracts
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CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
- -------- --------------------------------
PART A
Item 1. Cover Page . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . Index of Special Terms
Item 3. Synopsis . . . . . . . . . . . . . . . Summary
Item 4. Condensed Financial Information . . . Not Applicable
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies . . Other Information - Cova; The
Separate Account; Investment
Options; Appendix A
Item 6. Deductions and Expenses. . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts. . . . . . . . . . . The Annuity Contract
Item 8. Annuity Period . . . . . . . . . . . . Income Phase
Item 9. Death Benefit. . . . . . . . . . . . . Death Benefit
Item 10. Purchases and Contract Value . . . . . Purchase
Item 11. Redemptions. . . . . . . . . . . . . . Access to Your Money
Item 12. Taxes. . . . . . . . . . . . . . . . . Taxes
Item 13. Legal Proceedings. . . . . . . . . . . None
Item 14. Table of Contents of the Statement of
Additional Information . . . . . . . . Table of Contents of the
Statement of Additional
Information
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CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
- -------- -----------------------
PART B
Item 15. Cover Page . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . Company
Item 18. Services . . . . . . . . . . . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered . Not Applicable
Item 20. Underwriters . . . . . . . . . . . . . Distribution
Item 21. Calculation of Performance Data. . . . Performance Information
Item 22. Annuity Payments . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements . . . . . . . . . Financial Statements
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PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered in Part C to this Registration Statement.
PART A
COVA VARIABLE ANNUITY ACCOUNT ONE
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
COVA VARIABLE ANNUITY ACCOUNT FIVE
COVA FINANCIAL LIFE INSURANCE COMPANY
Supplement dated May 1, 2000
to Prospectuses dated May 1, 2000
If you purchased your contract prior to May 1, 2000 the following change is
made to your Prospectus:
How to Reduce Sales Charge (Page __)
The first paragraph of this section is replaced in its entirety by the
following:
You may be able to lower the sales charge you pay by indicating in writing the
amount of gross purchase payments you intend to make during a 13-month period.
You have 13 months from the date Cova receives the written indication to make
the purchase payments you chose as your goal. We will deduct the sales charge
based on the total of the purchase payments intended to be made plus the value
of your contract on the date the first purchase payment is made. You are not
obligated to reach your purchase payment goal. If you do not make the amount of
purchase payments you indicated during the 13-month period, we will deduct an
additional charge from your contract in the 14th month based on : (1) the actual
gross purchase payments made during the 13 months; plus (2) the value of the
contract on the date the first gross purchase payment was made. Any additional
sales charge will be deducted during the 14th month from the investment
portfolios and the fixed account in the ratio that they bear to the value of
your contract. Cova reserves the right to modify, suspend or terminate this
feature at any time.
The Series A
Fixed And
Variable Annuity
issued by
COVA VARIABLE ANNUITY
ACCOUNT ONE
and
COVA FINANCIAL SERVICES
LIFE INSURANCE COMPANY
This prospectus describes the Series A Fixed and Variable Annuity Contract
offered by Cova Financial Services Life Insurance Company (Cova).
The annuity contract has 20 investment choices -- a fixed account which offers
an interest rate which is guaranteed by Cova, and 19 investment portfolios
listed below. You can put your money in the fixed account and/or any of these
investment portfolios (except as noted).
AIM Variable Insurance Funds:
Managed by A I M Advisors, Inc.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
Cova Series Trust:
Managed by J.P. Morgan Investment Management Inc.
Select Equity Portfolio
Small Cap Stock Portfolio
International Equity Portfolio
Quality Bond Portfolio
Large Cap Stock Portfolio
Managed by Lord, Abbett & Co.
Bond Debenture Portfolio
Mid-Cap Value Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Lord Abbett Growth and Income Portfolio
Franklin Templeton Variable Insurance Products Trust*, Class 1 Shares:
Managed by Franklin Advisers, Inc.
Franklin Small Cap Fund (the surviving fund of the merger
with Franklin Small Cap Investments Fund)
Franklin Large Cap Growth Securities Fund (the surviving fund
of the merger with Franklin Large Cap Growth Investments Fund)
Templeton Global Income Securities Fund (the surviving fund
of the merger with Templeton Bond Fund)
Managed by Templeton Investment Counsel, Inc.
Templeton International Securities Fund (formerly, Templeton
International Fund)
Managed by Templeton Global Advisors Limited
Templeton Growth Securities Fund (the surviving fund of
the merger with Templeton Stock Fund)
*Effective May 1, 2000, the portfolios of Templeton Variable Products
Series Fund were merged into similar portfolios of Franklin Templeton
Variable Insurance Products Trust.
General American Capital Company:
Managed by Conning Asset Management Company
Money Market Fund
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the Cova Series A Fixed and
Variable Annuity Contract.
To learn more about the Cova Series A Fixed and Variable Annuity Contract, you
can obtain a copy of the Statement of Additional Information (SAI) dated
May 1, 2000. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is legally a part of the prospectus. The SEC maintains a
Website (http://www.sec.gov) that contains the SAI, material incorporated by
reference, and other information regarding companies that file electronically
with the SEC. The Table of Contents of the SAI is on Page __ of this prospectus.
For a free copy of the SAI, call us at (800) 523-1661 or write us at: One Tower
Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644.
The Contracts:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed and may be subject to loss of principal
The Securities and Exchange Commission has not approved or disapproved
these securities or determined if this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
May 1, 2000
TABLE OF CONTENTS Page
INDEX OF SPECIAL TERMS
SUMMARY
Fee Table
Examples
THE ANNUITY CONTRACT
ANNUITY PAYMENTS (THE INCOME PHASE)
Selecting an Annuity Date
Annuity Payments
Selecting an Annuity Option
PURCHASE
Purchase Payments
Allocation of Purchase Payments
Free Look
Accumulation Units
INVESTMENT OPTIONS
AIM Variable Insurance Funds
Cova Series Trust
Franklin Templeton Variable Insurance Products Trust
General American Capital Company
Transfers
Dollar Cost Averaging Program
Automatic Rebalancing Program
Voting Rights
Substitution
EXPENSES
Mortality and Expense Risk Charge
Contract Maintenance Charge
Sales Charge
How to Reduce the Sales Charge
Premium Taxes
Transfer Fee
Income Taxes
Investment Portfolio Expenses
TAXES
Annuity Contracts in General
Qualified and Non-Qualified Contracts
Withdrawals - Non-Qualified Contracts
Withdrawals - Qualified Contracts
Withdrawals - Tax-Sheltered Annuities
Diversification
ACCESS TO YOUR MONEY
Suspension of Payments or Transfers
Systematic Withdrawal Program
PERFORMANCE
DEATH BENEFIT
Upon Your Death
Death of Annuitant
OTHER INFORMATION
Cova
The Separate Account
Distributor
Ownership
Annuitant
Beneficiary
Assignment
Financial Statements
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
APPENDIX A
Participating Investment Portfolios
APPENDIX B
Performance Information
INDEX OF SPECIAL TERMS
Because of the complex nature of the contract, we have used certain words or
terms in this prospectus which may need an explanation. We have identified the
following as some of these words or terms. The page that is indicated here is
where we believe you will find the best explanation for the word or term. These
words and terms are in italics on the indicated page.
Page
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Date
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Fixed Account
Income Phase
Investment Portfolios
Joint Owner
Non-Qualified
Owner
Purchase Payment (including Gross Purchase Payment and
Net Purchase Payment)
Qualified
Tax Deferral
SUMMARY
The sections in this summary correspond to sections in this prospectus which
discuss the topics in more detail.
THE ANNUITY CONTRACT:
The fixed and variable annuity contract offered by Cova is a contract between
you, the owner, and Cova, an insurance company. The contract provides a means
for investing on a tax-deferred basis. The contract is intended for retirement
savings or other long-term investment purposes and provides for a death benefit
and guaranteed income options.
This contract offers 19 investment portfolios. These portfolios are designed to
offer a better return than the fixed account. However, this is NOT guaranteed.
You can also lose your money.
The contract also offers a fixed account with an interest rate that is
guaranteed by Cova. While your money is in the fixed account, we guarantee the
interest your money will earn as well as your principal.
You can put money into any or all of the investment portfolios (except as noted)
and the fixed account. You can transfer between accounts up to 12 times a year
without charge or tax implications. After 12 transfers, the charge is $25.
The contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving regular payments
from your contract.
ANNUITY PAYMENTS (THE INCOME PHASE):
If you want to receive regular income from your annuity, you can choose one of
three payment plans (we call them annuity options). Once you begin receiving
regular payments, you cannot change your annuity option.
PURCHASE:
You can buy this contract with $5,000 or more under most circumstances. You can
add $500 or more any time you like during the accumulation phase. We will not
issue a contract to someone over age 90. Your registered representative can help
you complete the proper forms.
INVESTMENT OPTIONS:
You can put your money in any or all of the investment portfolios which are
briefly described in Appendix A and more fully described in the prospectuses for
the funds.
Depending upon market conditions and the performance of the portfolio(s) you
select, you can make or lose money in any of these portfolios.
EXPENSES:
The contract has insurance and investment features. There are costs related to
each.
o Each year Cova deducts a $30 contract maintenance charge from your
contract. During the accumulation phase, Cova currently waives this charge
if the value of your contract is at least $50,000.
o Cova also deducts a mortality and expense risk charge which is equivalent,
on an annual basis, to .85% of the average daily value of your contract
allocated to the investment portfolios.
o Cova will deduct a sales charge from each purchase payment you make before
it allocates your money to the investment portfolios and/or the fixed
account. The amount of the sales charge varies depending upon the amount of
the purchase payments you make and the value of your contract at the time
Cova receives your purchase payment. Cova will also take into account the
amount of purchase payments which you represent in writing will be made
during a 13-month period. The larger your purchase payments and contract
value are, the less your sales charge will be. The charge ranges from 5.75%
to 1.00%.
o When you begin receiving regular income payments from your annuity, Cova
may assess a state premium tax charge which ranges from 0% - 4%, depending
upon the state.
o There are also investment charges which currently range from ____% to ____%
of the average daily value of the investment portfolio depending upon the
investment portfolio.
TAXES:
Your earnings are not taxed until you take them out. If you take money out
during the accumulation phase, earnings come out first and are taxed as income.
If you are younger than 59 1/2 when you take money out, you may be charged a 10%
federal tax penalty on the earnings. Payments during the income phase are
considered partly a return of your original investment. That part of each
payment is not taxable as income.
ACCESS TO YOUR MONEY:
You can take money out at any time during the accumulation phase. Of course, you
may also have to pay income tax and a tax penalty on any money you take out.
DEATH BENEFIT:
If you die before moving to the income phase, the person you have chosen as your
beneficiary will receive a death benefit.
OTHER INFORMATION:
Free Look. If you cancel the contract within 10 days after receiving it (or
whatever period is required in your state), we will send your money back. Cova
will refund the value of your contract plus the sales charge determined as of
the business day that the refund is made. In certain states, or if you buy the
contract as an IRA, we may be required to refund the gross purchase payment.
No Probate. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
Who should purchase the Contract? This contract is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes. The tax-deferred feature is most attractive to people in
high federal and state income tax brackets. You should not buy this contract if
you are looking for a short-term investment or if you cannot take the risk of
getting back less money than you put in.
Additional Features. This contract has additional features you might be
interested in. These include:
o Systematic Withdrawal Program -- You can arrange to have money
automatically sent to you each month while your contract is still in the
accumulation phase. Of course, you may have to pay taxes on money you
receive.
o Dollar Cost Averaging Program -- You can arrange to have a regular amount
of money automatically invested in investment portfolios each month,
theoretically giving you a lower average cost per unit over time than a
single one time purchase.
o Automatic Rebalancing -- You can arrange to automatically readjust the
money between investment portfolios periodically to keep the blend you
select.
These features may not be suitable for your particular situation.
INQUIRIES:
If you need more information, please contact us at:
Cova Life Sales Company
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181
800-523-1661
Service Office
P.O. Box 10366
Des Moines, IA 50306-0366
800-343-8496
For Express Mail Only:
4700 Westown Parkway, Suite 200
West Des Moines, IA 50266-6718
COVA VARIABLE ANNUITY ACCOUNT ONE FEE TABLE
The purpose of the Fee Table is to show you the various expenses you will incur
directly or indirectly with the contract. The Fee Table reflects expenses of the
separate account as well as the investment portfolios. Expenses of the
investment portfolios are not fixed or specified under the terms of the contract
and actual expenses may vary.
Owner Transaction Expenses
Sales Charge (See Note 1 below)
(as a percentage of gross purchase payment)
Owner's Investment Sales Charge
------------------- -----------
Less than $50,000 5.75%
$50,000 - $99,999.99 4.50%
$100,000 - $249,999.99 3.50%
$250,000 - $499,999.99 2.50%
$500,000 - $999,999.99 2.00%
$1,000,000 or greater 1.00%
Transfer Fee (see Note 2 below) No charge for first 12 transfers
in a contract year; thereafter,
the fee is $25 per transfer.
Contract Maintenance Charge $30 per contract per year
(see Note 3 below)
Separate Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Charge .85%
------
Total Separate Account Annual Expenses .85%
Investment Portfolio Expenses
(as a percentage of the average daily net assets of an investment portfolio)
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Other Expenses
(after expense Total Annual
Management reimbursement for Portfolio
Fees certain Portfolios) Expenses
- --------------------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds
Managed by A I M Advisors, Inc.
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AIM V.I. Capital Appreciation Fund .62% .11% .73%
AIM V.I. International Equity Fund .75% .22% .97%
AIM V.I. Value Fund .61% .15% .76%
- ----------------------------------------------------------------------------------------------------------------------------------
Cova Series Trust (a)
Managed by J.P. Morgan Investment Management Inc.
Select Equity Portfolio .67% .10% .77%
Small Cap Stock Portfolio .85% .19% 1.04%
International Equity Portfolio .79% .31% 1.10%
Quality Bond Portfolio .54% .10% .64%
Large Cap Stock Portfolio .65% .10% .75%
- ---------------------------------------------------------------------------------------------------------------------------------
Managed by Lord, Abbett & Co.
Bond Debenture Portfolio .75% .10% .85%
Mid-Cap Value Portfolio 1.00% .30% 1.30%
Large Cap Research Portfolio 1.00% .30% 1.30%
Developing Growth Portfolio .90% .30% 1.20%
Lord Abbett Growth and Income Portfolio(b) .65% .05% .70%
- --------------------------------------------------------------------------------------------------------------------------------
Investment Portfolio Expenses (continued)
(as a percentage of the average daily net assets of an investment portfolio)
Other Expenses
(after expense Total Annual
Management reimbursement for Portfolio
Fees certain Portfolios) Expenses
- --------------------------------------------------------------------------------------------------------------------------------
Franklin Templeton Variable Insurance Products Trust, Class 1 Shares
Managed by Franklin Advisers, Inc.
Franklin Small Cap Fund(c) .55% .27% .82%
Franklin Large Cap Growth Securities Fund(d) .75% .02% .77%
Templeton Global Income Securities Fund(e) .60% .05% .65%
- --------------------------------------------------------------------------------------------------------------------------------
Managed by Templeton Investment Counsel, Inc.
Templeton International Securities Fund(f) .69% .19% .88%
Managed by Templeton Global Advisors Limited
Templeton Growth Securities Fund(g) .83% .05% .88%
- --------------------------------------------------------------------------------------------------------------------------------
General American Capital Company
Managed by Conning Asset Management Company
Money Market Fund .125% .08% .205%
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<FN>
(a) Cova reimburses the investment portfolios, except the Select Equity,
Small Cap Stock and International Equity Portfolios, for all operating expenses
(exclusive of the management fees) in excess of approximately .30% for the
Mid-Cap Value, Large Cap Research and Developing Growth Portfolios and in
excess of approximately .10% for the other investment portfolios. Prior to
May 1, 1999, Cova had reimbursed expenses in excess of approximately .10% with
respect to the Select Equity, Small Cap Stock, International Equity, Mid-Cap
Value, Large Cap Research and Developing Growth Portfolios. Therefore, the
amounts shown above under "Other Expenses" have been restated to reflect the
estimated expenses for the Select Equity, Small Cap Stock and International
Equity Portfolios for the year ending December 31, 2000. Absent these
expense reimbursement arrangements, the total annual portfolio expenses
for the year ended December 31, 1999 were: 1.09% for the Small Cap
Stock Portfolio; 1.15% for the International Equity Portfolio;
.71% for the Quality Bond Portfolio; .76% for the Large Cap Stock Portfolio;
.86% for the Bond Debenture Portfolio; 1.41% for the Mid-Cap Value
Portfolio; 1.38% for the Large Cap Research Portfolio, and 1.34% for the
Developing Growth Portfolio.
(b) The Portfolio commenced investment operations on January 8, 1999.
(c) On 2/8/00, a merger and reorganization was approved that combined the
assets of the fund with a similar fund of Templeton Variable Products Series
Fund, effective 5/1/00. On 2/8/00, fund shareholders approved new management
fees, which apply to the combined fund effective 5/1/00. The table shows
restated total expenses based on the new fees and assets of the fund as of
12/31/99, and not the assets of the combined fund. However, if the table
reflected both the new fees and the combined assets, the fund's expenses
after 5/1/00 would be estimated as: Management Fees 0.55%, Other Expenses
0.27%, and Total Fund Operating Expenses 0.82%.
(d) On 2/8/00, a merger and reorganization was approved that combined the
fund with a similar fund of Templeton Variable Products Series Fund, effective
5/1/00. The table shows total expenses based on the fund's assets as of
12/31/99, and not the assets of the combined fund. However, if the table
reflected combined assets, the fund's expenses after 5/1/00 would be estimated
as: Management Fees 0.75%, Other Expenses 0.02%, and Total Fund Operating
Expenses 0.77%. Before December 15, 1999, the Fund was known as the Franklin
Capital Growth Fund. The fund administration fee is paid indirectly through
the management fee.
(e) On 2/8/00, a merger and reorganization was approved that combined the
fund with a similar fund of Templeton Variable Products Series Fund, effective
5/1/00. The table shows total expenses based on the fund's assets as of
12/31/99, and not the assets of the combined fund. However, if the table
reflected combined assets, the fund's expenses after 5/1/00 would be estimated
as: Management Fees 0.60%, Other Expenses 0.04%, and Total Fund Operating
Expenses 0.64%. The fund administration fee is paid indirectly through the
management fee.
(f) On 2/8/00, shareholders approved a merger and reorganization
that combined the fund with the Templeton International Equity Fund,
effective 5/1/00. The shareholders of that fund had approved new management
fees, which apply to the combined fund effective 5/1/00. The table shows
restated total expenses based on the new fees and the assets of the fund as
of 12/31/99, and not the assets of the combined fund. However, if the table
reflected both the new fees and the combined assets, the fund's expenses
after 5/1/00 would be estimated as: Management Fees 0.65%, Other Expenses
0.20%, and Total Fund Operating Expenses 0.85%.
(g) On 2/8/00, a merger and reorganization was approved that combined
the fund with a similar fund of Templeton Variable Products Series Fund,
effective 5/1/00. The table shows total expenses based on the fund's assets
as of 12/31/99, and not the assets of the combined fund. However, if the table
reflected combined assets, the fund's expenses after 5/1/00 would be estimated
as: Management Fees 0.80%, Other Expenses 0.05%, and Total Fund Operating
Expenses 0.85%. The fund administration fee is paid indirectly through the
management fee.
</FN>
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Examples
The examples should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
For purposes of the examples, the assumed average contract size is $30,000.
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets regardless of whether you surrender your contract at the
end of each time period:
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Time Periods
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds
Managed by A I M Advisors, Inc..
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AIM V.I. Capital Appreciation Fund $74.59 $110.30 $148.17 $253.25
AIM V.I. International Equity Fund $76.87 $117.21 $159.81 $277.12
AIM V.I. Value Fund $74.87 $111.17 $149.64 $256.27
- -------------------------------------------------------------------------------------------------------------------
Cova Series Trust
Managed by J.P. Morgan Investment Management Inc.
Select Equity Portfolio $74.97 $111.46 $150.12 $257.27
Small Cap Stock Portfolio $77.53 $119.21 $163.18 $283.97
International Equity Portfolio $78.10 $120.93 $166.06 $289.80
Quality Bond Portfolio $73.73 $107.70 $143.77 $244.14
Large Cap Stock Portfolio $74.78 $110.88 $149.15 $255.27
- -------------------------------------------------------------------------------------------------------------------
Managed by Lord, Abbett & Co.
Bond Debenture Portfolio $75.73 $113.76 $154.01 $265.27
Mid-Cap Value Portfolio $79.99 $126.62 $175.58 $308.94
Large Cap Research Portfolio $79.99 $126.62 $175.58 $308.94
Developing Growth Portfolio $79.04 $123.78 $170.83 $299.42
Lord Abbett Growth and Income Portfolio $74.30 $109.44 $146.71 $250.22
- -------------------------------------------------------------------------------------------------------------------
Franklin Templeton Variable Insurance Products
Trust, Class 1 Shares
Managed by Franklin Advisers, Inc.
Franklin Small Cap Fund $75.44 $112.90 $152.55 $262.28
Franklin Large Cap Growth Securities Fund $74.97 $111.46 $150.12 $257.27
Templeton Global Income Securities Fund $73.83 $107.99 $144.26 $245.16
- -------------------------------------------------------------------------------------------------------------------
Managed by Templeton Investment Counsel, Inc.
Templeton International Securities Fund $76.01 $114.63 $155.46 $268.25
- ---------------------------------------------------------------------------------------------------------------
Managed by Templeton Global Advisors Limited
Templeton Growth Securities Fund $76.01 $114.63 $155.46 $268.25
- ---------------------------------------------------------------------------------------------------------------
General American Capital Company
Managed by Conning Asset Management Company
Money Market Fund $69.59 $95.01 $122.20 $198.80
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Explanation of Fee Table
1. You may be entitled to a reduced sales charge if: 1) you indicate in writing
that you will make additional purchase payments to your contract during a
13-month period; and 2) if the amount of the owner's investment (purchase
payment plus contract value) falls within certain dollar ranges. See
"Expenses" for a discussion of how the sales charge is determined.
2. Cova will not charge you the transfer fee even if there are more than 12
transfers in a year if the transfer is under the Dollar Cost Averaging or
Automatic Rebalancing Programs.
3. During the accumulation phase, Cova will not charge the contract maintenance
charge if the value of your contract is $50,000 or more, although, if you
make a complete withdrawal, Cova will charge the contract maintenance charge.
4. Premium taxes are not reflected. Premium taxes may apply depending on the
state where you live.
THE ANNUITY CONTRACT
This Prospectus describes the Series A Fixed and Variable Annuity Contract
offered by Cova.
An annuity is a contract between you, the owner, and an insurance company (in
this case Cova), where the insurance company promises to pay an income to you,
in the form of annuity payments, beginning on a designated date that is at least
one month after we issue your contract. Until you decide to begin receiving
annuity payments, your annuity is in the accumulation phase. Once you begin
receiving annuity payments, your contract switches to the income phase.
The contract benefits from tax deferral. Tax deferral means that you are not
taxed on earnings or appreciation on the assets in your contract until you take
money out of your contract.
The contract is called a variable annuity because you can choose among the
investment portfolios and, depending upon market conditions, you can make or
lose money in any of these portfolios. If you select the variable annuity
portion of the contract, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the investment performance
of the investment portfolio(s) you select. The amount of the annuity payments
you receive during the income phase from the variable annuity portion of the
contract also depends upon the investment performance of the investment
portfolios you select for the income phase.
The contract also contains a fixed account. The fixed account offers an interest
rate that is guaranteed by Cova. Cova guarantees that the interest rate credited
to the fixed account will not be less than 3% per year. If you select the fixed
account, your money will be placed with the other general account assets of
Cova. If you select the fixed account, the amount of money you are able to
accumulate in your contract during the accumulation phase depends upon the total
interest credited to your contract. The amount of the annuity payments you
receive during the income phase from the fixed account portion of the contract
will remain level for the entire income phase.
As owner of the contract, you exercise all rights under the contract. You can
change the owner at any time by notifying Cova in writing. You and your spouse
can be named joint owners. We have described more information on this under
"Other Information."
ANNUITY PAYMENTS (THE INCOME PHASE)
Selecting an Annuity Date
Under the contract you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the annuity
date. Your annuity date must be the first day of a calendar month.
We ask you to choose your annuity date when you purchase the contract. You can
change it at any time before the annuity date with 30 days notice to us. Your
annuity date cannot be any earlier than one month after you buy the contract.
Annuity payments must begin by the first day of a calendar month following the
annuitant's 85th birthday or 10 years from the date the contract was issued,
whichever is later.
Annuity Payments
Unless you designate another person to receive the annuity payments, Cova will
pay you the annuity payments.
During the income phase, you have the same investment choices you had just
before the start of the income phase. At the annuity date, you can choose
whether payments will come from:
o the fixed account (fixed annuity payout);
o the investment portfolio(s) (variable annuity payout); or
o a combination of both.
If you don't tell us otherwise, your annuity payments will be based on the
investment allocations that were in place on the annuity date.
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things:
1) the value of your contract in the investment portfolio(s) on the annuity
date,
2) the assumed investment rate used in the annuity table for the contract, and
3) the performance of the investment portfolios you selected.
If the actual performance exceeds the assumed investment rate (AIR), your
annuity payments will increase. Similarly, if the performance is less than the
AIR, your annuity payments will decrease. Currently, the AIR is 3%. Cova may
change the AIR or add AIRs in the future.
Annuity payments will be paid in monthly installments or at any frequency
acceptable to Cova. Each annuity payment will be reduced by a pro rata portion
of the contract maintenance charge. (See "Expenses").
Annuity payments are made monthly unless you have less than $5,000 to apply
toward a payment. In that case, Cova may pay your annuity payment in a single
lump sum. Likewise, if your annuity payments would be less than $100 a month,
Cova has the right to change the frequency of payments so that your annuity
payments are at least $100.
Selecting an Annuity Option
You can choose among income plans. We call those annuity options. We ask you to
choose an annuity option when you purchase the contract. If you do not choose an
annuity option at the time you purchase the contract, we will assume that you
selected Option 2 which provides a life annuity with 10 years of guaranteed
payments. You can change the annuity option at any time before the annuity date
with 30 days notice to us.
You can choose one of the following annuity options or any other annuity option
acceptable to Cova. After annuity payments begin, you cannot change the annuity
option.
Option 1. Life Annuity. Under this option, we will make periodic annuity
payments so long as the annuitant is alive. After the annuitant dies, we stop
making annuity payments.
Option 2. Life Annuity with 5, 10 or 20 Years Guaranteed. Under this option, we
will make periodic annuity payments so long as the annuitant is alive. However,
if, when the annuitant dies, we have made annuity payments for less than the
selected guaranteed period, we will then continue to make annuity payments for
the rest of the guaranteed period. If you do not want to receive annuity
payments, you can ask us for a single lump sum.
Option 3. Joint and Last Survivor Annuity. Under this option, we will make
periodic annuity payments so long as the annuitant and a second person are both
alive. When either of these people dies, we will continue to make annuity
payments so long as the survivor continues to live. The amount of the annuity
payments we will make to the survivor can be equal to 100%, 66 2/3% or 50% of
the amount that we would have paid if both were alive.
PURCHASE
Purchase Payments
A purchase payment is the money you give us to purchase the contract. When you
make a purchase payment (we call this the "gross purchase payment"), we will
deduct the sales charge and any applicable premium taxes before we allocate it
to the investment portfolio(s) and/or the fixed account (we call this the "net
purchase payment"). See "Expenses" for a discussion of the sales charge.
The minimum gross purchase payment we will accept is $5,000 when the contract is
purchased as a non-qualified contract. If you are purchasing the contract as
part of an IRA (Individual Retirement Annuity), 401(k) or other qualified plan,
the minimum gross purchase payment we will accept is $2,000. The maximum gross
purchase payments we accept are $1 million without our prior approval. You can
make additional gross purchase payments of $500 or more to any type of contract
any time during the accumulation phase.
Allocation of Purchase Payments
When you purchase a contract, we will allocate your net purchase payment to the
fixed account and/or one or more of the investment portfolios you have selected.
If you make additional purchase payments, we will allocate them in the same way
as your first purchase payment unless you tell us otherwise. Currently, you may
allocate your money to any of the investment portfolios. Cova reserves the right
to limit the number of investment portfolios you may invest in at any one time
in the future. There is a $500 minimum allocation requirement for the fixed
account and for each investment portfolio.
Once we receive your purchase payment and the necessary information, we will
issue your contract and allocate your first purchase payment within 2 business
days. If you do not give us all of the information we need, we will contact you
to get it. If for some reason we are unable to complete this process within 5
business days, we will either send back your money or get your permission to
keep it until we get all of the necessary information. If you add more money to
your contract by making additional purchase payments, we will credit these
amounts to your contract within one business day. Our business day closes when
the New York Stock Exchange closes, usually 4:00 p.m. Eastern time.
Free Look
If you change your mind about owning this contract, you can cancel it within 10
days after receiving it (or the period required in your state). Cova will refund
the contract value plus the sales charge determined as of the business day that
the refund is made, which may be less than your gross purchase payment. In
certain states, or if you have purchased the contract as an IRA, we may be
required to refund your gross purchase payment if you decide to cancel your
contract within 10 days after receiving it (or whatever period is required in
your state).
Accumulation Units
The value of the variable annuity portion of your contract will go up or down
depending upon the investment performance of the investment portfolio(s) you
choose. In order to keep track of the value of your contract, we use a unit of
measure we call an accumulation unit. (An accumulation unit works like a share
of a mutual fund.)
During the income phase of the contract we call the unit an annuity unit.
Every business day we determine the value of an accumulation unit for each of
the investment portfolios. We do this by:
1. determining the total amount of money invested in the particular investment
portfolio;
2. subtracting from that amount any insurance charges and any other charges
such as taxes we have deducted; and
3. dividing this amount by the number of outstanding accumulation units.
The value of an accumulation unit may go up or down from business day to
business day.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited is determined by dividing the
amount of the net purchase payment allocated to an investment portfolio by the
value of the accumulation unit for that investment portfolio.
We calculate the value of an accumulation unit for each investment portfolio
after the New York Stock Exchange closes each day and then credit your contract.
Example:
On Monday we receive an additional purchase payment from you. The amount of
the net purchase payment is $5,000. You have told us you want this to go to
the Quality Bond Portfolio. When the New York Stock Exchange closes on that
Monday, we determine that the value of an accumulation unit for the Quality
Bond Portfolio is $13.90. We then divide $5,000 by $13.90 and credit your
contract on Monday night with 359.71 accumulation units for the Quality Bond
Portfolio.
INVESTMENT OPTIONS
The contract offers 19 investment portfolios which are listed below. Additional
investment portfolios may be available in the future.
The investment objectives and policies of certain investment portfolios are
similar to the investment objectives and policies of other mutual funds that
certain of the investment advisers manage. Although the objectives and policies
may be similar, the investment results of the investment portfolios may be
higher or lower than the results of such other mutual funds. The investment
advisers cannot guarantee, and make no representation, that the investment
results of similar funds will be comparable even though the funds have the same
investment advisers.
A fund's performance may be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non-investment
grade debt securities, initial public offerings (IPOs) or companies with
relatively small market capitalizations. IPOs and other investment techniques
may have a magnified performance impact on a fund with a small asset base. A
fund may not experience similar performance as its assets grow.
Shares of the investment portfolios may be offered in connection with certain
variable annuity contracts and variable life insurance policies of various life
insurance companies which may or may not be affiliated with Cova. Certain
investment portfolios may also be sold directly to qualified plans. The funds
believe that offering their shares in this manner will not be disadvantageous to
you.
Cova may enter into certain arrangements under which it is reimbursed by the
investment portfolios' advisers, distributors and/or affiliates for the
administrative services that it provides to the portfolios.
You should read the prospectuses for these funds carefully. Copies of these
prospectuses will be sent to you with your contract. Certain portfolios
contained in the fund prospectuses may not be available with your contract.
(See Appendix A which contains a summary of investment objectives and
strategies for each investment portfolio.)
AIM Variable Insurance Funds
AIM Variable Insurance Funds is a management investment company with
multiple portfolios. A I M Advisors, Inc. is the investment adviser to each
portfolio. The following portfolios are available under the contract:
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
Cova Series Trust
Cova Series Trust is managed by Cova Investment Advisory Corporation (Cova
Advisory), which is an affiliate of Cova. Cova Series Trust is a mutual fund
with multiple portfolios. Each investment portfolio has a different investment
objective. Cova Advisory has engaged sub-advisers to provide investment advice
for the individual investment portfolios. The following investment portfolios
are available under the contract:
J.P. Morgan Investment Management Inc. is the sub-adviser to the following
portfolios:
Select Equity Portfolio
Small Cap Stock Portfolio
International Equity Portfolio
Quality Bond Portfolio
Large Cap Stock Portfolio
Lord, Abbett & Co. is the sub-adviser to the following portfolios:
Bond Debenture Portfolio
Mid-Cap Value Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Lord Abbett Growth and Income Portfolio
Franklin Templeton Variable Insurance Products Trust
Franklin Templeton Variable Insurance Products Trust is a mutual fund
with multiple portfolios. Effective May 1, 2000, the portfolios of
Templeton Variable Products Series Fund were merged into similar portfolios
of Franklin Templeton Variable Insurance Products Trust. Franklin
Templeton Variable Insurance Products Trust issues two classes
of shares Class 1 and Class 2. Only shares of Class 1 are available
under your contract. Franklin Advisers, Inc. is the investment manager of
the Franklin Large Cap Growth Securities Fund, the Franklin Small Cap Fund and
the Templeton Global Income Securities Fund. Templeton Investment
Counsel, Inc. is the investment manager of the Templeton International
Securities Fund. Templeton Global Advisors Limited is the investment
manager for the Templeton Growth Securities Fund. The following portfolios
are available under the contract:
Franklin Small Cap Fund (the surviving fund of the merger with
Franklin Small Cap Investments Fund)
Franklin Large Cap Growth Securities Fund (the surviving fund of
the merger with Franklin Large Cap Growth Investments Fund)
Templeton International Securities Fund (formerly, Templeton International
Fund)
Templeton Growth Securities Fund (the surviving fund of the merger
with Templeton Stock Fund)
Templeton Global Income Securities Fund (the surviving fund of the
merger with Templeton Bond Fund)
General American Capital Company
General American Capital Company is a mutual fund with multiple portfolios. Each
portfolio is managed by Conning Asset Management Company. The following
portfolio is available under the contract:
Money Market Fund
Transfers
You can transfer money among the fixed account and the investment portfolios.
Cova has reserved the right during the year to terminate or modify the transfer
provisions described below.
You can make 12 transfers every year during the accumulation phase without
charge. We measure a year from the anniversary of the day we issued your
contract. You can make a transfer to or from the fixed account and to or from
any investment portfolio. If you make more than 12 transfers in a year, there is
a transfer fee deducted. The fee is $25 per transfer. The following apply to any
transfer during the accumulation phase:
1. The minimum amount which you can transfer is $500 or your entire value in
the investment portfolio or fixed account. The minimum amount which must
remain in an investment portfolio and/or the fixed account after a transfer
is $500.
2. Your request for transfer must clearly state which investment portfolio(s)
or the fixed account are involved in the transfer.
3. Your request for transfer must clearly state how much the transfer is for.
4. We will process your transfer as of the end of the business day when our
Service Office receives an acceptable transfer request which contains all
required information (including the amount which is to be transferred and
the investment portfolio(s) and/or fixed account involved in the transfer).
5. Neither Cova nor its Service Office is liable for a transfer made in
accordance with your instructions.
6. Cova reserves the right to restrict the number of transfers per year and to
restrict transfers from being made on consecutive business days.
7. Your right to make transfers is subject to modification if Cova determines,
in Cova's sole opinion, that the exercise of the right by one or more
owners is or would be to the disadvantage of other owners. Restrictions may
be applied in any manner reasonably designed to prevent any use of the
transfer right which is considered by Cova to be to the disadvantage of
other owners. A modification could be applied to transfers to or from one
or more of the investment portfolios and could include, but not be limited
to:
o the requirement of a minimum time period between each transfer; not
accepting a transfer request from an agent acting under a power of
attorney on behalf of more than one owner; or
o limiting the dollar amount that may be transferred between the
investment portfolios by an owner at any one time.
8. During the income phase you can only make transfers between the investment
portfolios once each year. We measure a year from the anniversary of the
day we issued your contract. You cannot transfer from a fixed annuity
payout to a variable annuity payout, but you can transfer from a variable
annuity payout to a fixed annuity payout at any time.
Telephone Transfers. You and/or your registered representative on your behalf
can make transfers by telephone. Telephone transfers will be automatically
permitted unless you tell us otherwise. If you own the contract with a joint
owner, unless Cova is instructed otherwise, Cova will accept instructions from
either you or the other owner. Cova will use reasonable procedures to confirm
that instructions given us by telephone are genuine. If Cova fails to use such
procedures, we may be liable for any losses due to unauthorized or fraudulent
instructions. Cova tape records all telephone instructions.
Dollar Cost Averaging Program
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount each month from the Money Market Fund or the fixed account to any of the
other investment portfolio(s). By allocating amounts on a regular schedule as
opposed to allocating the total amount at one particular time, you may be less
susceptible to the impact of market fluctuations. The Dollar Cost Averaging
Program is available only during the accumulation phase.
The minimum amount which can be transferred each month is $500. You must have at
least $6,000 in the Money Market Fund or the fixed account, (or the amount
required to complete your program, if less) in order to participate in the
Dollar Cost Averaging Program. Cova will waive the minimum transfer amount and
the minimum amount required to establish dollar cost averaging if you establish
dollar cost averaging for 6 or 12 months at the time you buy the contract.
Cova reserves the right, without notice, to modify, terminate or suspend the
Dollar Cost Averaging Program. Cova does not currently charge for participating
in this program.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
Automatic Rebalancing Program
Once your money has been allocated to the investment portfolios, the performance
of each portfolio may cause your allocation to shift. You can direct us to
automatically rebalance your contract to return to your original percentage
allocations by selecting our Automatic Rebalancing Program. You can tell us
whether to rebalance quarterly, semi-annually or annually. We will measure these
periods from the anniversary of the date we issued your contract. The transfer
date will be the 1st business day after the end of the period you selected. The
Automatic Rebalancing Program is available only during the accumulation phase.
Cova does not currently charge for participating in this program.
If you participate in the Automatic Rebalancing Program, the transfers made
under the program are not taken into account in determining any transfer fee.
Example:
Assume that you want your initial purchase payment split between 2
investment portfolios. You want 40% to be in the Quality Bond Portfolio and
60% to be in the Select Equity Portfolio. Over the next 2 1/2 months the
bond market does very well while the stock market performs poorly. At the
end of the first quarter, the Quality Bond Portfolio now represents 50% of
your holdings because of its increase in value. If you had chosen to have
your holdings rebalanced quarterly, on the first business day of the next
quarter, Cova would sell some of your units in the Quality Bond Portfolio
to bring its value back to 40% and use the money to buy more units in the
Select Equity Portfolio to increase those holdings to 60%.
Voting Rights
Cova is the legal owner of the investment portfolio shares. However, Cova
believes that when an investment portfolio solicits proxies in conjunction with
a vote of shareholders, it is required to obtain from you and other affected
owners instructions as to how to vote those shares. When we receive those
instructions, we will vote all of the shares we own in proportion to those
instructions. This will also include any shares that Cova owns on its own
behalf. Should Cova determine that it is no longer required to comply with the
above, we will vote the shares in our own right.
Substitution
Cova may be required to substitute one or more of the investment portfolios you
have selected with another portfolio. We would not do this without the prior
approval of the Securities and Exchange Commission. We will give you notice of
our intent to do this. Cova may limit further purchases in an investment
portfolio if it deems the investment inappropriate.
EXPENSES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses are:
Mortality and Expense Risk Charge
This charge is equivalent, on an annual basis, to .85% of the daily value of the
contracts invested in an investment portfolio, after fund expenses have been
deducted. This charge is for all the insurance benefits e.g., guarantee of
annuity rates, the death benefits, for certain expenses of the contract, and for
assuming the risk (expense risk) that the current charges will be insufficient
in the future to cover the cost of administering the contract. This charge is
also for administrative expenses. Cova may use any profits it makes from this
charge to pay for the costs of distributing the contract.
Contract Maintenance Charge
During the accumulation phase, every year on the anniversary of the date when
your contract was issued, Cova deducts $30 from your contract as a contract
maintenance charge. This charge is for administrative expenses (see above). This
charge cannot be increased.
Cova will not deduct this charge during the accumulation phase if when the
deduction is to be made, the value of your contract is $50,000 or more. Cova may
some time in the future discontinue this practice and deduct the charge.
If you make a complete withdrawal from your contract, the contract maintenance
charge will also be deducted. A pro rata portion of the charge will be deducted
if the annuity date is other than an anniversary. After the annuity date, the
charge will be collected out of each annuity payment.
Sales Charge
Cova deducts a sales charge from a gross purchase payment before the payment is
allocated to an investment portfolio and/or the fixed account. The amount of the
sales charge depends on the "owner's investment." The owner's investment for the
initial purchase payment equals the amount of the initial gross purchase
payment. The owner's investment for subsequent purchase payments equals the
amount of the subsequent gross purchase payment and the value of your contract
on the day Cova receives the subsequent gross purchase payment. The charge is:
Sales Charge (as a percentage
Owner's Investment of gross purchase payment)
-------------------- ----------------------------
Less than $50,000 5.75%
$50,000 - $99,999.99 4.50%
$100,000 - $249,999.99 3.50%
$250,000 - $499,999.99 2.50%
$500,000 - $999,999.99 2.00%
$1,000,000 or greater 1.00%
How to Reduce the Sales Charge
You may be able to lower the sales charge you pay by indicating in writing the
amount of gross purchase payments you intend to make during a 13-month period.
You have 13 months from the date Cova receives the written indication to make
the purchase payments you chose as your goal. We will deduct the sales charge
based on the total of the purchase payments intended to be made if less than the
sales charge as calculated above based on the owner's investment. You are not
obligated to reach your purchase payment goal. If you do not make the amount of
purchase payments you indicated during the 13-month period, we will deduct an
additional charge from your contract in the 14th month equal to the difference
between the sales charge determined with the intended purchase payments and the
sales charge determined with the actual purchase payments made during the 13
months. Any additional sales charge will be deducted during the 14th month from
the investment portfolios and the fixed account in the ratio that they bear to
the value of your contract. Cova reserves the right to modify, suspend or
terminate this feature at any time.
In addition, Cova will reduce or eliminate the amount of the sales charge when
the contract is sold under circumstances which reduce its sales expense. Some
examples are: if there is a large group of individuals that will be purchasing
the contract or a prospective purchaser already had a relationship with Cova.
Cova may not deduct a sales charge under a contract issued to an officer,
director or employee of Cova or any of its affiliates.
Premium Taxes
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. Cova is responsible for the payment of these
taxes and will make a deduction from the value of the contract for them. Some of
these taxes are due when the contract is issued, others are due when annuity
payments begin. It is Cova's current practice to not charge anyone for these
taxes until annuity payments begin. Cova may some time in the future discontinue
this practice and assess the charge when the tax is due. Premium taxes generally
range from 0% to 4%, depending on the state.
Transfer Fee
You can make 12 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 per transfer. We will deduct the transfer fee from the
investment portfolio and/or the fixed account from which the transfer is made or
from the amount transferred if the entire amount in the investment portfolio
and/or the fixed account is transferred.
If the transfer is part of the Dollar Cost Averaging Program or the Automatic
Rebalancing Program, it will not count in determining the transfer fee.
Income Taxes
Cova will deduct from the contract for any income taxes which it incurs because
of the contract. At the present time, we are not making any such deductions.
Investment Portfolio Expenses
There are deductions from and expenses paid out of the assets of the various
investment portfolios, which are described in the fund prospectuses.
TAXES
NOTE: Cova has prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. Cova has
included in the Statement of Additional Information an additional discussion
regarding taxes.
Annuity Contracts in General
Annuity contracts are a means of setting aside money for future needs -- usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated, these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of contract --
qualified or non-qualified (see following sections).
You, as the owner, will not be taxed on increases in the value of your contract
until a distribution occurs --either as a withdrawal or as annuity payments.
When you make a withdrawal you are taxed on the amount of the withdrawal that is
earnings. For annuity payments, different rules apply. A portion of each annuity
payment is treated as a partial return of your purchase payments and will not be
taxed. The remaining portion of the annuity payment will be treated as ordinary
income. How the annuity payment is divided between taxable and non-taxable
portions depends upon the period over which the annuity payments are expected to
be made. Annuity payments received after you have received all of your purchase
payments are fully includible in income.
When a non-qualified contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than a trust holding the contract as
an agent for a natural person), the contract will generally not be treated as an
annuity for tax purposes.
Qualified and Non-Qualified Contracts
If you purchase the contract as an individual and not under any pension plan,
specially sponsored program or an individual retirement annuity, your contract
is referred to as a non-qualified contract.
If you purchase the contract under a pension plan, specially sponsored program,
or an individual retirement annuity, your contract is referred to as a qualified
contract. Examples of qualified plans are: Individual Retirement Annuities
(IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b) contracts), and
pension and profit-sharing plans, which include 401(k) plans and H.R. 10 plans.
A qualified contract will not provide any necessary or additional tax deferral
if it is used to fund a qualified plan that is tax deferred. However, the
contract has features and benefits other than tax deferral that may make it an
appropriate investment for a qualified plan. You should consult your tax
adviser regarding these features and benefits prior to purchasing a qualified
contract.
Withdrawals - Non-Qualified Contracts
If you make a withdrawal from your contract, the Code treats such a withdrawal
as first coming from earnings and then from your purchase payments. Such
withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts:
(1) paid on or after the taxpayer reaches age 59 1/2;
(2) paid after you die;
(3) paid if the taxpayer becomes totally disabled (as that term is defined in
the Code);
(4) paid in a series of substantially equal payments made annually (or more
frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
Withdrawals - Qualified Contracts
If you make a withdrawal from your qualified contract, a portion of the
withdrawal is treated as taxable income. This portion depends on the ratio of
pre-tax purchase payments to the after-tax purchase payments in your contract.
If all of your purchase payments were made with pre-tax money then the full
amount of any withdrawal is includible in taxable income. Special rules may
apply to withdrawals from certain types of qualified contracts.
The Code also provides that any amount received under a qualified contract
which is included in income may be subject to a penalty. The amount of the
penalty is equal to 10% of the amount that is includible in income. Some
withdrawals will be exempt from the penalty. They include any amounts:
(1) paid on or after you reach age 59 1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the
Code);
(4) paid to you after leaving your employment in a series of substantially
equal periodic payments made annually (or more frequently) under a
lifetime annuity;
(5) paid to you after you have attained age 55 and you have left your
employment;
(6) paid for certain allowable medical expenses (as defined in the Code);
(7) paid pursuant to a qualified domestic relations order;
(8) paid on account of an IRS levy upon the qualified contract;
(9) paid from an IRA for medical insurance (as defined in the Code);
(10) paid from an IRA for qualified higher education expenses; or
(11) paid from an IRA for up to $10,000 for qualified first-time homebuyer
expenses (as defined in the Code).
The exceptions in (5) and (7) above do not apply to IRAs. The exception in
(4) above applies to IRAs but without the requirement of leaving employment.
We have provided a more complete discussion in the Statement of Additional
Information.
Withdrawals - Tax-Sheltered Annuities
The Code limits the withdrawal of amounts attributable to purchase payments made
under a salary reduction agreement by owners from Tax-Sheltered Annuities.
Withdrawals can only be made when an owner:
(1) reaches age 59 1/2;
(2) leaves his/her job;
(3) dies;
(4) becomes disabled (as that term is defined in the Code); or
(5) in the case of hardship.
However, in the case of hardship, the owner can only withdraw the purchase
payments and not any earnings.
Diversification
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Cova believes that the investment portfolios are being managed
so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Cova would be
considered the owner of the shares of the investment portfolios. If you are
considered the owner of the shares, it will result in the loss of the favorable
tax treatment for the contract. It is unknown to what extent owners are
permitted to select investment portfolios, to make transfers among the
investment portfolios or the number and type of investment portfolios owners may
select from without being considered the owner of the shares. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean that you, as the
owner of the contract, could be treated as the owner of the investment
portfolios.
Due to the uncertainty in this area, Cova reserves the right to modify the
contract in an attempt to maintain favorable tax treatment.
ACCESS TO YOUR MONEY
You can have access to the money in your contract:
o by making a withdrawal (either a partial or a complete withdrawal);
o by electing to receive annuity payments; or
o when a death benefit is paid to your beneficiary.
Under most circumstances, withdrawals can only be made during the accumulation
phase.
When you make a complete withdrawal you will receive the value of the contract
on the day you made the withdrawal, less any contract maintenance charge. Cova
will pay the amount of a withdrawal from the investment portfolios within 7 days
of the withdrawal request unless the Suspension of Payments or Transfers
provision is in effect (see below).
Unless you instruct Cova in advance otherwise, any partial withdrawal will be
made pro rata from all the investment portfolios and the fixed account. Under
most circumstances, the amount of any partial withdrawal must be for at least
$500. Cova requires that after a partial withdrawal is made you keep at least
$500 in any selected investment portfolio or the fixed account.
There are limits to the amount you can withdraw from a qualified plan referred
to as a 403(b) plan. For a more complete explanation see "Taxes" and the
discussion in the Statement of Additional Information.
Income taxes, tax penalties and certain restrictions may apply to any withdrawal
you make.
Suspension of Payments or Transfers
Cova may be required to suspend or postpone payments for withdrawals or
transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the
investment portfolios is not reasonably practicable or Cova cannot
reasonably value the shares of the investment portfolios;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of owners.
Cova has reserved the right to defer payment for a withdrawal or transfer from
the fixed account for the period permitted by law but not for more than six
months.
Systematic Withdrawal Program
You may use the Systematic Withdrawal Program. This program provides automatic
monthly payments to you. Cova does not charge for participation in this program,
but reserves the right to charge in the future.
Income taxes, tax penalties and certain restrictions may apply to Systematic
Withdrawals.
PERFORMANCE
Cova periodically advertises performance of the various investment portfolios.
Cova will calculate performance by determining the percentage change in the
value of an accumulation unit by dividing the increase (decrease) for that unit
by the value of the accumulation unit at the beginning of the period. This
performance number reflects the deduction of the mortality and expense risk
charge and the operating expenses of the portfolios. It does not reflect the
deduction of any applicable contract maintenance charge and sales charge. The
deduction of any applicable contract maintenance charge and sales charge would
reduce the percentage increase or make greater any percentage decrease. Any
advertisement will also include total return figures which reflect the deduction
of the sales charge, mortality and expense risk charge, contract maintenance
charge and the operating expenses of the portfolios.
For periods starting prior to the date the contracts were first offered, the
performance will be based on the historical performance of the corresponding
investment portfolios for the periods commencing from the date on which the
particular investment portfolio was made available through the Separate Account.
In addition, for certain investment portfolios performance may be shown for the
period commencing from the inception date of the investment portfolio.
Cova may, from time to time, include in its advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
Appendix B contains performance information that you may find informative. It
is divided into various parts, depending upon the type of performance
information shown. Future performance will vary and the results shown are not
necessarily representative of future results.
DEATH BENEFIT
Upon Your Death
If you die before annuity payments begin, Cova will pay a death benefit to your
beneficiary (see below). Joint owners must be spouses. The surviving joint owner
will be treated as the beneficiary.
If you, or a joint owner, who is not the annuitant, die during the income phase,
any remaining payments under the annuity option elected will continue at least
as rapidly as under the method of distribution in effect at your death. If you
die during the income phase, the beneficiary will become the owner of the
contract.
At the time you buy the contract, you can select the Annual Step-Up Option or
the Five Year Step-Up with 4% Accumulation Option. If you do not choose a death
benefit option on the forms provided by Cova, the Annual Step-Up Option will be
your death benefit.
The death benefits are described below. If you have a joint owner, the death
benefit is determined based on the age of the oldest joint owner and the death
benefit is payable on the death of the first joint owner.
Annual Step-Up Option:
The death benefit will be the greatest of:
1. Gross purchase payments less any withdrawals; or
2. The value of your contract determined on the business day following the day
when Cova receives both due proof of death and an election for payment; or
3. The greatest contract value (as explained below).
The greatest contract value is evaluated at each contract anniversary prior to
the date of your or your joint owner's death and on each day a purchase payment
or withdrawal is made. On the contract anniversary, if the current contract
value exceeds the greatest contract value, the greatest contract value will
be increased to the current value of your contract. If a purchase payment is
made, the amount of the gross purchase payment will increase the greatest
contract value. If a withdrawal is made, the greatest contract value will
be reduced by the amount withdrawn.
After you or your joint owner attains age 80, the greatest contract value is no
longer evaluated at each contract anniversary. On the contract anniversary on or
before your, or your joint owner's, 80th birthday, if the current contract value
exceeds the greatest contract value, the greatest contract value will be
increased to the current contract value. If a purchase payment is made,
including after age 80, the amount of the gross purchase payment will increase
the greatest contract value. If a withdrawal is made, including after age 80,
the greatest contract value will be reduced by the amount withdrawn.
Five Year Step-Up with 4% Accumulation Option:
The death benefit will be the greatest of:
1. Gross purchase payments, less any withdrawals made on or before your or
your joint owner's 80th birthday, accumulated at an effective annual rate
of 4% until the owner's or joint owner's 80th birthday or death; plus any
subsequent gross purchase payments less any subsequent withdrawals made
subsequent to the owner's or a joint owner's 80th birthday; or
2. The value of your contract determined on the business day following the day
when Cova receives both due proof of death and an election for payment; or
3. The greatest of the values of your contract resulting from taking the
contract value on any 5 year contract anniversary while the owner, or a
joint owner is living, on or before your, or your joint owner's 80th
birthday, plus any gross purchase payments you made subsequent to that
contract anniversary, less any withdrawals subsequent to that contract
anniversary.
In certain states, one or both of the death benefit options described above may
not be available. Check your contract for your applicable death benefit
provision.
The entire death benefit must be paid within 5 years of the date of death unless
the beneficiary elects to have the death benefit payable under an annuity
option. The death benefit payable under an annuity option must be paid over the
beneficiary's lifetime or for a period not extending beyond the beneficiary's
life expectancy. Payment must begin within one year of the date of death. If the
beneficiary is the spouse of the owner, he/she can continue the contract in
his/her own name at the then current value. If a lump sum payment is elected and
all the necessary requirements are met, the payment will be made within 7 days.
The amount of the death benefit is determined as of the end of the business day
during which Cova receives both due proof of death and an election for the
payment option. The death benefit amount remains in the investment portfolios
and/or the fixed account until distribution begins. From the time we determine
the death benefit until we make a complete distribution, any amount in an
investment portfolio will be subject to investment risk which is borne by the
beneficiary.
Death of Annuitant
If the annuitant, not an owner or joint owner, dies during the accumulation
phase, you, as the owner automatically become the annuitant. You can name a new
annuitant, subject to Cova's administrative rules then in effect. If the owner
is a non-natural person (for example, a corporation), then the death or change
of annuitant will be treated as the death of the owner, and a new annuitant may
not be named.
Upon the death of the annuitant during the income phase, the death benefit, if
any, will be as provided for in the annuity option selected and will be paid at
least as rapidly as under the method of distribution in effect at the
annuitant's death.
OTHER INFORMATION
Cova
Cova Financial Services Life Insurance Company (Cova) was incorporated on August
17, 1981 as Assurance Life Company, a Missouri corporation, and changed its name
to Xerox Financial Services Life Insurance Company in 1985. On June 1, 1995, a
wholly-owned subsidiary of General American Life Insurance Company (General
American Life) purchased Cova which on that date changed its name to Cova
Financial Services Life Insurance Company. On January 6, 2000, Metropolitan Life
Insurance Company (MetLife) acquired GenAmerica Corporation, the ultimate parent
company of General American Life. The acquisition of GenAmerica Corporation does
not affect policy benefits or any other terms or conditions under your contract.
MetLife, headquartered in New York City since 1868, is a leading provider of
insurance and financial products and services to individual and group customers.
Cova is licensed to do business in the District of Columbia and all states
except California, Maine, New Hampshire, New York and Vermont.
The Separate Account
Cova has established a separate account, Cova Variable Annuity Account One
(Separate Account), to hold the assets that underlie the contracts (except the
assets allocated to the fixed account). The Board of Directors of Cova adopted a
resolution to establish the Separate Account under Missouri insurance law on
February 24, 1987. We have registered the Separate Account with the Securities
and Exchange Commission as a unit investment trust under the Investment Company
Act of 1940. The Separate Account is divided into sub-accounts.
The assets of the Separate Account are held in Cova's name on behalf of the
Separate Account and legally belong to Cova. However, those assets that underlie
the contracts are not chargeable with liabilities arising out of any other
business Cova may conduct. All the income, gains and losses (realized or
unrealized) resulting from these assets are credited to or charged against the
contracts and not against any other contracts Cova may issue.
Distributor
Cova Life Sales Company (Life Sales), One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644, acts as the distributor of the contracts. Life
Sales is an affiliate of Cova.
Commissions will be paid to broker-dealers who sell the contracts.
Broker-dealers will be paid commissions ranging up to 5.0% of purchase payments,
depending on the size of the purchase payment. Commissions are reduced once
certain breakpoints in purchase payments and/or contract value are achieved for
a contract. In addition, broker-dealers will be paid annual trail commissions in
the amount of .25% of purchase payments, beginning in year 2.
Ownership
Owner. You, as the owner of the contract, have all the interest and rights under
the contract. The owner is as designated at the time the contract is issued,
unless changed. You can change the owner at any time. A change will
automatically revoke any prior designation of an owner.
The change must be:
o made in writing; and
o received at Cova's Service Office.
The change will become effective as of the date when the written request is
signed. A new designation of owner will not apply to any payment Cova makes or
action it takes before it receives the change.
Joint Owner. The contract can be owned by joint owners. Any joint owner must be
the spouse of the other owner (except in states which do not allow this
limitation on joint owners). Upon the death of either joint owner, the surviving
joint owner will be the primary beneficiary. Any other beneficiary designation
at the time the contract was issued or as may have been later changed will be
treated as a contingent beneficiary unless otherwise indicated. Joint owners
must both authorize exercising any ownership rights (except telephone transfers)
unless Cova permits otherwise.
Annuitant
The annuitant is the person whose life we look to when we make annuity payments.
You may change the annuitant at any time prior to the annuity date unless the
contract is owned by a non-natural person (e.g., a corporation). On or after the
annuity date, any reference to the annuitant includes any joint annuitant.
Beneficiary
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued unless
changed at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before you die by written request at
Cova's Service Office. The change is effective as of the date you signed the
notice.
Assignment
You can assign the contract at any time before the annuity date. Cova will not
be bound by the assignment until it receives the written notice of the
assignment at its Service Office. Cova will not be liable for any payment or
other action we take in accordance with the contract before we receive notice of
the assignment. An assignment may be a taxable event.
If the contract is issued pursuant to a qualified plan, there may be limitations
on your ability to assign the contract.
Financial Statements
The consolidated financial statements of Cova and the Separate Account have been
included in the Statement of Additional Information.
Table of Contents of the
Statement of Additional Information
Company
Experts
Legal Opinions
Distribution
Calculation of Performance Information
Federal Tax Status
Annuity Provisions
Financial Statements
APPENDIX A
PARTICIPATING INVESTMENT PORTFOLIOS
Below are the investment objectives and strategies of each investment portfolio
available under the Contract. The fund prospectuses contain more complete
information including a description of the investment objectives, policies,
restrictions and risks. THERE CAN BE NO ASSURANCE THAT THE INVESTMENT
OBJECTIVES WILL BE ACHIEVED.
AIM VARIABLE INSURANCE FUNDS:
AIM Variable Insurance Funds is a mutual fund with multiple portfolios.
A I M Advisors, Inc. is the investment adviser to each portfolio.
The following portfolios are available under the contract:
AIM V.I. CAPITAL APPRECIATION FUND
Investment Objective: The Fund's investment objective is growth of capital
through investment in common stocks, with emphasis on medium- and small-sized
companies. The portfolio managers focus on companies they believe are
likely to benefit from new or innovative products, services or processes
as well as those that have experienced above-average, long-term growth in
earnings and have excellent prospects for future growth.
AIM V.I. INTERNATIONAL EQUITY FUND
Investment Objective: The Fund's investment objective is to achieve long-term
growth of capital by investing in a diversified portfolio of international
equity securities whose issuers are considered to have strong earnings momentum.
AIM V.I. VALUE FUND
Investment Objective: The Fund's investment objective is to achieve long-term
growth of capital by investing primarily in equity securities judged by the
Fund's investment advisor to be undervalued relative to the investment
advisor's appraisal of the current or projected earnings of the companies
issuing the securities, or relative to current market values of assets
owned by the companies issuing the securities or relative to the equity
market generally. Income is a secondary objective.
COVA SERIES TRUST:
Cova Series Trust is managed by Cova Investment Advisory Corporation (Cova
Advisory), which is an affiliate of Cova. Cova Series Trust is a mutual fund
with multiple portfolios. Cova Advisory has engaged sub-advisers to provide
investment advice for the individual investment portfolios. The following
portfolios are available under the contract:
PORTFOLIOS MANAGED BY J. P. MORGAN INVESTMENT MANAGEMENT INC.:
INTERNATIONAL EQUITY PORTFOLIO
Investment Objective: The International Equity Portfolio seeks to provide a high
total return from a portfolio of equity securities of foreign corporations.
LARGE CAP STOCK PORTFOLIO
Investment Objective: The Large Cap Stock Portfolio seeks to provide long-term
growth of capital and income.
QUALITY BOND PORTFOLIO
Investment Objective: The Quality Bond Portfolio seeks to provide a high total
return consistent with moderate risk of capital and maintenance of liquidity.
SELECT EQUITY PORTFOLIO
Investment Objective: The Select Equity Portfolio seeks to provide long-term
growth of capital and income.
SMALL CAP STOCK PORTFOLIO
Investment Objective: The Small Cap Stock Portfolio seeks to provide a high
total return from a portfolio of equity securities of small companies.
PORTFOLIOS MANAGED BY LORD, ABBETT & CO.:
BOND DEBENTURE PORTFOLIO
Investment Objective: The Bond Debenture Portfolio seeks to provide high current
income and the opportunity for capital appreciation to produce a high total
return.
DEVELOPING GROWTH PORTFOLIO
Investment Objective: The Developing Growth Portfolio seeks long-term growth of
capital through a diversified and actively-managed portfolio consisting of
developing growth companies, many of which are traded over the counter.
LARGE CAP RESEARCH PORTFOLIO
Investment Objective: The Large Cap Research Portfolio seeks growth of capital
and growth of income consistent with reasonable risk.
LORD ABBETT GROWTH AND INCOME PORTFOLIO
Investment Objective: The Lord Abbett Growth and Income Portfolio seeks to
achieve long-term growth of capital and income without excessive fluctuation in
market value.
MID-CAP VALUE PORTFOLIO
Investment Objective: The Mid-Cap Value Portfolio seeks capital appreciation
through investments, primarily in equity securities, which are believed to be
undervalued in the marketplace.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST, CLASS 1 SHARES:
Franklin Templeton Variable Insurance Products Trust is a mutual fund with
multiple portfolios. Effective May 1, 2000, the portfolios of Templeton Variable
Products Series Fund were merged into similar portfolios of Franklin Templeton
Variable Insurance Products Trust. Each portfolio has two classes of shares:
Class 1 and Class 2. The portfolios available in connection with your contract
are Class 1 shares. Franklin Advisers, Inc. is the investment adviser for the
Franklin Large Cap Growth Securities Fund, the Franklin Small Cap Fund and the
Templeton Global Income Securities Fund. Templeton Investment Counsel, Inc. is
the investment adviser for the Templeton International Securities Fund.
Templeton Global Advisors Limited is the investment adviser for the Templeton
Growth Securities Fund. The following portfolios are available under the
contract:
FRANKLIN LARGE CAP GROWTH SECURITIES FUND (the surviving fund of the
merger with Franklin Large Cap Growth Investments Fund)
Investment Objective and Principal Investments: The Fund's investment goal
is capital appreciation. Under normal market conditions, the Fund will
invest at least 65% of its total assets in equity securities of large cap
growth companies that are expected to have revenue growth in excess of the
economy as a whole either through above-average industry expansion or
market share gains.
FRANKLIN SMALL CAP FUND (the surviving fund of the merger with
Franklin Small Cap Investments Fund)
Investment Objective and Principal Investments: The Fund's investment
goal is long-term capital growth. Under normal market conditions, the
Fund will invest at least 65% of its total assets in equity securities of
U.S. small capitalization (small cap) growth companies.
TEMPLETON GLOBAL INCOME SECURITIES FUND (the surviving fund of the
merger with Templeton Bond Fund)
Investment Objective and Principal Investments: The Fund's investment goal
is high current income. Capital appreciation is a secondary consideration.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in the debt securities of governments and their political
subdivisions and agencies, supranational organizations, and companies
located anywhere in the world, including emerging markets.
TEMPLETON INTERNATIONAL SECURITIES FUND (formerly Templeton International
Fund)
Investment Objective and Principal Investments: The Fund's investment goal is
long-term capital growth. Under normal market conditions, the Fund will invest
at least 65% of its total assets in the equity securities of companies located
outside the U.S., including in emerging markets.
TEMPLETON GROWTH SECURITIES FUND (the surviving fund of the merger with
Templeton Stock Fund)
Investment Objective and Principal Investments: The Fund's investment goal is
long-term capital growth. Under normal market conditions, the Fund will invest
at least 65% of its total assets in equity securities of companies located
anywhere in the world, including in the U.S. and emerging markets.
GENERAL AMERICAN CAPITAL COMPANY
General American Capital Company is a mutual fund with multiple portfolios. Each
portfolio is managed by Conning Asset Management Company. The following
portfolio is available under the contract:
MONEY MARKET FUND
Investment Objective: The Money Market Fund's investment objective is to provide
investors with current income while preserving capital and maintaining
liquidity. The Fund seeks to achieve this objective by investing primarily in
high-quality, short-term money market instruments. The Fund purchases securities
that meet the quality, maturity, and diversification requirements applicable to
money market funds.
APPENDIX B
PERFORMANCE INFORMATION
Future performance will vary and the results shown are not necessarily
representative of future results.
PART 1 - SEPARATE ACCOUNT PERFORMANCE
o Column A presents performance figures for the accumulation units which
reflect the mortality and expense risk charge, the contract maintenance
charge, the sales charge, and the fees and expenses of the investment
portfolio. The performance shown in Column A is standardized average annual
total return performance calculated according to SEC requirements.
o Column B presents performance figures for the accumulation units which
reflect the mortality and expense risk charge as well as the expenses of
the investment portfolio.
o The inception dates shown below reflect the dates the Separate Account
first invested in the Portfolio. The performance returns for accumulation
units investing in the portfolios in existence for less than one year are
not annualized.
<TABLE>
<CAPTION>
Part 1 AIM Variable Insurance Funds
Average Annual Total Return for the periods ended December 31, 1999:
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects all (reflects mortality and
charges and expense risk charge and
portfolio expenses) portfolio expenses)
- --------------------------------------------------------------------------------------------------------------------------------
Separate Account
Inception Date Since Since
Portfolio in Portfolio 1 yr Inception 1 yr Inception
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund 12/31/97 31.87% 23.04% 40.02% 26.83%
AIM V.I. International
Equity Fund 12/31/97 44.83% 28.73% 53.77% 32.70%
AIM V.I. Value Fund 12/31/97 21.31% 26.16% 28.82% 30.05%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Part 1 Cova Series Trust
Average Annual Total Return for the periods ended December 31, 1999:
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects all (reflects mortality and
charges and expense risk charge and
portfolio expenses) portfolio expenses)
- --------------------------------------------------------------------------------------------------------------------------------
Separate Account
Inception Date Since Since
Portfolio in Portfolio 1 yr Inception 1 yr Inception
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Select Equity Portfolio 5/1/96 2.47% 16.46% 8.83% 18.44%
Small Cap Stock Portfolio 5/1/96 35.00% 14.18% 43.34% 16.14%
International Equity Portfolio 5/1/96 20.02% 12.48% 27.44% 14.41%
Quality Bond Portfolio 5/1/96 -8.09% 3.12% -2.38% 4.90%
Large Cap Stock Portfolio 5/1/96 9.90% 23.36% 16.72% 25.45%
Bond Debenture Portfolio 5/1/96 -3.44% 7.59% 2.56% 9.43%
Mid-Cap Value Portfolio 8/20/97 -1.35% 1.35% 4.77% 4.05%
Large Cap Research Portfolio 8/20/97 17.21% 14.94% 24.47% 17.99%
Developing Growth Portfolio 8/20/97 23.68% 14.32% 31.33% 17.36%
Lord Abbett Growth and Income Portfolio 1/8/99 N/A 4.05% N/A 10.50%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Part 1 Franklin Templeton Variable Insurance Products Trust, Class 1 Shares Average Annual
Total Return for the periods ended December 31, 1999:
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects all (reflects mortality and
charges and expense risk charge and
portfolio expenses) portfolio expenses)
- --------------------------------------------------------------------------------------------------------------------------------
Separate Account
Inception Date Since Since
Portfolio in Portfolio 1 yr Inception 1 yr Inception
- --------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap
<S> <C> <C> <C> <C> <C>
Fund (1) 3/1/99 N/A 93.46% N/A 105.37%
Franklin Large Cap Growth
Securities Fund (2) 3/1/99 N/A 23.20% N/A 30.82%
Templeton International
Securities Fund (3) 5/1/98 15.44% 4.04% 22.59% 7.92%
Templeton Growth Securities
Fund (4) 1/19/99 N/A 14.08% N/A 21.14%
Templeton Global Income
Securities Fund (5) 3/1/99 N/A -8.89% N/A -3.22%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Effective May 1, 2000, the Franklin Small Cap Investments Fund
(previously offered under the contract) merged into the Franklin Small
Cap Fund. Performance shown reflects historical performance of the
Franklin Small Cap Fund.
(2) Effective May 1, 2000, the Franklin Large Cap Growth Investments
Fund (previously offered under the contract) merged into the
Franklin Large Cap Growth Securities Fund. Performance shown reflects
historical performance of the Franklin Large Cap Growth Securities
Fund.
(3) Previously, the Templeton International Securities Fund was known
as the Templeton International Fund. Effective May 1, 2000, the
Templeton International Securities Fund merged into the Templeton
International Equity Fund. Performance shown reflects historical
performance of the Templeton International Securities Fund.
(4) Effective May 1, 2000, the Templeton Stock Fund (previously offered
under the contract) merged into the Templeton Growth Securities Fund.
Performance shown reflects historical performance of the Templeton
Growth Securities Fund.
(5) Effective May 1, 2000, the Templeton Bond Fund (previously offered
under the contract) merged into the Templeton Global Income Securities
Fund. Performance shown reflects historical performance of the Templeton
Global Income Securities Fund.
<TABLE>
<CAPTION>
APPENDIX
PERFORMANCE INFORMATION (continued)
Part 1 General American Capital Company
Average Annual Total Return for the periods ended December 31, 1999:
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects all (reflects mortality and
charges and expense risk charge and
portfolio expenses) portfolio expenses)
- --------------------------------------------------------------------------------------------------------------------------------
Separate Account
Inception Date Since Since
Portfolio in Portfolio 1 yr Inception 1 yr Inception
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund 6/3/96 -1.78% 2.79% 4.32% 4.62%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
APPENDIX
PERFORMANCE INFORMATION (continued)
PART 2 - HISTORICAL FUND PERFORMANCE
Shares of certain portfolios have been offered prior to the time the Separate
Account first invested in them and therefore have an investment performance
history. In order to show how investment performance of certain portfolios
affect accumulation unit values, we have developed performance information.
The chart below shows the investment performance of the portfolio and the
accumulation unit performance calculated by assuming that accumulation units
were invested in the portfolio for the same periods.
o The performance figures in Column A for the portfolio reflect the fees and
expenses paid by the portfolio.
o Column B presents performance figures for the accumulation units which
reflect the mortality and expense risk charge, the contract maintenance
charge, the sales charge and the expenses of the portfolio.
o Column C presents performance figures for the accumulation units which
reflect the mortality and expense risk charge as well as the fees and
expenses of the portfolio.
<TABLE>
<CAPTION>
Part 2 AIM Variable Insurance Funds
Average Annual Total Return for the periods ended December 31, 1999:
- --------------------------------------------------------------------------------------------------------------------------------
Fund Performance Accumulation Unit Performance
Column B Column C
(reflects all (reflects mortality and
charges and expense risk charge and
Column A portfolio expenses) portfolio expenses)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio
Inception Since Since Since
Portfolio Date 1 yr 5 yrs Inception 1 yr 5 yrs Inception 1 yr 5 yrs Inception
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund 5/5/93 44.61% 25.59% 22.33% 31.87% 21.32% 18.85% 40.02% 22.84% 19.98%
AIM V.I. International
Equity Fund 5/5/93 55.04% 21.93% 18.82% 44.83% 19.40% 16.70% 53.77% 20.91% 17.82%
AIM V.I. Value Fund 5/5/93 29.90% 27.23% 23.07% 21.31% 24.62% 20.88% 28.82% 26.17% 22.03%
- --------------------------------------------------------------------------------------------------------------------------------
Part 2 Cova Series Trust
Average Annual Total Return for the periods ended December 31, 1999:
- --------------------------------------------------------------------------------------------------------------------------------
Fund Performance Accumulation Unit Performance
Column B Column C
(reflects all (reflects mortality and
charges and expense risk charge and
Column A portfolio expenses) portfolio expenses)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio
Inception Since Since Since
Portfolio Date 1 yr Inception 1 yr Inception 1 yr Inception
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Select Equity Portfolio 5/1/96 9.71% 19.44% 2.47% 16.46% 8.83% 18.44%
Small Cap Stock Portfolio 5/1/96 44.56% 17.30% 35.00% 14.18% 43.34% 16.14%
International Equity Portfolio 5/1/96 28.52% 15.26% 20.02% 12.48% 27.44% 14.41%
Quality Bond Portfolio 5/1/96 -1.54% 5.79% -8.09% 3.12% -2.38% 4.90%
Large Cap Stock Portfolio 5/1/96 17.64% 26.52% 9.90% 23.36% 16.72% 25.45%
Bond Debenture Portfolio 5/1/96 3.40% 10.32% -3.44% 7.59% 2.56% 9.43%
Mid-Cap Value Portfolio 8/20/97 5.71% 4.95% -1.35% 1.35% 4.77% 4.05%
Large Cap Research Portfolio 8/20/97 25.54% 18.96% 17.21% 14.94% 24.47% 17.99%
Developing Growth Portfolio 8/20/97 32.47% 18.35% 23.68% 14.32% 31.33% 17.36%
Lord Abbett Growth and Income
Portfolio 1/8/99 N/A 11.38% N/A 4.05% N/A 10.50%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
APPENDIX
PERFORMANCE INFORMATION (continued)
Part 2 Franklin Templeton Variable Insurance Products Trust, Class 1 Shares Average Annual
Total Return for the periods ended December 31, 1999:
- --------------------------------------------------------------------------------------------------------------------------------
Fund Performance Accumulation Unit Performance
Column B Column C
(reflects all (reflects mortality and
charges and expense risk charge and
Column A portfolio expenses) portfolio expenses)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio
Inception Since Since Since
Portfolio Date 1 yr 5 yrs Inception 1 yr 5 yrs Inception 1 yr 5 yrs Inception
- --------------------------------------------------------------------------------------------------------------------------------
Templeton International
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Fund (1) 5/1/92 23.61% 17.21% 15.36% 15.44% 14.78% 13.43% 22.59% 16.22% 14.39%
Templeton Growth Securities
Fund (2) 3/15/94 21.04% 15.40% 13.76% 13.03% 13.01% 11.57% 20.03% 14.43% 12.80%
Templeton Global Income
Securities Fund (3) 1/24/89 -5.79% 5.39% 5.88% -12.06% 3.18% 4.29% -6.59% 4.50% 4.99%
Franklin Small Cap Fund (4) 11/1/95 96.94% N/A 30.41% 84.03% N/A 27.40% 95.36% N/A 29.33%
Franklin Large Cap Growth
Securities Fund (5) 5/1/96 31.65% N/A 22.85% 22.95% N/A 9.33% 30.56% N/A 21.84%
- --------------------------------------------------------------------------------------------------------------------------------
(1) Previously, Templeton International Fund. Effective May 1, 2000, the
Templeton International Securities Fund merged into the Templeton International
Equity Fund. Performance shown reflects historical performance and inception date
of the Templeton International Securities Fund.
(2) Effective May 1, 2000, the Templeton Stock Fund (previously offered under
the contract) merged into the Templeton Growth Securities Fund. Performance shown
reflects historical performance and inception date of the Templeton Growth
Securities Fund.
(3) Effective May 1, 2000, the Templeton Bond Fund (previously offered under
the contract) merged into the Templeton Global Income Securities Fund.
Performance shown reflects historical performance and inception date of the
Templeton Global Income Securities Fund.
(4) Effective May 1, 2000, the Franklin Small Cap Investments Fund (previously
offered under the contract) merged into the Franklin Small Cap Fund. Performance
shown reflects historical performance and inception date of the Franklin Small Cap
Fund.
(5) Effective May 1, 2000, the Franklin Large Cap Growth Investments Fund
(previously offered under the contract) merged into the Franklin Large Cap Growth
Securities Fund. Performance shown reflects historical performance and inception
date of the Franklin Large Cap Growth Securities Fund.
</TABLE>
<TABLE>
<CAPTION>
Part 2 General American Capital Company
Average Annual Total Return for the periods ended December 31, 1999:
- --------------------------------------------------------------------------------------------------------------------------------
Fund Performance Accumulation Unit Performance
Column B Column C
(reflects all (reflects mortality and
charges and expense risk charge and
Column A portfolio expenses) portfolio expenses)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio
Inception
Portfolio Date 1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund 10/1/87 5.20% 5.60% 5.35% -1.78% 3.38% 3.76% 4.32% 4.71% 4.46%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please send me, at no charge, the Statement of Additional Information dated
May 1, 2000, for the Series A Annuity Contract issued by Cova.
(Please print or type and fill in all information)
- - ------------------------------------------------------------------------------
Name
- - ------------------------------------------------------------------------------
Address
- - ------------------------------------------------------------------------------
City State Zip Code
CL-4321 (5/00) COVA VA-MO
- - ------------------------------
- - ------------------------------
- - ------------------------------
Cova Financial Services Life
Insurance Company
Attn: Variable Products
One Tower Lane
Suite 3000
Oakbrook Terrace, Illinois 60181-4644
COVA
Cova Financial Services Life Insurance Company
Marketing and Executive Office
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
800-523-1661
Annuity Service Office
P.O. Box 10366
Des Moines, IA 50306
800-343-8496
CL-4319 (2/00) Policy Form Series CL-4155 21-SERA-MO(2/00)
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT
issued by
COVA VARIABLE ANNUITY ACCOUNT ONE
AND
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 2000 FOR THE SERIES A
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, 2000.
TABLE OF CONTENTS
Page
COMPANY
EXPERTS
LEGAL OPINIONS
DISTRIBUTION
REDUCTION OR ELIMINATION OF SALES CHARGE
CALCULATION OF PERFORMANCE INFORMATION
Total Return
Historical Unit Values
Reporting Agencies
FEDERAL TAX STATUS
General
Diversification
Multiple Contracts
Contracts Owned by Other than Natural Persons
Tax Treatment of Assignments
Death Benefits
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
Tax-Sheltered Annuities - Withdrawal Limitations
ANNUITY PROVISIONS
Variable Annuity
Fixed Annuity
Annuity Unit
Net Investment Factor
Mortality and Expense Guarantee
FINANCIAL STATEMENTS
COMPANY
Cova Financial Services Life Insurance Company (the "Company") was originally
incorporated on August 17, 1981 as Assurance Life Company, a Missouri
corporation and changed its name to Xerox Financial Services Life Insurance
Company in 1985. On June 1, 1995 a wholly-owned subsidiary of General American
Life Insurance Company ("General American Life") purchased the Company from
Xerox Financial Services, Inc. The Company changed its name to Cova Financial
Services Life Insurance Company. On January 6, 2000, Metropolitan Life Insurance
Company (MetLife) acquired GenAmerica Corporation, the ultimate parent company
of General American Life. The acquisition of GenAmerica Corporation does not
affect policy benefits or any other terms or conditions under your contract.
MetLife, headquartered in New York City since 1868, is a leading provider of
insurance and financial products and services to individual and group customers.
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.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1999 and 1998,
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,
1999, and the statement of assets and liabilities of the Separate Account as of
December 31, 1999, 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 SALES CHARGE
The amount of the Sales 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 Sales 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 Sales Charge.
The Sales 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 Sales Charge be permitted where the
reduction or elimination of the Sales Charge 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 .85% Mortality and Expense Risk Charge, the Sales Charge and the
expenses for the underlying investment portfolio being advertised and any
applicable Contract Maintenance Charge.
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 Charge and any Sales 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
<TABLE>
<CAPTION>
<S> <C> <C>
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.
</TABLE>
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 the
Sales Charge and Contract Maintenance Charge. The deduction of any Sales Charge
and Contract Maintenance Charge would reduce any percentage increase or make
greater any percentage decrease.
For periods starting prior to the date the contracts were first offered, the
performance will be based on the historical performance of the corresponding
investment portfolios for the periods commencing from the date on which the
particular investment portfolio was made available through the Separate Account.
In addition, for certain investment portfolios performance may be shown for the
period commencing from the inception date of the investment portfolio.
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.
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 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.
PARTIAL 1035 EXCHANGES
Section 1035 of the Code provides that an annuity contract may be exchanged in
a tax-free transaction for another annuity contract. Historically, it was
presumed that only the exchange of an entire contract, as opposed to a
partial exchange, would be accorded tax-free status. In 1998 in CONWAY VS.
COMMISSIONER, the Tax Court held that the direct transfer of a portion of
an annuity contract into another annuity contract qualified as a non-taxable
exchange. On November 22, 1999, the Internal Revenue Service filed an Action
on Decision which indicated that it acquiesced in the Tax Court decision in
CONWAY. However, in its acquiescence with the decision of the Tax Court, the
Internal Revenue Service stated that it will challenge transactions where
taxpayers enter into a series of partial exchanges and annuitizations as part
of a design to avoid application of the 10% premature distribution penalty or
other limitations imposed on annuity contracts under the Code. In the absence
of further guidance from the Internal Revenue Service it is unclear what
specific types of partial exchange designs and transactions will be challenged
by the Internal Revenue Service. Due to the uncertainty in this area owners
should consult their own tax advisers prior to entering into a partial exchange
of an annuity contract.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation or certain other entities. Such Contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to a Contract held by a trust or other entity as an
agent for a natural person nor to Contracts held by Qualified Plans. Purchasers
should consult their own tax counsel or other tax adviser before purchasing a
Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
DEATH BENEFITS
Any death benefit paid under the Contract are taxable to the beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply to the payment of death benefits and depend on whether
the death benefits are paid as a lump sum or as annuity payments. Estate taxes
may also apply.
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.
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. The Company is not
bound by the terms and conditions of such plans to the extent such terms
conflict with the terms of a Contract, unless the Company specifically consents
to be bound. Owners, participants and Beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. A qualified contract
will not provide any necessary or additional tax deferral if it is used to fund
a qualified plan that is tax deferred. However, the contract has features and
benefits other than tax deferral that may make it an appropriate investment
for a qualified plan. Following are general descriptions of the types of
Qualified Plans with which the Contracts may be used. Such descriptions are
not exhaustive and are for general informational purposes only. The tax
rules regarding Qualified Plans are very complex and will have differing
applications depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued under
a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
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 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 made on
account of an IRS levy upon the Qualified Contract; (h) 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); (i) 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 (j) 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. On the Annuity Date, a fixed number of Annuity Units will
be purchased as follows:
The first Annuity Payment is equal to A divided first by B then multiplied by C
where:
A. is the Variable Annuity Value.
B. is $1,000.
C. is the appropriate Annuity Payment amount for each $1,000 of Variable
Annuity Value for the Annuity Option elected.
Each Annuity Payment will be reduced by a pro rata portion of the annual
Contract Maintenance Charge. In each Subaccount, the fixed number of Annuity
Units is determined by dividing the amount of the initial Annuity Payment
determined for each Subaccount by the Annuity Unit value on the Annuity Date.
Thereafter, the number of Annuity Units in each Subaccount remains unchanged
unless you elect a transfer between Subaccounts. All calculations will
appropriately reflect the Annuity Payment frequency selected.
On the date of each subsequent Annuity Payment, the total Annuity Payment is the
sum of the Annuity Payments for each Subaccount reduced by the Contract
Maintenance Charge. The Annuity Payment in each Subaccount is determined by
multiplying the number of Annuity Units then allocated to such Subaccount by the
Annuity Unit value for that Subaccount.
The dollar amount of Variable Annuity Payments for each applicable Subaccount
after the first is determined as follows:
1) the dollar amount of the first Variable Annuity Payment is divided by the
Annuity Unit Value for each applicable Subaccount as of the Annuity Date.
2) the established number of Annuity Units per payment in each Subaccount is
multiplied by the Annuity Unit value for that Subaccount for the last business
day of the month preceding the month for which the payment is due. This result
is the dollar amount of the payment for each applicable Subaccount.
ANNUITY UNIT
The value of an Annuity Unit for each Subaccount was arbitrarily set initially.
This was done when the first investment portfolio shares were purchased. The
Subaccount Annuity Unit value at the end of any subsequent business day is
determined by multiplying the Subaccount Annuity Unit value for the immediately
preceding business day by the net investment factor for the day for which the
Annuity Unit Value is being calculated; and dividing the result by the factor
equivalent to the Assumed Investment Rate for the period from the immediately
preceding business day to the current business day. The Assumed Investment Rate
is 3%.
NET INVESTMENT FACTOR
The net investment factor for any Subaccount of the Variable Account for any
business day is determined by dividing:
1) the Accumulation Unit Value as of the close of the current business day; by
2) the Accumulation Unit Value as of the close of the immediately preceding
business day.
The net investment factor may be greater or less than one, as the Annuity Unit
Value may increase or decrease.
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. Each Annuity Payment will be reduced by a pro rata
portion of the annual contract maintenance charge. The first monthly Annuity
Payment will be based upon the Annuity Option elected and the appropriate
Annuity Option Table.
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, 1999 and 1998
(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 statement of assets and liabilities of each of
the sub-accounts comprising Cova Variable Annuity Account One of Cova Financial
Services Life Insurance Company (the Separate Account), as of December 31, 1999,
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, 1999 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, 1999, 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 20, 2000
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Assets and Liabilities
December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Assets:
Investments:
<S> <C> <C> <C>
Cova Series Trust (Cova):
Lord Abbett Growth and Income Portfolio 34,707,072 shares at a net asset value of $24.070563 per share $ 835,419
Bond Debenture Portfolio 12,630,708 shares at a net asset value of $12.474609 per share 157,563
Developing Growth Portfolio 2,091,722 shares at a net asset value of $14.885144 per share 31,136
Large Cap Research Portfolio 2,208,460 shares at a net asset value of $14.991245 per share 33,108
Mid-Cap Value Portfolio 2,463,026 shares at a net asset value of $11.168093 per share 27,507
Quality Bond Portfolio 8,264,208 shares at a net asset value of $10.669328 per share 88,174
Small Cap Stock Portfolio 5,647,655 shares at a net asset value of $17.268582 per share 97,527
Large Cap Stock Portfolio 10,977,166 shares at a net asset value of $20.674865 per share 226,951
Select Equity Portfolio 14,012,264 shares at a net asset value of $16.112437 per share 225,772
International Equity Portfolio 7,636,292 shares at a net asset value of $16.225039 per share 123,899
Balanced Portfolio 711,844 shares at a net asset value of $11.857810 per share 8,441
Equity Income Portfolio 511,023 shares at a net asset value of $11.168718 per share 5,707
Growth and Income Equity Portfolio 1,085,889 shares at a net asset value of $13.788230 per share 14,972
Riggs U.S. Government Securities Portfolio 29,121 shares at a net asset value of $10.044951 per share 292
Riggs Stock Portfolio 21,243 shares at a net asset value of $10.287914 per share 219
General American Capital Company (GACC):
Money Market Fund 2,118,010 shares at a net asset value of $20.252283 per share 42,895
Russell Insurance Funds (Russell):
Multi-Style Equity Fund 3,354,855 shares at a net asset value of $16.79 per share 56,328
Aggressive Equity Fund 707,879 shares at a net asset value of $13.36 per share 9,457
Non-US Fund 1,618,203 shares at a net asset value of $14.19 per share 22,962
Core Bond Fund 2,858,271 shares at a net asset value of $9.64 per share 27,554
Real Estate Securities Fund 71,678 shares at a net asset value of $8.81 per share 631
AIM Variable Insurance Funds, Inc. (AIM):
AIM V.I. Value Fund 1,270,795 shares at a net asset value of $33.50 per share 42,572
AIM V.I. Capital Appreciation Fund 425,170 shares at a net asset value of $35.58 per share 15,128
AIM V.I. International Equity Fund 165,305 shares at a net asset value of $29.29 per share 4,842
Alliance Variable Products Series
Fund, Inc. (Alliance):
Premier Growth Portfolio 972,396 shares at a net asset value of $40.45 per share 39,333
Real Estate Investment Portfolio 400,684 shares at a net asset value of $8.87 per share 3,554
Liberty Variable Investment Trust (Liberty):
Newport Tiger Fund, Variable Series 237,245 shares at a net asset value of $2.62 per share 622
Goldman Sachs Variable Insurance
Trust (Goldman Sachs):
Growth and Income Fund 586,954 shares at a net asset value of $10.89 per share 6,392
International Equity Fund 246,107 shares at a net asset value of $14.47 per share 3,561
Global Income Fund 33,771 shares at a net asset value of $9.83 per share 332
Kemper Variable Series (Kemper):
Kemper-Dreman High Return Equity Portfolio 192,771 shares at a net asset value of $0.896450 per share 173
Kemper Small Cap Growth Portfolio 662,996 shares at a net asset value of $2.653950 per share 1,760
Kemper Small Cap Value Portfolio 4,057,278 shares at a net asset value of $1.084940 per share 4,402
Kemper Government Securities Portfolio 1,982,984 shares at a net asset value of $1.156570 per share 2,293
MFS Variable Insurance Trust (MFS):
MFS Bond Series 20,057 shares at a net asset value of $10.93 per share 219
MFS Research Series 700,868 shares at a net asset value of $23.34 per share 16,358
MFS Growth with Income Series 817,962 shares at a net asset value of $21.31 per share 17,431
MFS Emerging Growth Series 752,059 shares at a net asset value of $37.94 per share 28,533
MFS/Foreign & Colonial Emerging
Markets Equity Series 18,334 shares at a net asset value of $8.15 per share 149
(Continued)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Assets and Liabilities
December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Assets, continued:
Investments, continued:
<S> <C> <C> <C>
MFS High Income Series 393,825 shares at a net asset value of $11.49 per share $ 4,525
MFS Global Governments Series 7,643 shares at a net asset value of $10.03 per share 77
Oppenheimer Variable Account Funds (Oppenheimer):
Oppenheimer Capital Appreciation Fund 149,729 shares at a net asset value of $49.84 per share 7,463
Oppenheimer Main Street Growth & Income Fund 311,375 shares at a net asset value of $24.63 per share 7,669
Oppenheimer High Income Fund 226,164 shares at a net asset value of $10.72 per share 2,424
Oppenheimer Bond Fund 915,108 shares at a net asset value of $11.52 per share 10,542
Oppenheimer Strategic Bond Fund 634,884 shares at a net asset value of $4.97 per share 3,155
Putnam Variable Trust (Putnam)
Putnam VT Growth and Income Fund 980,278 shares at a net asset value of $26.80 per share 26,271
Putnam VT New Value Fund 58,470 shares at a net asset value of $11.86 per share 693
Putnam VT Vista Fund 331,114 shares at a net asset value of $20.68 per share 6,847
Putnam VT International Growth Fund 932,755 shares at a net asset value of $21.65 per share 20,194
Putnam VT International New
Opportunities Fund 107,771 shares at a net asset value of $23.31 per share 2,512
Templeton Variable Products Series
Fund (Templeton):
Templeton Bond Fund 32,682 shares at a net asset value of $9.99 per share 326
Franklin Small Cap Investments Fund 62,033 shares at a net asset value of $15.79 per share 980
Templeton Stock Fund 22,057 shares at a net asset value of $24.39 per share 538
Templeton International Fund 413,917 shares at a net asset value of $22.25 per share 9,210
Templeton Developing Markets Fund 449,045 shares at a net asset value of $7.77 per share 3,489
Mutual Shares Investments Fund 242,768 shares at a net asset value of $10.63 per share 2,581
Franklin Growth Investments Fund 61,027 shares at a net asset value of $16.70 per share 1,019
Variable Insurance Products Fund, Fund II
and Fund III (Fidelity):
VIP Growth Portfolio 33,314 shares at a net asset value of $54.93 per share 1,830
VIP II Contrafund Portfolio 62,294 shares at a net asset value of $29.15 per share 1,816
VIP III Growth Opportunities Portfolio 31,500 shares at a net asset value of $23.15 per share 729
VIP III Growth & Income Portfolio 143,448 shares at a net asset value of $17.30 per share 2,482
VIP Equity-Income Portfolio 47,752 shares at a net asset value of $25.71 per share 1,228
American Century Variable Portfolios,
Inc. (American Century):
American Century VP Income & Growth Fund 34,859 shares at a net asset value of $8.00 per share 279
American Century VP International Fund 156 shares at a net asset value of $12.50 per share 2
American Century VP Value Fund 28,998 shares at a net asset value of $5.95 per share 173
Dreyfus Stock Index Fund (Dreyfus) 369 shares at a net asset value of $38.45 per share 14
Dreyfus Variable Investment Fund (Dreyfus):
Dreyfus VIF Disciplined Stock Portfolio 361 shares at a net asset value of $26.92 per share 10
Dreyfus VIF Capital Appreciation Portfolio 5,642 shares at a net asset value of $39.87 per share 225
INVESCO Variable Investment Funds,
Inc. (INVESCO):
INVESCO VIF Dynamics Fund 9,589 shares at a net asset value of $18.90 per share 181
INVESCO VIF High Yield Fund 4,879 shares at a net asset value of $11.51 per share 56
PIMCO Variable Insurance Trust (PIMCO):
PIMCO High Yield Bond Portfolio 11 shares at a net asset value of $9.18 per share -
PIMCO Low Duration Bond Portfolio 10 shares at a net asset value of $9.74 per share -
PIMCO StocksPLUS Growth & Income Portfolio 674 shares at a net asset value of $13.56 per share 9
PIMCO Total Return Bond Portfolio 7,495 shares at a net asset value of $9.45 per share 71
Scudder Variable Life Investment Fund (Scudder):
International Portfolio 8,294 shares at a net asset value of $20.34 per share 169
-------------
Total assets $ 2,343,957
=============
(Continued)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Assets and Liabilities
December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Net assets:
Accumulation units:
<S> <C> <C> <C>
Cova Lord Abbett Growth and Income 21,128,621 accumulation units at $39.456928 per unit $ 833,671
Cova Bond Debenture 11,413,993 accumulation units at $13.765381 per unit 157,118
Cova Developing Growth 2,153,899 accumulation units at $14.452868 per unit 31,130
Cova Large Cap Research 2,260,424 accumulation units at $14.635627 per unit 33,083
Cova Mid-Cap Value 2,528,900 accumulation units at $10.875538 per unit 27,503
Cova Quality Bond 7,608,610 accumulation units at $11.567155 per unit 88,010
Cova Small Cap Stock 5,435,852 accumulation units at $17.932441 per unit 97,478
Cova Large Cap Stock 10,050,149 accumulation units at $22.548941 per unit 226,620
Cova Select Equity 12,271,286 accumulation units at $18.384654 per unit 225,604
Cova International Equity 7,578,951 accumulation units at $16.333906 per unit 123,794
Cova Balanced 678,937 accumulation units at $12.432529 per unit 8,441
Cova Equity Income 467,721 accumulation units at $12.202725 per unit 5,707
Cova Growth and Income Equity 1,072,066 accumulation units at $13.966013 per unit 14,972
Cova Riggs U.S. Government Securities 29,265 accumulation units at $9.995395 per unit 292
Cova Riggs Stock 21,344 accumulation units at $10.239524 per unit 219
GACC Money Market 3,709,173 accumulation units at $11.525358 per unit 42,750
Russell Multi-Style Equity 3,839,689 accumulation units at $14.667724 per unit 56,319
Russell Aggressive Equity 907,258 accumulation units at $10.422234 per unit 9,455
Russell Non-US 1,566,787 accumulation units at $14.652149 per unit 22,956
Russell Core Bond 2,654,149 accumulation units at $10.380043 per unit 27,550
Russell Real Estate Securities 67,264 accumulation units at $9.388124 per unit 631
AIM V.I. Value 2,544,761 accumulation units at $16.729131 per unit 42,572
AIM V.I. Capital Appreciation 901,235 accumulation units at $16.785351 per unit 15,128
AIM V.I. International Equity 277,998 accumulation units at $17.416663 per unit 4,842
Alliance Premier Growth 2,065,459 accumulation units at $19.043436 per unit 39,333
Alliance Real Estate Investment 475,475 accumulation units at $7.474763 per unit 3,554
Liberty Newport Tiger Fund, Variable 40,648 accumulation units at $15.290670 per unit 622
Goldman Sachs Growth and Income 620,568 accumulation units at $10.299328 per unit 6,392
Goldman Sachs International Equity 240,170 accumulation units at $14.826563 per unit 3,561
Goldman Sachs Global Income 31,541 accumulation units at $10.524196 per unit 332
Kemper-Dreman High Return Equity 18,808 accumulation units at $9.187195 per unit 173
Kemper Small Cap Growth 113,560 accumulation units at $15.493396 per unit 1,760
Kemper Small Cap Value 496,083 accumulation units at $8.872647 per unit 4,402
Kemper Government Securities 218,804 accumulation units at $10.480981 per unit 2,293
MFS Bond 21,525 accumulation units at $10.184471 per unit 219
MFS Research 1,098,586 accumulation units at $14.890281 per unit 16,358
MFS Growth with Income 1,373,014 accumulation units at $12.695264 per unit 17,431
MFS Emerging Growth 1,237,361 accumulation units at $23.059667 per unit 28,533
MFS/Foreign & Colonial Emerging
Markets Equity 16,687 accumulation units at $8.954559 per unit 149
MFS High Income 437,876 accumulation units at $10.334082 per unit 4,525
MFS Global Governments 7,473 accumulation units at $10.258675 per unit 77
Oppenheimer Capital Appreciation 436,692 accumulation units at $17.087450 per unit 7,463
Oppenheimer Main Street Growth & Income 618,771 accumulation units at $12.393263 per unit 7,669
Oppenheimer High Income 238,266 accumulation units at $10.174699 per unit 2,424
Oppenheimer Bond 1,030,539 accumulation units at $10.228856 per unit 10,542
Oppenheimer Strategic Bond 306,527 accumulation units at $10.293168 per unit 3,155
(Continued)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Assets and Liabilities
December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Net assets, continued:
Accumulation units, continued:
<S> <C> <C> <C>
Putnam VT Growth and Income 2,304,013 accumulation units at $11.402482 per unit $ 26,271
Putnam VT New Value 66,900 accumulation units at $10.365439 per unit 693
Putnam VT Vista 385,345 accumulation units at $17.769589 per unit 6,847
Putnam VT International Growth 1,092,379 accumulation units at $18.486388 per unit 20,194
Putnam VT International New Opportunities 110,085 accumulation units at $22.820083 per unit 2,512
Templeton Bond 33,720 accumulation units at $9.681884 per unit 326
Franklin Small Cap Investments 55,398 accumulation units at $17.679923 per unit 980
Templeton Stock 42,835 accumulation units at $12.557918 per unit 538
Templeton International 826,137 accumulation units at $11.147003 per unit 9,210
Templeton Developing Markets 304,489 accumulation units at $11.457935 per unit 3,489
Templeton Mutual Shares Investments 247,806 accumulation units at $10.413095 per unit 2,581
Franklin Growth Investments 69,488 accumulation units at $14.665449 per unit 1,019
Fidelity VIP Growth 103,240 accumulation units at $17.723853 per unit 1,830
Fidelity VIP II Contrafund 119,923 accumulation units at $15.140886 per unit 1,816
Fidelity VIP III Growth Opportunities 60,394 accumulation units at $12.073401 per unit 729
Fidelity VIP III Growth & Income 188,911 accumulation units at $13.135609 per unit 2,482
Fidelity VIP Equity-Income 110,182 accumulation units at $11.141767 per unit 1,228
American Century VP Income & Growth 27,012 accumulation units at $10.320209 per unit 279
American Century VP International 155 accumulation units at $12.514968 per unit 2
American Century VP Value 17,999 accumulation units at $9.582238 per unit 173
Dreyfus Stock Index 1,373 accumulation units at $10.321607 per unit 14
Dreyfus VIF Disciplined Stock 944 accumulation units at $10.300470 per unit 10
Dreyfus VIF Capital Appreciation 22,221 accumulation units at $10.118366 per unit 225
INVESCO Dynamics 16,259 accumulation units at $11.142628 per unit 181
INVESCO High Yield 5,548 accumulation units at $10.117511 per unit 56
PIMCO High Yield Bond 10 accumulation units at $10.078000 per unit -
PIMCO Low Duration Bond 10 accumulation units at $9.969000 per unit -
PIMCO StocksPLUS Growth & Income 887 accumulation units at $10.306817 per unit 9
PIMCO Total Return Bond 7,170 accumulation units at $9.875011 per unit 71
Scudder International 14,499 accumulation units at $11.631204 per unit 169
-------------
2,340,746
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Assets and Liabilities
December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Net assets, continued:
Annuity units:
<S> <C> <C> <C>
Cova Lord Abbett Growth and Income 59,648 annuity units at $29.309972 per unit $ 1,748
Cova Bond Debenture 36,141 annuity units at $12.317493 per unit 445
Cova Developing Growth 413 annuity units at $13.475931 per unit 6
Cova Large Cap Research 1,820 annuity units at $13.646349 per unit 25
Cova Mid-Cap Value 409 annuity units at $10.140412 per unit 4
Cova Quality Bond 15,804 annuity units at $10.350485 per unit 164
Cova Small Cap Stock 3,048 annuity units at $16.046246 per unit 49
Cova Large Cap Stock 16,416 annuity units at $20.177175 per unit 331
Cova Select Equity 10,234 annuity units at $16.450916 per unit 168
Cova International Equity 7,202 annuity units at $14.615841 per unit 105
GACC Money Market 13,985 annuity units at $10.368367 per unit 145
Russell Multi-Style 616 annuity units at $13.825531 per unit 9
Russell Aggressive Equity 164 annuity units at $9.823809 per unit 2
Russell Non-US 398 annuity units at $13.810834 per unit 6
Russell Core Bond 363 annuity units at $9.784047 per unit 4
-------------
Total net assets $ 2,343,957
=============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Cova
-----------------------------------------------------------------------------------------
VKAC Lord Abbett
Growth Growth
Quality Money High Stock and and Bond
Income Market Yield Index Income Income Debenture
----------- --------- --------- -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 1,404 7 1,324 576 331 - 2,999
----------- --------- --------- -------- ------------ ------------- -------------
Expenses:
Mortality and expense risk 11 2 8 27 14 9,608 1,878
Administrative fee 1 - 1 3 2 1,153 225
----------- --------- --------- -------- ------------ ------------- -------------
Total expenses 12 2 9 30 16 10,761 2,103
----------- --------- --------- -------- ------------ ------------- -------------
Net investment income (loss) 1,392 5 1,315 546 315 (10,761) 896
----------- --------- --------- -------- ------------ ------------- -------------
Net realized gain (loss) on investments:
Realized gain (loss) on sale of fund
shares (520) - (955) 18,079 6,587 1,426 123
Realized gain distributions - - - 9,833 5,025 - 972
----------- --------- --------- -------- ------------ ------------- -------------
Net realized gain (loss) (520) - (955) 27,912 11,612 1,426 1,095
----------- --------- --------- -------- ------------ ------------- -------------
Change in unrealized appreciation (1,307) - (174) (25,838) (11,521) 84,856 825
----------- --------- --------- -------- ------------ ------------- -------------
Net increase (decrease) in net
assets from operations $ (435) 5 186 2,620 406 75,521 2,816
=========== ========= ========= ======== ============ ============= =============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Cova
------------------------------------------------------------------------------------
Large Small Large
Developing Cap Mid-Cap Quality Cap Cap Select
Growth Research Value Bond Stock Stock Equity
------------ --------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ - 40 32 980 201 273 528
------------ --------- ---------- --------- --------- ---------- ----------
Expenses:
Mortality and expense risk 263 280 290 1,077 900 2,451 2,538
Administrative fee 32 34 35 129 108 294 305
------------ --------- ---------- --------- --------- ---------- ----------
Total expenses 295 314 325 1,206 1,008 2,745 2,843
------------ --------- ---------- --------- --------- ---------- ----------
Net investment income (loss) (295) (274) (293) (226) (807) (2,472) (2,315)
------------ --------- ---------- --------- --------- ---------- ----------
Net realized gain (loss) on investments:
Realized gain (loss) on sale of fund
shares 69 9 21 (12) 116 2,080 283
Realized gain distributions - - - 491 - 5,964 17,924
------------ --------- ---------- --------- --------- ---------- ----------
Net realized gain (loss) 69 9 21 479 116 8,044 18,207
------------ --------- ---------- --------- --------- ---------- ----------
Change in unrealized appreciation 6,712 5,533 1,266 (2,613) 29,693 20,021 404
------------ --------- ---------- --------- --------- ---------- ----------
Net increase (decrease) in net
assets from operations $ 6,486 5,268 994 (2,360) 29,002 25,593 16,296
============ ========= ========== ========= ========= ========== ==========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Cova
--------------------------------------------------------------------------------------
Growth Riggs
Small and U.S.
International Cap Equity Income Government Riggs
Equity Balanced Equity Income Equity Securities Stock
------------- ---------- --------- --------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 509 161 - 92 53 - -
------------- ---------- --------- --------- --------- ------------- ----------
Expenses:
Mortality and expense risk 1,283 77 14 62 148 1 -
Administrative fee 154 9 2 7 18 - -
------------- ---------- --------- --------- --------- ------------- --------
Total expenses 1,437 86 16 69 166 1 -
------------- ---------- --------- --------- --------- ------------- --------
Net investment income (loss) (928) 75 (16) 23 (113) (1) -
------------- ---------- --------- --------- --------- ------------- --------
Net realized gain (loss) on investments:
Realized gain (loss) on sale of fund
shares 1,060 43 76 27 62 1 -
Realized gain distributions 1,361 80 - 266 95 - -
------------- ---------- --------- --------- --------- ------------- --------
Net realized gain (loss) 2,421 123 76 293 157 1 -
------------- ---------- --------- --------- --------- ------------- --------
Change in unrealized appreciation 24,455 138 (34) (336) 1,557 (4) 4
------------- ---------- --------- --------- --------- ------------- --------
Net increase (decrease) in net
assets from operations $ 25,948 336 26 (20) 1,601 (4) 4
============= ========== ========= ========= ========= ============= ========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
GACC Lord Abbett Russell
---------- ------------ ------------------------------------------------------------
Growth Multi- Real
Money and Style Aggressive Core Estate
Market Income Equity Equity Non-US Bond Securities
---------- ------------ --------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ - - 304 22 287 1,359 20
---------- ------------ --------- ----------- ----------- --------- ----------
Expenses:
Mortality and expense risk 476 186 528 87 190 284 2
Administrative fee 57 22 63 10 23 34 -
---------- ------------ --------- ----------- ----------- --------- ----------
Total expenses 533 208 591 97 213 318 2
---------- ------------ --------- ----------- ----------- --------- ----------
Net investment income (loss) (533) (208) (287) (75) 74 1,041 18
---------- ------------ --------- ----------- ----------- --------- ----------
Net realized gain (loss) on investments:
Realized gain (loss) on sale of fund
shares 955 145,466 122 (10) 45 (71) -
Realized gain distributions - - 3,846 38 468 812 -
---------- ------------ --------- ----------- ----------- --------- ----------
Net realized gain (loss) 955 145,466 3,968 28 513 741 -
---------- ------------ --------- ----------- ----------- --------- ----------
Change in unrealized appreciation 984 (114,453) 2,497 661 4,373 (2,215) (9)
---------- ------------ --------- ----------- ----------- --------- ----------
Net increase (decrease) in net
assets from operations $ 1,406 30,805 6,178 614 4,960 (433) 9
========== ============ ========= =========== =========== ========= ==========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
AIM Alliance Liberty Goldman Sachs
---------------------------------------- ---------------------- ---------- ---------------
Newport
V.I. Real Tiger Growth
V.I. Capital International Premier Estate Fund, and
V.I. Value Appreciation Equity Growth Investment Variable Income
----------- -------------- ------------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 106 9 30 - 137 4 71
----------- -------------- ------------- -------- ------------ ---------- ---------------
Expenses:
Mortality and expense risk 247 76 39 283 35 5 72
Administrative fee 30 9 5 34 4 1 9
----------- -------------- ------------- -------- ------------ ---------- ---------------
Total expenses 277 85 44 317 39 6 81
----------- -------------- ------------- -------- ------------ ---------- ---------------
Net investment income (loss) (171) (76) (14) (317) 98 (2) (10)
----------- -------------- ------------- -------- ------------ ---------- ---------------
Net realized gain (loss) on investments:
Realized gain (loss) on sale of fund
shares 16 14 671 58 (22) 170 (20)
Realized gain distributions 555 294 128 279 - - -
----------- -------------- ------------- -------- ------------ ---------- ---------------
Net realized gain (loss) 571 308 799 337 (22) 170 (20)
----------- -------------- ------------- -------- ------------ ---------- ---------------
Change in unrealized appreciation 5,538 3,433 927 6,844 (237) 47 205
----------- -------------- ------------- -------- ------------ ---------- ---------------
Net increase (decrease) in net
assets from operations $ 5,938 3,665 1,712 6,864 (161) 215 175
=========== ============== ============= ======== ============ ========== ===============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Goldman Sachs Kemper MFS
------------------------ -------------------------------------------------- ------
Kemper-
Dreman Small Small
International Global High Return Cap Cap Government
Equity Income Equity Growth Value Securities Bond
------------- -------- ------------- --------- -------- -------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 44 10 1 - 33 69 4
------------- -------- ------------- --------- -------- -------------- ------
Expenses:
Mortality and expense risk 27 3 2 16 45 20 2
Administrative fee 3 - - 2 5 2 -
------------- -------- ------------- --------- -------- -------------- ------
Total expenses 30 3 2 18 50 22 2
------------- -------- ------------- --------- -------- -------------- ------
Net investment income (loss) 14 7 (1) (18) (17) 47 2
------------- -------- ------------- --------- -------- -------------- ------
Net realized gain (loss) on investments:
Realized gain (loss) on sale of fund
shares 158 - - 37 (18) (1) -
Realized gain distributions 217 2 1 - - - -
------------- -------- ------------- --------- -------- -------------- ------
Net realized gain (loss) 375 2 1 37 (18) (1) -
------------- -------- ------------- --------- -------- -------------- ------
Change in unrealized appreciation 380 (14) (21) 435 195 (57) (7)
------------- -------- ------------- --------- -------- -------------- ------
Net increase (decrease) in net
assets from operations $ 769 (5) (21) 454 160 (11) (5)
============= ======== ============= ========= ======== ============== ======
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
MFS Oppenheimer
--------------------------------------------------------------------------- -------------
F&C
Growth Emerging
with Emerging Markets High Global Capital
Research Income Growth Equity Income Governments Appreciation
---------- --------- ----------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 16 35 - - 210 3 7
---------- --------- ----------- ----------- ---------- ------------- -------------
Expenses:
Mortality and expense risk 126 155 175 4 43 1 47
Administrative fee 15 19 21 - 5 - 6
---------- --------- ----------- ----------- ---------- ------------- -------------
Total expenses 141 174 196 4 48 1 53
---------- --------- ----------- ----------- ---------- ------------- -------------
Net investment income (loss) (125) (139) (196) (4) 162 2 (46)
---------- --------- ----------- ----------- ---------- ------------- -------------
Net realized gain (loss) on investments:
Realized gain (loss) on sale of fund
shares 27 20 139 (12) (5) - 18
Realized gain distributions 86 42 - - - - 78
---------- --------- ----------- ----------- ---------- ------------- -------------
Net realized gain (loss) 113 62 139 (12) (5) - 96
---------- --------- ----------- ----------- ---------- ------------- -------------
Change in unrealized appreciation 2,613 841 11,084 118 (24) (4) 1,620
---------- --------- ----------- ----------- ---------- ------------- -------------
Net increase (decrease) in net
assets from operations $ 2,601 764 11,027 102 133 (2) 1,670
========== ========= =========== =========== ========== ============= =============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Oppenheimer Putnam
----------------------------------------------- -------------------------------------
Main Street
Growth VT Growth
& High Strategic and VT New
Income Income Bond Bond Income Value VT Vista
------------ --------- -------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 15 72 286 84 240 - 484
------------ --------- -------- ---------- ------------ --------- ----------
Expenses:
Mortality and expense risk 56 20 98 27 258 8 43
Administrative fee 7 2 12 3 31 1 5
------------ --------- -------- ---------- ------------ --------- ----------
Total expenses 63 22 110 30 289 9 48
------------ --------- -------- ---------- ------------ --------- ----------
Net investment income (loss) (48) 50 176 54 (49) (9) 436
------------ --------- -------- ---------- ------------ --------- ----------
Net realized gain (loss) on investments:
Realized gain (loss) on sale of fund
shares 27 (1) (7) (4) 2 (7) 22
Realized gain distributions 26 - 28 - 1,199 9 -
------------ --------- -------- ---------- ------------ --------- ----------
Net realized gain (loss) 53 (1) 21 (4) 1,201 2 22
------------ --------- -------- ---------- ------------ --------- ----------
Change in unrealized appreciation 905 (25) (412) (3) (1,651) (28) 1,514
------------ --------- -------- ---------- ------------ --------- ----------
Net increase (decrease) in net
assets from operations $ 910 24 (215) 47 (499) (35) 1,972
============ ========= ======== ========== ============ ========= ==========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Putnam Templeton
--------------------------- --------------------------------------------------------------
VT
VT International Franklin
International New Small Cap Developing
Growth Opportunities Bond Investments Stock International Markets
------------- ------------- -------- ------------- ------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ - - - - - 57 13
------------- ------------- -------- ------------- ------- ------------- --------------
Expenses:
Mortality and expense risk 150 13 2 3 2 64 26
Administrative fee 18 2 - - - 8 3
------------- ------------- -------- ------------- ------- ------------- --------------
Total expenses 168 15 2 3 2 72 29
------------- ------------- -------- ------------- ------- ------------- --------------
Net investment income (loss) (168) (15) (2) (3) (2) (15) (16)
------------- ------------- -------- ------------- ------- ------------- --------------
Net realized gain (loss) on investments:
Realized gain (loss) on sale of fund
shares 464 250 - 12 2 186 68
Realized gain distributions - - - - - 198 -
------------- ------------- -------- ------------- ------- ------------- --------------
Net realized gain (loss) 464 250 - 12 2 384 68
------------- ------------- -------- ------------- ------- ------------- --------------
Change in unrealized appreciation 6,452 820 (3) 231 60 957 828
------------- ------------- -------- ------------- ------- ------------- --------------
Net increase (decrease) in net
assets from operations $ 6,748 1,055 (5) 240 60 1,326 880
============= ============= ======== ============= ======= ============= ==============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Templeton Fidelity
--------------------------- -------------------------------------------------------------
Mutual Franklin VIP III VIP III VIP
Shares Growth VIP VIP II Growth Growth & Equity-
Investments Investments Growth Contrafund Opportunities Income Income
------------ ------------ -------- ------------ ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 3 - 1 2 1 7 5
------------ ------------ -------- ------------ ------------- --------- ---------
Expenses:
Mortality and expense risk 23 3 11 13 5 22 10
Administrative fee 3 - 1 2 1 3 1
------------ ------------ -------- ------------ ------------- --------- ---------
Total expenses 26 3 12 15 6 25 11
------------ ------------ -------- ------------ ------------- --------- ---------
Net investment income (loss) (23) (3) (11) (13) (5) (18) (6)
------------ ------------ -------- ------------ ------------- --------- ---------
Net realized gain (loss) on investments:
Realized gain (loss) on sale of fund
shares 10 7 9 40 1 20 2
Realized gain distributions - - 32 18 3 13 12
------------ ------------ -------- ------------ ------------- --------- ---------
Net realized gain (loss) 10 7 41 58 4 33 14
------------ ------------ -------- ------------ ------------- --------- ---------
Change in unrealized appreciation 121 161 298 219 15 119 -
------------ ------------ -------- ------------ ------------- --------- ---------
Net increase (decrease) in net
assets from operations $ 108 165 328 264 14 134 8
============ ============ ======== ============ ============= ========= =========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
American Century Dreyfus INVESCO
------------------------------------ --------------------------------------- -----------
VP VIF VIF
Income & VP VP Stock Disciplined Capital VIF
Growth International Value Index Stock Appreciation Dynamics
---------- -------------- -------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ - - - - - 1 -
---------- -------------- -------- --------- ----------- ------------- -----------
Expenses:
Mortality and expense risk - - - - - - -
Administrative fee - - - - - - -
---------- -------------- -------- --------- ----------- ------------- -----------
Total expenses - - - - - - -
---------- -------------- -------- --------- ----------- ------------- -----------
Net investment income (loss) - - - - - 1 -
---------- -------------- -------- --------- ----------- ------------- -----------
Net realized gain (loss) on investments:
Realized gain (loss) on sale of fund
shares - - - - - - -
Realized gain distributions - - - - - - -
---------- -------------- -------- --------- ----------- ------------- -----------
Net realized gain (loss) - - - - - - -
---------- -------------- -------- --------- ----------- ------------- -----------
Change in unrealized appreciation 7 - 2 - - 1 8
---------- -------------- -------- --------- ----------- ------------- -----------
Net increase (decrease) in net
assets from operations $ 7 - 2 - - 2 8
========== ============== ======== ========= =========== ============= ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
INVESCO PIMCO Scudder
----------- ---------------------------------------------- -------------
VIF High Low StocksPLUS Total
High Yield Duration Growth & Return
Yield Bond Bond Income Bond International Total
----------- -------- --------- ------------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ - - - - - - 13,562
----------- -------- --------- ------------- -------- ------------- -------------
Expenses:
Mortality and expense risk - - - - - - 24,965
Administrative fee - - - - - - 2,994
----------- -------- --------- ------------- -------- ------------- -------------
Total expenses - - - - - - 27,959
----------- -------- --------- ------------- -------- ------------- -------------
Net investment income (loss) - - - - - - (14,397)
----------- -------- --------- ------------- -------- ------------- -------------
Net realized gain (loss) on investments:
Realized gain (loss) on sale of fund
shares - - - - - - 177,435
Realized gain distributions - - - - - - 50,395
----------- -------- --------- ------------- -------- ------------- -------------
Net realized gain (loss) - - - - - - 227,830
----------- -------- --------- ------------- -------- ------------- -------------
Change in unrealized appreciation - - - - - 11 69,998
----------- -------- --------- ------------- -------- ------------- -------------
Net increase (decrease) in net
assets from operations $ - - - - - 11 283,431
=========== ======== ========= ============= ======== ============= =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Cova
------------------------------------------------------------------------------------------
VKAC Lord Abbett
Growth Growth
Quality Money High Stock and and Bond
Income Market Yield Index Income Income Debenture
----------- ---------- ---------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ 1,392 5 1,315 546 315 (10,761) 896
Net realized gain (loss) (520) - (955) 27,912 11,612 1,426 1,095
Change in unrealized appreciation (1,307) - (174) (25,838) (11,521) 84,856 825
----------- ---------- ---------- ----------- ----------- -------------- -----------
Net increase (decrease) from
operations (435) 5 186 2,620 406 75,521 2,816
----------- ---------- ---------- ----------- ----------- -------------- -----------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners (1) - 2 5 - 23,054 7,755
Transfers between sub-accounts
(including fixed account), net (38,617) (7,850) (28,915) (99,953) (51,639) 812,130 52,101
Transfers for contract benefits and
terminations (37) (46) (73) (259) (78) (75,286) (15,580)
----------- ---------- ---------- ----------- ----------- -------------- -----------
Net increase (decrease) in net
assets from contract
transactions (38,655) (7,896) (28,986) (100,207) (51,717) 759,898 44,276
----------- ---------- ---------- ----------- ----------- -------------- -----------
Net increase (decrease) in net
assets (39,090) (7,891) (28,800) (97,587) (51,311) 835,419 47,092
Net assets at beginning of period 39,090 7,891 28,800 97,587 51,311 - 110,471
----------- ---------- ---------- ----------- ----------- -------------- -----------
Net assets at end of period $ - - - - - 835,419 157,563
=========== ========== ========== =========== =========== ============== ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Cova
--------------------------------------------------------------------------------------
Large Small Large
Developing Cap Mid-Cap Quality Cap Cap Select
Growth Research Value Bond Stock Stock Equity
------------ ---------- ---------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ (295) (274) (293) (226) (807) (2,472) (2,315)
Net realized gain (loss) 69 9 21 479 116 8,044 18,207
Change in unrealized appreciation 6,712 5,533 1,266 (2,613) 29,693 20,021 404
------------ ---------- ---------- ---------- --------- ---------- -----------
Net increase (decrease) from
operations 6,486 5,268 994 (2,360) 29,002 25,593 16,296
------------ ---------- ---------- ---------- --------- ---------- -----------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 2,941 3,671 3,226 6,217 2,616 15,231 8,929
Transfers between sub-accounts
(including fixed account), net 7,784 12,332 7,457 59,758 1,942 129,577 32,542
Transfers for contract benefits and
terminations (930) (1,131) (1,315) (15,079) (5,678) (24,819) (11,305)
------------ ---------- ---------- ---------- --------- ---------- -----------
Net increase (decrease) in net
assets from contract
transactions 9,795 14,872 9,368 50,896 (1,120) 119,989 30,166
------------ ---------- ---------- ---------- --------- ---------- -----------
Net increase (decrease) in net
assets 16,281 20,140 10,362 48,536 27,882 145,582 46,462
Net assets at beginning of period 14,855 12,968 17,145 39,638 69,645 81,369 179,310
------------ ---------- ---------- ---------- --------- ---------- -----------
Net assets at end of period $ 31,136 33,108 27,507 88,174 97,527 226,951 225,772
============ ========== ========== ========== ========= ========== ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Cova
-----------------------------------------------------------------------------------------
Growth Riggs
Small and U.S.
International Cap Equity Income Government Riggs
Equity Balanced Equity Income Equity Securities Stock
------------- ----------- --------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ (928) 75 (16) 23 (113) (1) -
Net realized gain (loss) 2,421 123 76 293 157 1 -
Change in unrealized appreciation 24,455 138 (34) (336) 1,557 (4) 4
------------- ----------- --------- ---------- ---------- ------------- ---------
Net increase (decrease) from
operations 25,948 336 26 (20) 1,601 (4) 4
------------- ----------- --------- ---------- ---------- ------------- ---------
Contract transactions:
Cova payments - - - - - 404 201
Cova redemptions - - - - - (201) (100)
Payments received from contract
owners 2,505 1,362 175 940 1,970 93 114
Transfers between sub-accounts
(including fixed account), net 7,781 3,613 (1,487) 1,509 4,068 - -
Transfers for contract benefits and
terminations (6,580) (242) (41) (185) (490) - -
------------- ----------- --------- ---------- ---------- ------------- ---------
Net increase (decrease) in net
assets from contract
transactions 3,706 4,733 (1,353) 2,264 5,548 296 215
------------- ----------- --------- ---------- ---------- ------------- ---------
Net increase (decrease) in net
assets 29,654 5,069 (1,327) 2,244 7,149 292 219
Net assets at beginning of period 94,245 3,372 1,327 3,463 7,823 - -
------------- ----------- --------- ---------- ---------- ------------- ---------
Net assets at end of period $ 123,899 8,441 - 5,707 14,972 292 219
============= =========== ========= ========== ========== ============= =========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
GACC Lord Abbett Russell
----------- -------------- ------------------------------------------------------------
Growth Multi- Real
Money and Style Aggressive Core Estate
Market Income Equity Equity Non-US Bond Securities
----------- -------------- ---------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ (533) (208) (287) (75) 74 1,041 18
Net realized gain (loss) 955 145,466 3,968 28 513 741 -
Change in unrealized appreciation 984 (114,453) 2,497 661 4,373 (2,215) (9)
----------- -------------- ---------- ----------- ---------- --------- -----------
Net increase (decrease) from
operations 1,406 30,805 6,178 614 4,960 (433) 9
----------- -------------- ---------- ----------- ---------- --------- -----------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 3,455 672 9,850 1,630 3,213 3,169 282
Transfers between sub-accounts
(including fixed account), net 38,999 (699,900) 12,467 2,064 5,007 8,483 351
Transfers for contract benefits and
terminations (17,429) (780) (1,726) (194) (534) (715) (11)
----------- -------------- ---------- ----------- ---------- --------- -----------
Net increase (decrease) in net
assets from contract
transactions 25,025 (700,008) 20,591 3,500 7,686 10,937 622
----------- -------------- ---------- ----------- ---------- --------- -----------
Net increase (decrease) in net
assets 26,431 (669,203) 26,769 4,114 12,646 10,504 631
Net assets at beginning of period 16,464 669,203 29,559 5,343 10,316 17,050 -
----------- -------------- ---------- ----------- ---------- --------- -----------
Net assets at end of period $ 42,895 - 56,328 9,457 22,962 27,554 631
=========== ============== ========== =========== ========== ========= ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
AIM Alliance Liberty Goldman Sachs
----------------------------------------- ---------------------- ---------- -----------
Newport
V.I. Real Tiger Growth
V.I. Capital International Premier Estate Fund, and
V.I. Value Appreciation Equity Growth Investment Variable Income
----------- ------------- -------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ (171) (76) (14) (317) 98 (2) (10)
Net realized gain (loss) 571 308 799 337 (22) 170 (20)
Change in unrealized appreciation 5,538 3,433 927 6,844 (237) 47 205
----------- ------------- -------------- --------- ----------- ---------- -----------
Net increase (decrease) from
operations 5,938 3,665 1,712 6,864 (161) 215 175
----------- ------------- -------------- --------- ----------- ---------- -----------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 11,865 3,232 484 14,342 1,540 108 697
Transfers between sub-accounts
(including fixed account), net 19,423 6,441 419 9,396 754 11 1,182
Transfers for contract benefits and
terminations (1,470) (370) (98) (1,017) (108) (7) (296)
----------- ------------- -------------- --------- ----------- ---------- -----------
Net increase (decrease) in net
assets from contract
transactions 29,818 9,303 805 22,721 2,186 112 1,583
----------- ------------- -------------- --------- ----------- ---------- -----------
Net increase (decrease) in net
assets 35,756 12,968 2,517 29,585 2,025 327 1,758
Net assets at beginning of period 6,816 2,160 2,325 9,748 1,529 295 4,634
----------- ------------- -------------- --------- ----------- ---------- -----------
Net assets at end of period $ 42,572 15,128 4,842 39,333 3,554 622 6,392
=========== ============= ============== ========= =========== ========== ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Goldman Sachs Kemper MFS
------------------------ ------------------------------------------------- --------
Kemper-
Dreman Small Small
International Global High Return Cap Cap Government
Equity Income Equity Growth Value Securities Bond
------------- -------- ----------- -------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ 14 7 (1) (18) (17) 47 2
Net realized gain (loss) 375 2 1 37 (18) (1) -
Change in unrealized appreciation 380 (14) (21) 435 195 (57) (7)
------------- -------- ----------- -------- --------- ------------- --------
Net increase (decrease) from
operations 769 (5) (21) 454 160 (11) (5)
------------- -------- ----------- -------- --------- ------------- --------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 613 82 15 394 1,586 694 2
Transfers between sub-accounts
(including fixed account), net 1,010 57 82 114 641 1,039 48
Transfers for contract benefits and
terminations (118) (5) - (95) (130) (59) -
------------- -------- ----------- -------- --------- ------------- --------
Net increase (decrease) in net
assets from contract
transactions 1,505 134 97 413 2,097 1,674 50
------------- -------- ----------- -------- --------- ------------- --------
Net increase (decrease) in net
assets 2,274 129 76 867 2,257 1,663 45
Net assets at beginning of period 1,287 203 97 893 2,145 630 174
------------- -------- ----------- -------- --------- ------------- --------
Net assets at end of period $ 3,561 332 173 1,760 4,402 2,293 219
============= ======== =========== ======== ========= ============= ========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
MFS Oppenheimer
------------------------------------------------------------------------ -------------
F&C
Growth Emerging
with Emerging Markets High Global Capital
Research Income Growth Equity Income Governments Appreciation
---------- --------- ---------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ (125) (139) (196) (4) 162 2 (46)
Net realized gain (loss) 113 62 139 (12) (5) - 96
Change in unrealized appreciation 2,613 841 11,084 118 (24) (4) 1,620
---------- --------- ---------- ---------- -------- ------------- -------------
Net increase (decrease) from
operations 2,601 764 11,027 102 133 (2) 1,670
---------- --------- ---------- ---------- -------- ------------- -------------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 4,090 4,972 6,753 2 1,006 6 1,670
Transfers between sub-accounts
(including fixed account), net 4,495 5,267 4,232 (414) 1,344 52 3,178
Transfers for contract benefits and
terminations (486) (588) (621) (22) (116) (1) (244)
---------- --------- ---------- ---------- -------- ------------- -------------
Net increase (decrease) in net
assets from contract
transactions 8,099 9,651 10,364 (434) 2,234 57 4,604
---------- --------- ---------- ---------- -------- ------------- -------------
Net increase (decrease) in net
assets 10,700 10,415 21,391 (332) 2,367 55 6,274
Net assets at beginning of period 5,658 7,016 7,142 481 2,158 22 1,189
---------- --------- ---------- ---------- -------- ------------- -------------
Net assets at end of period $ 16,358 17,431 28,533 149 4,525 77 7,463
========== ========= ========== ========== ======== ============= =============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Oppenheimer Putnam
----------------------------------------------- ------------------------------------
Main Street
Growth VT Growth
& High Strategic and VT New
Income Income Bond Bond Income Value VT Vista
------------ --------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ (48) 50 176 54 (49) (9) 436
Net realized gain (loss) 53 (1) 21 (4) 1,201 2 22
Change in unrealized appreciation 905 (25) (412) (3) (1,651) (28) 1,514
------------ --------- --------- --------- ----------- --------- -----------
Net increase (decrease) from
operations 910 24 (215) 47 (499) (35) 1,972
------------ --------- --------- --------- ----------- --------- -----------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 2,482 663 2,986 899 6,678 235 1,372
Transfers between sub-accounts
(including fixed account), net 1,575 1,015 3,843 1,188 8,212 121 1,943
Transfers for contract benefits and
terminations (239) (55) (306) (74) (819) (69) (225)
------------ --------- --------- --------- ----------- --------- -----------
Net increase (decrease) in net
assets from contract
transactions 3,818 1,623 6,523 2,013 14,071 287 3,090
------------ --------- --------- --------- ----------- --------- -----------
Net increase (decrease) in net
assets 4,728 1,647 6,308 2,060 13,572 252 5,062
Net assets at beginning of period 2,941 777 4,234 1,095 12,699 441 1,785
------------ --------- --------- --------- ----------- --------- -----------
Net assets at end of period $ 7,669 2,424 10,542 3,155 26,271 693 6,847
============ ========= ========= ========= =========== ========= ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Putnam Templeton
----------------------------- ----------------------------------------------------------
VT
VT International Franklin
International New Small Cap Developing
Growth Opportunities Bond Investments Stock International Markets
------------- ------------- ------- ------------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ (168) (15) (2) (3) (2) (15) (16)
Net realized gain (loss) 464 250 - 12 2 384 68
Change in unrealized appreciation 6,452 820 (3) 231 60 957 828
------------- ------------- ------- ------------- ------ ------------- -------------
Net increase (decrease) from
operations 6,748 1,055 (5) 240 60 1,326 880
------------- ------------- ------- ------------- ------ ------------- -------------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 4,990 423 36 164 131 3,225 1,189
Transfers between sub-accounts
(including fixed account), net 2,769 529 301 609 348 3,301 838
Transfers for contract benefits and
terminations (519) (97) (6) (33) (1) (149) (97)
------------- ------------- ------- ------------- ------ ------------- -------------
Net increase (decrease) in net
assets from contract
transactions 7,240 855 331 740 478 6,377 1,930
------------- ------------- ------- ------------- ------ ------------- -------------
Net increase (decrease) in net
assets 13,988 1,910 326 980 538 7,703 2,810
Net assets at beginning of period 6,206 602 - - - 1,507 679
------------- ------------- ------- ------------- ------ ------------- -------------
Net assets at end of period $ 20,194 2,512 326 980 538 9,210 3,489
============= ============= ======= ============= ====== ============= =============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Templeton Fidelity
--------------------------- ------------------------------------------------------------
Mutual Franklin VIP III VIP III VIP
Shares Growth VIP VIP II Growth Growth & Equity-
Investments Investments Growth Contrafund Opportunities Income Income
------------ ------------ -------- ------------ ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ (23) (3) (11) (13) (5) (18) (6)
Net realized gain (loss) 10 7 41 58 4 33 14
Change in unrealized appreciation 121 161 298 219 15 119 -
------------ ------------ -------- ------------ ------------- --------- ---------
Net increase (decrease) from
operations 108 165 328 264 14 134 8
------------ ------------ -------- ------------ ------------- --------- ---------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 736 175 550 460 158 449 271
Transfers between sub-accounts
(including fixed account), net 796 792 952 773 469 1,156 731
Transfers for contract benefits and
terminations (80) (113) (88) (81) (24) (109) (38)
------------ ------------ -------- ------------ ------------- --------- ---------
Net increase (decrease) in net
assets from contract
transactions 1,452 854 1,414 1,152 603 1,496 964
------------ ------------ -------- ------------ ------------- --------- ---------
Net increase (decrease) in net
assets 1,560 1,019 1,742 1,416 617 1,630 972
Net assets at beginning of period 1,021 - 88 400 112 852 256
------------ ------------ -------- ------------ ------------- --------- ---------
Net assets at end of period $ 2,581 1,019 1,830 1,816 729 2,482 1,228
============ ============ ======== ============ ============= ========= =========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
American Century Dreyfus INVESCO
----------------------------------- --------------------------------------- -----------
VP VIF VIF
Income & VP VP Stock Disciplined Capital VIF
Growth International Value Index Stock Appreciation Dynamics
---------- -------------- ------- -------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ - - - - - 1 -
Net realized gain (loss) - - - - - - -
Change in unrealized appreciation 7 - 2 - - 1 8
---------- -------------- ------- -------- -------------- ------------- -----------
Net increase (decrease) from
operations 7 - 2 - - 2 8
---------- -------------- ------- -------- -------------- ------------- -----------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 269 2 169 14 10 220 172
Transfers between sub-accounts
(including fixed account), net 3 - 2 - - 3 1
Transfers for contract benefits and
terminations - - - - - - -
---------- -------------- ------- -------- -------------- ------------- -----------
Net increase (decrease) in net
assets from contract
transactions 272 2 171 14 10 223 173
---------- -------------- ------- -------- -------------- ------------- -----------
Net increase (decrease) in net
assets 279 2 173 14 10 225 181
Net assets at beginning of period - - - - - - -
---------- -------------- ------- -------- -------------- ------------- -----------
Net assets at end of period $ 279 2 173 14 10 225 181
========== ============== ======= ======== ============== ============= ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
INVESCO PIMCO Scudder
---------- -------------------------------------------- -------------
VIF High Low StocksPLUS Total
High Yield Duration Growth & Return
Yield Bond Bond Income Bond International Total
---------- -------- --------- ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ - - - - - - (14,397)
Net realized gain (loss) - - - - - - 227,830
Change in unrealized appreciation - - - - - 11 69,998
---------- -------- --------- ------------- -------- ------------- -------------
Net increase (decrease) from
operations - - - - - 11 283,431
---------- -------- --------- ------------- -------- ------------- -------------
Contract transactions:
Cova payments - - - - - - 605
Cova redemptions - - - - - - (301)
Payments received from contract
owners 56 - - 9 71 156 186,649
Transfers between sub-accounts
(including fixed account), net - - - - - 2 362,647
Transfers for contract benefits and
terminations - - - - - - (189,616)
---------- -------- --------- ------------- -------- ------------- -------------
Net increase (decrease) in net
assets from contract
transactions 56 - - 9 71 158 359,984
---------- -------- --------- ------------- -------- ------------- -------------
Net increase (decrease) in net
assets 56 - - 9 71 169 643,415
Net assets at beginning of period - - - - - - 1,700,542
---------- -------- --------- ------------- -------- ------------- -------------
Net assets at end of period $ 56 - - 9 71 169 2,343,957
========== ======== ========= ============= ======== ============= =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
Cova
--------------------------------------------------------------------------------------
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 6 - (668) 838 634 1,565 883
--------- ---------- --------- ---------- --------- ----------- -------------
Net increase (decrease) from
operations 2,198 583 390 21,942 7,371 3,613 774
--------- ---------- --------- ---------- --------- ----------- -------------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - (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>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
Cova
--------------------------------------------------------------------------------------
Large Small 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) $ (66) (109) 192 (791) (530) (1,491) 307
Net realized gain (loss) 5 (3) 36 2,068 412 8,442 328
Change in unrealized appreciation 1,278 120 1,412 (6,177) 13,680 20,065 7,969
--------- --------- ---------- ---------- --------- ---------- -------------
Net increase (decrease) from
operations 1,217 8 1,640 (4,900) 13,562 27,016 8,604
--------- --------- ---------- ---------- --------- ---------- -------------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions (102) (107) - - - - -
Payments received from contract
owners 6,104 7,924 9,698 8,193 18,801 21,003 8,143
Transfers between sub-accounts
(including fixed account), net 4,750 7,602 14,372 15,607 29,039 38,783 18,076
Transfers for contract benefits and
terminations (234) (317) (2,058) (2,424) (2,022) (4,555) (2,949)
--------- --------- ---------- ---------- --------- ---------- -------------
Net increase (decrease) in net
assets from contract
transactions 10,518 15,102 22,012 21,376 45,818 55,231 23,270
--------- --------- ---------- ---------- --------- ---------- -------------
Net increase (decrease) in net
assets 11,735 15,110 23,652 16,476 59,380 82,247 31,874
Net assets at beginning of period 1,233 2,035 15,986 53,169 21,989 97,063 62,371
--------- --------- ---------- ---------- --------- ---------- -------------
Net assets at end of period $ 12,968 17,145 39,638 69,645 81,369 179,310 94,245
========= ========= ========== ========== ========= ========== =============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
Cova GACC Lord Abbett Russell
----------------------------------------- ---------- -------------- ----------
Growth
Small and Growth Multi-
Cap Equity Income Money and Style
Balanced Equity Income Equity Market Income Equity
--------- -------- -------- -------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ 23 (10) 11 (30) (161) 1,761 (129)
Net realized gain (loss) 40 11 80 167 436 33,820 40
Change in unrealized appreciation 173 39 49 548 185 26,592 3,199
--------- -------- -------- -------- ---------- -------------- ----------
Net increase (decrease) from
operations 236 40 140 685 460 62,173 3,110
--------- -------- -------- -------- ---------- -------------- ----------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 1,408 442 1,820 3,014 35,352 55,721 21,870
Transfers between sub-accounts
(including fixed account), net 1,373 588 988 2,913 (19,753) 102,796 4,748
Transfers for contract benefits and
terminations (46) (15) (42) (98) (2,913) (38,987) (169)
--------- -------- -------- -------- ---------- -------------- ----------
Net increase (decrease) in net
assets from contract
transactions 2,735 1,015 2,766 5,829 12,686 119,530 26,449
--------- -------- -------- -------- ---------- -------------- ----------
Net increase (decrease) in net
assets 2,971 1,055 2,906 6,514 13,146 181,703 29,559
Net assets at beginning of period 401 272 557 1,309 3,318 487,500 -
--------- -------- -------- -------- ---------- -------------- ----------
Net assets at end of period $ 3,372 1,327 3,463 7,823 16,464 669,203 29,559
========= ======== ======== ======== ========== ============== ==========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
Russell AIM Alliance
---------------------------------- ----------------------------------------- ---------
V.I.
Aggressive Core V.I. Capital International Premier
Equity Non-US Bond V.I. Value Appreciation Equity Growth
----------- --------- --------- ---------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (31) (54) 178 (8) (11) (1) (45)
Net realized gain (loss) (18) 5 7 250 50 (3) (4)
Change in unrealized appreciation 75 412 268 668 164 81 1,522
----------- --------- --------- ---------- -------------- ------------- ---------
Net increase (decrease) from
operations 26 363 453 910 203 77 1,473
----------- --------- --------- ---------- -------------- ------------- ---------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 4,296 8,107 13,098 4,061 1,431 1,648 6,485
Transfers between sub-accounts
(including fixed account), net 1,041 1,920 3,732 2,030 609 609 1,828
Transfers for contract benefits and
terminations (20) (74) (233) (185) (83) (9) (38)
----------- --------- --------- ---------- -------------- ------------- ---------
Net increase (decrease) in net
assets from contract
transactions 5,317 9,953 16,597 5,906 1,957 2,248 8,275
----------- --------- --------- ---------- -------------- ------------- ---------
Net increase (decrease) in net
assets 5,343 10,316 17,050 6,816 2,160 2,325 9,748
Net assets at beginning of period - - - - - - -
----------- --------- --------- ---------- -------------- ------------- ---------
Net assets at end of period $ 5,343 10,316 17,050 6,816 2,160 2,325 9,748
=========== ========= ========= ========== ============== ============= =========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
Alliance Liberty Goldman Sachs Kemper
----------- ---------- ------------------------------------ --------------------------
Newport Kemper
Real Tiger Growth Dreman Small
Estate Fund, and International Global High Return Cap
Investment Variable Income Equity Income Equity Growth
----------- ---------- --------- ------------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ 1 4 12 (7) 6 - (5)
Net realized gain (loss) 3 (30) (12) 10 3 - (3)
Change in unrealized appreciation (170) 54 (207) 56 (1) 1 107
----------- ---------- --------- ------------- --------- -------------- ----------
Net increase (decrease) from
operations (166) 28 (207) 59 8 1 99
----------- ---------- --------- ------------- --------- -------------- ----------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 1,193 159 3,067 979 125 - 630
Transfers between sub-accounts
(including fixed account), net 514 108 1,826 255 84 96 162
Transfers for contract benefits and
terminations (12) - (52) (6) (14) - 2
----------- ---------- --------- ------------- --------- -------------- ----------
Net increase (decrease) in net
assets from contract
transactions 1,695 267 4,841 1,228 195 96 794
----------- ---------- --------- ------------- --------- -------------- ----------
Net increase (decrease) in net
assets 1,529 295 4,634 1,287 203 97 893
Net assets at beginning of period - - - - - - -
----------- ---------- --------- ------------- --------- -------------- ----------
Net assets at end of period $ 1,529 295 4,634 1,287 203 97 893
=========== ========== ========= ============= ========= ============== ==========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
Kemper MFS
----------------------- --------------------------------------------------------
F&C
Small Growth Emerging
Cap Government with Emerging Markets
Value Securities Bond Research Income Growth Equity
-------- ------------ ------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (13) - - (28) (38) (37) 3
Net realized gain (loss) 8 - - 16 - (2) (97)
Change in unrealized appreciation (155) 9 1 481 574 985 (94)
-------- ------------ ------- ---------- -------- ---------- -----------
Net increase (decrease) from
operations (160) 9 1 469 536 946 (188)
-------- ------------ ------- ---------- -------- ---------- -----------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 1,656 503 3 3,760 4,624 5,018 421
Transfers between sub-accounts
(including fixed account), net 670 120 170 1,530 1,901 1,216 252
Transfers for contract benefits and
terminations (21) (2) - (101) (45) (38) (4)
-------- ------------ ------- ---------- -------- ---------- -----------
Net increase (decrease) in net
assets from contract
transactions 2,305 621 173 5,189 6,480 6,196 669
-------- ------------ ------- ---------- -------- ---------- -----------
Net increase (decrease) in net
assets 2,145 630 174 5,658 7,016 7,142 481
Net assets at beginning of period - - - - - - -
-------- ------------ ------- ---------- -------- ---------- -----------
Net assets at end of period $ 2,145 630 174 5,658 7,016 7,142 481
======== ============ ======= ========== ======== ========== ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
MFS Oppenheimer
------------------------ ------------------------------------------------------------
Main Street
Growth
High Global Capital & High Strategic
Income Governments Appreciation Income Income Bond Bond
-------- ------------- -------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ 5 - (6) (19) (1) (19) (3)
Net realized gain (loss) 3 - 7 2 3 5 2
Change in unrealized appreciation (34) 1 134 (28) (15) 95 3
-------- ------------- -------------- ----------- --------- --------- ---------
Net increase (decrease) from
operations (26) 1 135 (45) (13) 81 2
-------- ------------- -------------- ----------- --------- --------- ---------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 1,634 4 838 2,140 517 3,298 725
Transfers between sub-accounts
(including fixed account), net 570 17 220 859 281 889 371
Transfers for contract benefits and
terminations (20) - (4) (13) (8) (34) (3)
-------- ------------- -------------- ----------- --------- --------- ---------
Net increase (decrease) in net
assets from contract
transactions 2,184 21 1,054 2,986 790 4,153 1,093
-------- ------------- -------------- ----------- --------- --------- ---------
Net increase (decrease) in net
assets 2,158 22 1,189 2,941 777 4,234 1,095
Net assets at beginning of period - - - - - - -
-------- ------------- -------------- ----------- --------- --------- ---------
Net assets at end of period $ 2,158 22 1,189 2,941 777 4,234 1,095
======== ============= ============== =========== ========= ========= =========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
Putnam Templeton
--------------------------------------------------------------- ---------------------------
VT
VT Growth VT International
and VT New International New Developing
Income Value VT Vista Growth Opportunities International Markets
----------- -------- ---------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (46) 2 (9) (17) (4) (6) (3)
Net realized gain (loss) 192 2 (1) (39) 24 8 (4)
Change in unrealized appreciation 660 6 173 353 40 48 44
----------- -------- ---------- ------------- ------------- ------------- ------------
Net increase (decrease) from
operations 806 10 163 297 60 50 37
----------- -------- ---------- ------------- ------------- ------------- ------------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - -
Payments received from contract
owners 8,705 173 1,241 4,444 423 1,261 509
Transfers between sub-accounts
(including fixed account), net 3,257 259 385 1,511 127 201 139
Transfers for contract benefits and
terminations (69) (1) (4) (46) (8) (5) (6)
----------- -------- ---------- ------------- ------------- ------------- ------------
Net increase (decrease) in net
assets from contract
transactions 11,893 431 1,622 5,909 542 1,457 642
----------- -------- ---------- ------------- ------------- ------------- ------------
Net increase (decrease) in net
assets 12,699 441 1,785 6,206 602 1,507 679
Net assets at beginning of period - - - - - - -
----------- -------- ---------- ------------- ------------- ------------- ------------
Net assets at end of period $ 12,699 441 1,785 6,206 602 1,507 679
=========== ======== ========== ============= ============= ============= ============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Net Assets
Year ended December 31, 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
Templeton Fidelity
------------- ------------------------------------------------------------
Mutual VIP III VIP III VIP
Shares VIP VIP II Growth Growth & Equity-
Investments Growth Contrafund Opportunities Income Income Total
------------- --------- ----------- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (5) - (2) - (5) (1) 1,864
Net realized gain (loss) - (3) (2) (2) (5) (3) 76,767
Change in unrealized appreciation 32 12 48 13 94 17 78,917
------------- --------- ----------- ------------- ---------- --------- -----------
Net increase (decrease) from
operations 27 9 44 11 84 13 157,548
------------- --------- ----------- ------------- ---------- --------- -----------
Contract transactions:
Cova payments - - - - - - -
Cova redemptions - - - - - - (321)
Payments received from contract
owners 584 86 330 114 435 195 316,347
Transfers between sub-accounts
(including fixed account), net 415 (5) 24 (13) 333 51 288,031
Transfers for contract benefits and
terminations (5) (2) 2 - - (3) (99,409)
------------- --------- ----------- ------------- ---------- --------- -----------
Net increase (decrease) in net
assets from contract
transactions 994 79 356 101 768 243 504,648
------------- --------- ----------- ------------- ---------- --------- -----------
Net increase (decrease) in net
assets 1,021 88 400 112 852 256 662,196
Net assets at beginning of period - - - - - - 1,038,346
------------- --------- ----------- ------------- ---------- --------- -----------
Net assets at end of period $ 1,021 88 400 112 852 256 1,700,542
============= ========= =========== ============= ========== ========= ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(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 (CFSLIC) 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 CFSLIC.
The Separate Account is divided into sub-accounts with the assets of each
sub-account invested in corresponding portfolios of the following
investment companies which are diversified, open-end, management
investment companies registered under the Investment Company Act of 1940
as amended. The sub-accounts available for investment may vary between
variable annuity contracts offered for sale by CFSLIC.
<TABLE>
<S> <C>
Cova Series Trust (Cova) 15 portfolios
General American Capital Company (GACC) 1 portfolio
Lord Abbett Series Fund, Inc. (Lord Abbett) 1 portfolio
Russell Insurance Funds (Russell) 5 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
Kemper Variable 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) 7 portfolios
Variable Insurance Products Fund, Fund II and Fund III (Fidelity) 5 portfolios
American Century Variable Portfolios, Inc. (American Century) 3 portfolios
Dreyfus Stock Index Fund (Dreyfus) 1 portfolio
Dreyfus Variable Investment Fund (Dreyfus) 2 portfolios
INVESCO Variable Investment Funds, Inc. 2 portfolios
PIMCO Variable Insurance Trust 4 portfolios
Scudder Variable Life Investment Fund 1 portfolio
</TABLE>
The following sub-accounts commenced operations in 1999:
Cova Lord Abbett Growth and Income January 8, 1999
Cova Riggs U.S. Government Securities August 5, 1999
Cova Riggs Stock August 5, 1999
Russell Real Estate Securities July 1, 1999
Templeton Bond March 1, 1999
Franklin Small Cap Investments March 1, 1999
Templeton Stock January 19, 1999
Franklin Growth Investments March 1, 1999
American Century VP Income & Growth November 19, 1999
American Century VP International November 19, 1999
American Century VP Value November 19, 1999
Dreyfus Stock Index November 19, 1999
Dreyfus VIF Disciplined Stock November 19, 1999
Dreyfus VIF Capital Appreciation November 19, 1999
INVESCO Dynamics November 19, 1999
INVESCO High Yield November 19, 1999
PIMCO High Yield Bond November 19, 1999
PIMCO Low Duration Bond November 19, 1999
PIMCO StocksPLUS Growth & Income November 19, 1999
PIMCO Total Return Bond November 19, 1999
Scudder International November 19, 1999
The Cova Riggs U.S. Government Securities and Stock sub-accounts were
not available for investment until November 2, 1999.
The following sub-accounts ceased operations in 1999:
Lord Abbett Growth and Income January 8, 1999
Cova Quality Income January 8, 1999
Cova Money Market January 8, 1999
Cova High Yield January 8, 1999
Cova Stock Index January 8, 1999
Cova VKAC Growth and Income January 8, 1999
Cova Small Cap Equity October 8, 1999
On August 26, 1999, CFSLIC's ultimate parent company, GenAmerica
Corporation, entered into a definitive agreement to be acquired by
Metropolitan Life Insurance Company. The acquisition occurred
on January 6, 2000.
<PAGE>
(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 capital 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 capital 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 gain in the Separate
Account.
(C) FEDERAL INCOME TAXES
The operations of the Separate Account are included in the federal
income tax return of CFSLIC which is taxed as a Life Insurance
Company under the provisions of the Internal Revenue Code (IRC).
Under current IRC provisions, CFSLIC 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
has been made 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 variable annuity 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 CFSLIC 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 CFSLIC.
<PAGE>
(3) SEPARATE ACCOUNT EXPENSES
CFSLIC deducts a daily charge from the net assets of each Separate
Account sub-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 CFSLIC 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. During the year ended December 31, 1999,
surrender fees of $1.8 million were deducted from 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
anniversary. This fee covers the cost of contract administration for the
previous year and is prorated between the Separate Account 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 and the fixed rate account. If more than 12 transfers have
been made in the contract year, a transfer fee of $25 per transfer or, if
less, 2% of the amount transferred, may be deducted from the contract
value. Transfers made in a dollar cost averaging program are not subject
to the transfer fee.
During the year ended December 31, 1999, contract maintenance and
transfer fees of $639 thousand were deducted from the Separate Account.
Currently, CFSLIC advances any premium taxes due at the time purchase
payments are made and then deducts premium taxes at the time annuity
payments begin. CFSLIC reserves the right to deduct premium taxes when
incurred.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(5) COST BASIS OF INVESTMENTS
The cost basis of each sub-account's investment (in thousands of dollars)
at December 31, 1999 follows:
<S> <C> <C> <C>
Cova Lord Abbett Growth and Income $ 750,563 MFS/Foreign & Colonial Emerging Markets Equity $ 125
Cova Bond Debenture 153,215 MFS High Income 4,583
Cova Developing Growth 23,534 MFS Global Governments 80
Cova Large Cap Research 26,291 Oppenheimer Capital Appreciation 5,709
Cova Mid-Cap Value 26,081 Oppenheimer Main Street Growth & Income 6,792
Cova Quality Bond 89,189 Oppenheimer High Income 2,464
Cova Small Cap Stock 67,488 Oppenheimer Bond 10,859
Cova Large Cap Stock 190,395 Oppenheimer Strategic Bond 3,155
Cova Select Equity 191,783 Putnam VT Growth and Income 27,262
Cova International Equity 90,166 Putnam VT New Value 715
Cova Balanced 8,130 Putnam VT Vista 5,160
Cova Equity Income 5,973 Putnam VT International Growth 13,389
Cova Growth and Income Equity 12,849 Putnam VT International New Opportunities 1,652
Cova Riggs Stock 296 Templeton Bond 329
Cova Riggs U.S. Government Securities 215 Franklin Small Cap Investments 749
GACC Money Market 41,680 Templeton Stock 478
Russell Multi-Style Equity 50,632 Templeton International 8,205
Russell Aggressive Equity 8,721 Templeton Developing Markets 2,617
Russell Non-US 18,177 Templeton Mutual Shares Investments 2,428
Russell Core Bond 29,501 Franklin Growth Investments 858
Russell Real Estate Securities 640 Fidelity VIP Growth 1,520
AIM V.I. Value 36,366 Fidelity VIP II Contrafund 1,549
AIM V.I. Capital Appreciation 11,531 Fidelity VIP III Growth Opportunities 701
AIM V.I. International Equity 3,834 Fidelity VIP III Growth & Income 2,269
Alliance Premier Growth 30,967 Fidelity VIP Equity-Income 1,211
Alliance Real Estate Investment 3,961 American Century VP Income & Growth 272
Liberty Newport Tiger Fund, Variable 521 American Century VP International 2
Goldman Sachs Growth and Income 6,394 American Century VP Value 171
Goldman Sachs International Equity 3,125 Dreyfus Stock Index 14
Goldman Sachs Global Income 347 Dreyfus VIF Disciplined Stock 10
Kemper-Dreman High Return Equity 193 Dreyfus VIF Capital Appreciation 224
Kemper Small Cap Growth 1,218 INVESCO Dynamics 173
Kemper Small Cap Value 4,362 INVESCO High Yield 56
Kemper Government Securities 2,341 PIMCO High Yield Bond -
MFS Bond 225 PIMCO Low Duration Bond -
MFS Research 13,264 PIMCO StocksPLUS Growth & Income 9
MFS Growth with Income 16,016 PIMCO Total Return Bond 71
MFS Emerging Growth 16,464 Scudder International 158
--------------
$ 2,042,667
==============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(6) UNIT FAIR VALUE
A summary of accumulation unit values, net assets, total return
and expense ratios for each sub-account follows:
Accumulation Unit Value
Commenced -------------------------------------------------------
Operations 12/31/99 12/31/98 12/31/97 12/31/96
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Cova Lord Abbett Growth and Income 1/8/99 $ 39.456928 - - -
Cova Bond Debenture 5/1/96 13.765381 13.496500 12.881792 11.294930
Cova Developing Growth 8/20/97 14.452868 11.067854 10.527554 -
Cova Large Cap Research 8/20/97 14.635627 11.825550 9.899560 -
Cova Mid-Cap Value 8/20/97 10.875538 10.437949 10.467957 -
Cova Quality Bond 5/1/96 11.567155 11.914489 11.155126 10.368764
Cova Small Cap Stock 5/1/96 17.932441 12.582860 13.491466 11.308419
Cova Large Cap Stock 5/1/96 22.548941 19.428499 14.889462 11.334979
Cova Select Equity 5/1/96 18.384654 16.987204 14.053502 10.838053
Cova International Equity 5/1/96 16.333906 12.889315 11.462435 10.967004
Cova Balanced 7/1/97 12.432529 11.767845 10.531920 -
Cova Equity Income 7/1/97 12.202725 12.068849 11.194166 -
Cova Growth and Income Equity 7/1/97 13.966013 12.188331 10.756082 -
Cova Riggs Stock 8/5/99 10.239524 - - -
Cova Riggs U.S. Government Securities 8/5/99 9.995395 - - -
GACC Money Market 6/3/96 11.525358 11.109943 10.667011 10.233546
Russell Multi-Style Equity 12/31/97 14.667724 12.694810 10.000000 -
Russell Aggressive Equity 12/31/97 10.422234 9.963254 10.000000 -
Russell Non-US 12/31/97 14.652149 11.142092 10.000000 -
Russell Core Bond 12/31/97 10.380043 10.591175 10.000000 -
Russell Real Estate Securities 7/1/99 9.388124 - - -
AIM V.I. Value 12/31/97 16.729131 13.060203 10.000000 -
AIM V.I. Capital Appreciation 12/31/97 16.785351 11.770729 10.000000 -
AIM V.I. International Equity 12/31/97 17.416663 11.391449 10.000000 -
Alliance Premier Growth 12/31/97 19.043436 14.595485 10.000000 -
Alliance Real Estate Investment 12/31/97 7.474763 7.988435 10.000000 -
Liberty Newport Tiger Fund, Variable 12/31/97 15.290670 9.228765 10.000000 -
Goldman Sachs Growth and Income 1/29/98 10.299328 9.908613 - -
Goldman Sachs International Equity 1/29/98 14.826563 11.402925 - -
Goldman Sachs Global Income 1/29/98 10.524196 10.781765 - -
Kemper-Dreman High Return Equity 5/15/98 9.187195 10.487302 - -
Kemper Small Cap Growth 12/31/97 15.493396 11.676086 10.000000 -
Kemper Small Cap Value 12/31/97 8.872647 8.753222 10.000000 -
Kemper Government Securities 12/31/97 10.480981 10.556498 10.000000 -
MFS Bond 5/15/98 10.184471 10.491811 - -
MFS Research 12/31/97 14.890281 12.172796 10.000000 -
MFS Growth with Income 12/31/97 12.695264 12.066568 10.000000 -
MFS Emerging Growth 12/31/97 23.059667 13.233235 10.000000 -
MFS/Foreign & Colonial Emerging Markets Equity 12/31/97 8.954559 6.571830 10.000000 -
MFS High Income 12/31/97 10.334082 9.845193 10.000000 -
MFS Global Governments 12/31/97 10.258675 10.669943 10.000000 -
Oppenheimer Capital Appreciation 12/31/97 17.087450 12.232731 10.000000 -
Oppenheimer Main Street Growth & Income 12/31/97 12.393263 10.326519 10.000000 -
Oppenheimer High Income 12/31/97 10.174699 9.893828 10.000000 -
Oppenheimer Bond 12/31/97 10.228856 10.533011 10.000000 -
Oppenheimer Strategic Bond 12/31/97 10.293168 10.151332 10.000000 -
Putnam VT Growth and Income 12/31/97 11.402482 11.382650 10.000000 -
Putnam VT New Value 12/31/97 10.365439 10.483517 10.000000 -
Putnam VT Vista 12/31/97 17.769589 11.785702 10.000000 -
Putnam VT International Growth 12/31/97 18.486388 11.707003 10.000000 -
Putnam VT International New Opportunities 12/31/97 22.820083 11.402252 10.000000 -
Templeton Bond 3/1/99 9.681884 - - -
Franklin Small Cap Investments 3/1/99 17.679923 - - -
Templeton Stock 1/19/99 12.557918 - - -
Templeton International 5/1/98 11.147003 9.144522 - -
Templeton Developing Markets 5/1/98 11.457935 7.552448 - -
Templeton Mutual Shares Investments 5/1/98 10.413095 9.630622 - -
Franklin Growth Investments 3/1/99 14.665449 - - -
Fidelity VIP Growth 2/17/98 17.723853 13.077878 - -
Fidelity VIP II Contrafund 2/17/98 15.140886 12.357373 - -
Fidelity VIP III Growth Opportunities 2/17/98 12.073401 11.742360 - -
Fidelity VIP III Growth & Income 2/17/98 13.135609 12.202502 - -
Fidelity VIP Equity-Income 2/17/98 11.141767 10.626607 - -
American Century VP Income & Growth 11/19/99 10.320209 - - -
American Century VP International 11/19/99 12.514968 - - -
American Century VP Value 11/19/99 9.582238 - - -
Dreyfus Stock Index 11/19/99 10.321607 - - -
Dreyfus VIF Disciplined Stock 11/19/99 10.300470 - - -
Dreyfus VIF Capital Appreciation 11/19/99 10.118366 - - -
INVESCO Dynamics 11/19/99 11.142628 - - -
INVESCO High Yield 11/19/99 10.117511 - - -
PIMCO High Yield Bond 11/19/99 10.078000 - - -
PIMCO Low Duration Bond 11/19/99 9.969000 - - -
PIMCO StocksPLUS Growth & Income 11/19/99 10.306817 - - -
PIMCO Total Return Bond 11/19/99 9.875011 - - -
Scudder International 11/19/99 11.631204 - - -
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(6) UNIT FAIR VALUE
A summary of accumulation unit values, net assets, total return and
expense ratios for each sub-account follows:
Net Assets (in thousands)
Commenced -------------------------------------------------------
Operations 12/31/99 12/31/98 12/31/97 12/31/96
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Cova Lord Abbett Growth and Income 1/8/99 $ 835,419 - - -
Cova Bond Debenture 5/1/96 157,563 110,471 50,820 7,451
Cova Developing Growth 8/20/97 31,136 14,855 1,565 -
Cova Large Cap Research 8/20/97 33,108 12,968 1,233 -
Cova Mid-Cap Value 8/20/97 27,507 17,145 2,035 -
Cova Quality Bond 5/1/96 88,174 39,638 15,986 5,276
Cova Small Cap Stock 5/1/96 97,527 69,645 53,169 13,993
Cova Large Cap Stock 5/1/96 226,951 81,369 21,989 15,751
Cova Select Equity 5/1/96 225,772 179,310 97,063 22,159
Cova International Equity 5/1/96 123,899 94,245 62,371 14,333
Cova Balanced 7/1/97 8,441 3,372 401 -
Cova Equity Income 7/1/97 5,707 3,463 557 -
Cova Growth and Income Equity 7/1/97 14,972 7,823 1,309 -
Cova Riggs Stock 8/5/99 219 - - -
Cova Riggs U.S. Government Securities 8/5/99 292 - - -
GACC Money Market 6/3/96 42,895 16,464 3,318 -
Russell Multi-Style Equity 12/31/97 56,328 29,559 - -
Russell Aggressive Equity 12/31/97 9,457 5,343 - -
Russell Non-US 12/31/97 22,962 10,316 - -
Russell Core Bond 12/31/97 27,554 17,050 - -
Russell Real Estate Securities 7/1/99 631 - - -
AIM V.I. Value 12/31/97 42,572 6,816 - -
AIM V.I. Capital Appreciation 12/31/97 15,128 2,160 - -
AIM V.I. International Equity 12/31/97 4,842 2,325 - -
Alliance Premier Growth 12/31/97 39,333 9,748 - -
Alliance Real Estate Investment 12/31/97 3,554 1,529 - -
Liberty Newport Tiger Fund, Variable 12/31/97 622 295 - -
Goldman Sachs Growth and Income 1/29/98 6,392 4,634 - -
Goldman Sachs International Equity 1/29/98 3,561 1,287 - -
Goldman Sachs Global Income 1/29/98 332 203 - -
Kemper-Dreman High Return Equity 5/15/98 173 97 - -
Kemper Small Cap Growth 12/31/97 1,760 893 - -
Kemper Small Cap Value 12/31/97 4,402 2,145 - -
Kemper Government Securities 12/31/97 2,293 630 - -
MFS Bond 5/15/98 219 174 - -
MFS Research 12/31/97 16,358 5,658 - -
MFS Growth with Income 12/31/97 17,431 7,016 - -
MFS Emerging Growth 12/31/97 28,533 7,142 - -
MFS/Foreign & Colonial Emerging Markets Equity 12/31/97 149 481 - -
MFS High Income 12/31/97 4,525 2,158 - -
MFS Global Governments 12/31/97 77 22 - -
Oppenheimer Capital Appreciation 12/31/97 7,463 1,189 - -
Oppenheimer Main Street Growth & Income 12/31/97 7,669 2,941 - -
Oppenheimer High Income 12/31/97 2,424 777 - -
Oppenheimer Bond 12/31/97 10,542 4,234 - -
Oppenheimer Strategic Bond 12/31/97 3,155 1,095 - -
Putnam VT Growth and Income 12/31/97 26,271 12,699 - -
Putnam VT New Value 12/31/97 693 441 - -
Putnam VT Vista 12/31/97 6,847 1,785 - -
Putnam VT International Growth 12/31/97 20,194 6,206 - -
Putnam VT International New Opportunities 12/31/97 2,512 602 - -
Templeton Bond 3/1/99 326 - - -
Franklin Small Cap Investments 3/1/99 980 - - -
Templeton Stock 1/19/99 538 - - -
Templeton International 5/1/98 9,210 1,507 - -
Templeton Developing Markets 5/1/98 3,489 679 - -
Templeton Mutual Shares Investments 5/1/98 2,581 1,021 - -
Franklin Growth Investments 3/1/99 1,019 - - -
Fidelity VIP Growth 2/17/98 1,830 88 - -
Fidelity VIP II Contrafund 2/17/98 1,816 400 - -
Fidelity VIP III Growth Opportunities 2/17/98 729 112 - -
Fidelity VIP III Growth & Income 2/17/98 2,482 852 - -
Fidelity VIP Equity-Income 2/17/98 1,228 256 - -
American Century VP Income & Growth 11/19/99 279 - - -
American Century VP International 11/19/99 2 - - -
American Century VP Value 11/19/99 173 - - -
Dreyfus Stock Index 11/19/99 14 - - -
Dreyfus VIF Disciplined Stock 11/19/99 10 - - -
Dreyfus VIF Capital Appreciation 11/19/99 225 - - -
INVESCO Dynamics 11/19/99 181 - - -
INVESCO High Yield 11/19/99 56 - - -
PIMCO High Yield Bond 11/19/99 - - - -
PIMCO Low Duration Bond 11/19/99 - - - -
PIMCO StocksPLUS Growth & Income 11/19/99 9 - - -
PIMCO Total Return Bond 11/19/99 71 - - -
Scudder International 11/19/99 169 - - -
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(6) UNIT FAIR VALUE, CONTINUED
Total Return*
Commenced -------------------------------------------------------
Operations 1999 1998 1997 1996
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Cova Lord Abbett Growth and Income 1/8/99 9.90% - - -
Cova Bond Debenture 5/1/96 1.99% 4.77% 14.05% 11.86%
Cova Developing Growth 8/20/97 30.58% 5.13% 5.28% -
Cova Large Cap Research 8/20/97 23.76% 19.46% -1.00% -
Cova Mid-Cap Value 8/20/97 4.19% -0.29% 4.68% -
Cova Quality Bond 5/1/96 -2.92% 6.81% 7.58% 4.76%
Cova Small Cap Stock 5/1/96 42.52% -6.74% 19.31% 7.57%
Cova Large Cap Stock 5/1/96 16.06% 30.49% 31.36% 13.32%
Cova Select Equity 5/1/96 8.23% 20.88% 29.67% 7.48%
Cova International Equity 5/1/96 26.72% 12.45% 4.52% 7.36%
Cova Balanced 7/1/97 5.65% 11.74% 5.32% -
Cova Equity Income 7/1/97 1.11% 7.81% 11.94% -
Cova Growth and Income Equity 7/1/97 14.59% 13.32% 7.56% -
Cova Riggs Stock 8/5/99 -1.34% - - -
Cova Riggs U.S. Government Securities 8/5/99 1.56% - - -
GACC Money Market 6/3/96 3.74% 4.15% 4.24% 2.34%
Russell Multi-Style Equity 12/31/97 15.54% 26.95% - -
Russell Aggressive Equity 12/31/97 4.61% -0.37% - -
Russell Non-US 12/31/97 31.50% 11.42% - -
Russell Core Bond 12/31/97 -1.99% 5.91% - -
Russell Real Estate Securities 7/1/99 -6.12% - - -
AIM V.I. Value 12/31/97 28.09% 30.60% - -
AIM V.I. Capital Appreciation 12/31/97 42.60% 17.71% - -
AIM V.I. International Equity 12/31/97 52.89% 13.91% - -
Alliance Premier Growth 12/31/97 30.48% 45.96% - -
Alliance Real Estate Investment 12/31/97 -6.43% -20.12% - -
Liberty Newport Tiger Fund, Variable 12/31/97 65.69% -7.71% - -
Goldman Sachs Growth and Income 1/29/98 3.94% -0.91% - -
Goldman Sachs International Equity 1/29/98 30.02% 14.03% - -
Goldman Sachs Global Income 1/29/98 -2.39% 7.82% - -
Kemper-Dreman High Return Equity 5/15/98 -12.40% 4.87% - -
Kemper Small Cap Growth 12/31/97 32.69% 16.76% - -
Kemper Small Cap Value 12/31/97 1.36% -12.47% - -
Kemper Government Securities 12/31/97 -0.71% 5.57% - -
MFS Bond 5/15/98 -2.93% 4.92% - -
MFS Research 12/31/97 22.32% 21.73% - -
MFS Growth with Income 12/31/97 5.21% 20.67% - -
MFS Emerging Growth 12/31/97 74.26% 32.33% - -
MFS/Foreign & Colonial Emerging Markets Equity 12/31/97 36.26% -34.28% - -
MFS High Income 12/31/97 4.97% -1.55% - -
MFS Global Governments 12/31/97 -3.85% 6.70% - -
Oppenheimer Capital Appreciation 12/31/97 39.69% 22.33% - -
Oppenheimer Main Street Growth & Income 12/31/97 20.01% 3.27% - -
Oppenheimer High Income 12/31/97 2.84% -1.06% - -
Oppenheimer Bond 12/31/97 -2.89% 5.33% - -
Oppenheimer Strategic Bond 12/31/97 1.40% 1.51% - -
Putnam VT Growth and Income 12/31/97 0.17% 13.83% - -
Putnam VT New Value 12/31/97 -1.13% 4.83% - -
Putnam VT Vista 12/31/97 50.77% 17.86% - -
Putnam VT International Growth 12/31/97 57.91% 17.07% - -
Putnam VT International New Opportunities 12/31/97 100.14% 14.02% - -
Templeton Bond 3/1/99 -3.18% - - -
Franklin Small Cap Investments 3/1/99 76.80% - - -
Templeton Stock 1/19/99 25.58% - - -
Templeton International 5/1/98 21.90% -8.55% - -
Templeton Developing Markets 5/1/98 51.71% -24.48% - -
Templeton Mutual Shares Investments 5/1/98 8.13% -3.69% - -
Franklin Growth Investments 3/1/99 46.65% - - -
Fidelity VIP Growth 2/17/98 35.53% 30.78% - -
Fidelity VIP II Contrafund 2/17/98 22.53% 23.57% - -
Fidelity VIP III Growth Opportunities 2/17/98 2.82% 17.42% - -
Fidelity VIP III Growth & Income 2/17/98 7.65% 22.03% - -
Fidelity VIP Equity-Income 2/17/98 4.85% 6.27% - -
American Century VP Income & Growth 11/19/99 3.20% - - -
American Century VP International 11/19/99 25.15% - - -
American Century VP Value 11/19/99 -4.18% - - -
Dreyfus Stock Index 11/19/99 3.22% - - -
Dreyfus VIF Disciplined Stock 11/19/99 3.00% - - -
Dreyfus VIF Capital Appreciation 11/19/99 1.18% - - -
INVESCO Dynamics 11/19/99 11.43% - - -
INVESCO High Yield 11/19/99 1.17% - - -
PIMCO High Yield Bond 11/19/99 0.78% - - -
PIMCO Low Duration Bond 11/19/99 -0.31% - - -
PIMCO StocksPLUS Growth & Income 11/19/99 3.07% - - -
PIMCO Total Return Bond 11/19/99 -1.25% - - -
Scudder International 11/19/99 16.31% - - -
* The total return for sub-accounts that commenced operations during the period is not annualized.
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(6) UNIT FAIR VALUE, CONTINUED
Separate Account Expenses
As a % of Average Net Assets**
Commenced -------------------------------------------------------
Operations 1999 1998 1997 1996
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Cova Lord Abbett Growth and Income 1/8/99 1.40% - - -
Cova Bond Debenture 5/1/96 1.40% 1.40% 1.40% 1.40%
Cova Developing Growth 8/20/97 1.40% 1.40% 1.40% -
Cova Large Cap Research 8/20/97 1.40% 1.40% 1.40% -
Cova Mid-Cap Value 8/20/97 1.40% 1.40% 1.40% -
Cova Quality Bond 5/1/96 1.40% 1.40% 1.40% 1.40%
Cova Small Cap Stock 5/1/96 1.40% 1.40% 1.40% 1.40%
Cova Large Cap Stock 5/1/96 1.40% 1.40% 1.40% 1.40%
Cova Select Equity 5/1/96 1.40% 1.40% 1.40% 1.40%
Cova International Equity 5/1/96 1.40% 1.40% 1.40% 1.40%
Cova Balanced 7/1/97 1.40% 1.40% 1.40% -
Cova Equity Income 7/1/97 1.40% 1.40% 1.40% -
Cova Growth and Income Equity 7/1/97 1.40% 1.40% 1.40% -
Cova Riggs Stock 8/5/99 1.40% - - -
Cova Riggs U.S. Government Securities 8/5/99 1.40% - - -
GACC Money Market 6/3/96 1.40% 1.40% 1.40% 1.40%
Russell Multi-Style Equity 12/31/97 1.40% 1.40% - -
Russell Aggressive Equity 12/31/97 1.40% 1.40% - -
Russell Non-US 12/31/97 1.40% 1.40% - -
Russell Core Bond 12/31/97 1.40% 1.40% - -
Russell Real Estate Securities 7/1/99 1.40% - - -
AIM V.I. Value 12/31/97 1.40% 1.40% - -
AIM V.I. Capital Appreciation 12/31/97 1.40% 1.40% - -
AIM V.I. International Equity 12/31/97 1.40% 1.40% - -
Alliance Premier Growth 12/31/97 1.40% 1.40% - -
Alliance Real Estate Investment 12/31/97 1.40% 1.40% - -
Liberty Newport Tiger Fund, Variable 12/31/97 1.40% 1.40% - -
Goldman Sachs Growth and Income 1/29/98 1.40% 1.40% - -
Goldman Sachs International Equity 1/29/98 1.40% 1.40% - -
Goldman Sachs Global Income 1/29/98 1.40% 1.40% - -
Kemper-Dreman High Return Equity 5/15/98 1.40% 1.40% - -
Kemper Small Cap Growth 12/31/97 1.40% 1.40% - -
Kemper Small Cap Value 12/31/97 1.40% 1.40% - -
Kemper Government Securities 12/31/97 1.40% 1.40% - -
MFS Bond 5/15/98 1.40% 1.40% - -
MFS Research 12/31/97 1.40% 1.40% - -
MFS Growth with Income 12/31/97 1.40% 1.40% - -
MFS Emerging Growth 12/31/97 1.40% 1.40% - -
MFS/Foreign & Colonial Emerging Markets Equity 12/31/97 1.40% 1.40% - -
MFS High Income 12/31/97 1.40% 1.40% - -
MFS Global Governments 12/31/97 1.40% 1.40% - -
Oppenheimer Capital Appreciation 12/31/97 1.40% 1.40% - -
Oppenheimer Main Street Growth & Income 12/31/97 1.40% 1.40% - -
Oppenheimer High Income 12/31/97 1.40% 1.40% - -
Oppenheimer Bond 12/31/97 1.40% 1.40% - -
Oppenheimer Strategic Bond 12/31/97 1.40% 1.40% - -
Putnam VT Growth and Income 12/31/97 1.40% 1.40% - -
Putnam VT New Value 12/31/97 1.40% 1.40% - -
Putnam VT Vista 12/31/97 1.40% 1.40% - -
Putnam VT International Growth 12/31/97 1.40% 1.40% - -
Putnam VT International New Opportunities 12/31/97 1.40% 1.40% - -
Templeton Bond 3/1/99 1.40% - - -
Franklin Small Cap Investments 3/1/99 1.40% - - -
Templeton Stock 1/19/99 1.40% - - -
Templeton International 5/1/98 1.40% 1.40% - -
Templeton Developing Markets 5/1/98 1.40% 1.40% - -
Templeton Mutual Shares Investments 5/1/98 1.40% 1.40% - -
Franklin Growth Investments 3/1/99 1.40% - - -
Fidelity VIP Growth 2/17/98 1.40% 1.40% - -
Fidelity VIP II Contrafund 2/17/98 1.40% 1.40% - -
Fidelity VIP III Growth Opportunities 2/17/98 1.40% 1.40% - -
Fidelity VIP III Growth & Income 2/17/98 1.40% 1.40% - -
Fidelity VIP Equity-Income 2/17/98 1.40% 1.40% - -
American Century VP Income & Growth 11/19/99 1.40% - - -
American Century VP International 11/19/99 1.40% - - -
American Century VP Value 11/19/99 1.40% - - -
Dreyfus Stock Index 11/19/99 1.40% - - -
Dreyfus VIF Disciplined Stock 11/19/99 1.40% - - -
Dreyfus VIF Capital Appreciation 11/19/99 1.40% - - -
INVESCO Dynamics 11/19/99 1.40% - - -
INVESCO High Yield 11/19/99 1.40% - - -
PIMCO High Yield Bond 11/19/99 1.40% - - -
PIMCO Low Duration Bond 11/19/99 1.40% - - -
PIMCO StocksPLUS Growth & Income 11/19/99 1.40% - - -
PIMCO Total Return Bond 11/19/99 1.40% - - -
Scudder International 11/19/99 1.40% - - -
** The expense ratio for sub-accounts that commenced operations during the period is annualized.
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION
The realized gain (loss) on the sale of fund shares and the change in
unrealized appreciation for each sub-account during the year ended
December 31, 1999 and 1998 follows:
Realized Gain (Loss)
------------------------------------------------------------------
Aggregate Aggregate Cost
Year or Proceeds from Sales of Fund Shares Realized
Period of Fund Shares Redeemed Gain (Loss)
----------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Cova Quality Income 1999 $ 38,668 $ 39,188 $ (520)
1998 13,031 12,576 455
Cova Money Market 1999 7,897 7,897 -
1998 14,519 14,519 -
Cova High Yield 1999 28,995 29,950 (955)
1998 6,314 6,178 136
Cova Stock Index 1999 100,241 82,162 18,079
1998 23,196 17,093 6,103
Cova VKAC Growth and Income 1999 51,735 45,148 6,587
1998 6,244 4,804 1,440
Cova Lord Abbett Growth and Income 1999 33,043 31,617 1,426
1998 - - -
Cova Bond Debenture 1999 8,143 8,020 123
1998 9,489 9,470 19
Cova Developing Growth 1999 614 545 69
1998 138 152 (14)
Cova Large Cap Research 1999 68 59 9
1998 161 156 5
Cova Mid-Cap Value 1999 481 460 21
1998 82 85 (3)
Cova Quality Bond 1999 13,923 13,935 (12)
1998 1,336 1,299 37
Cova Small Cap Stock 1999 6,406 6,290 116
1998 3,113 3,237 (124)
Cova Large Cap Stock 1999 24,473 22,393 2,080
1998 147 131 16
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION, CONTINUED
Realized Gain (Loss)
------------------------------------------------------------------
Aggregate Aggregate Cost
Year or Proceeds from Sales of Fund Shares Realized
Period of Fund Shares Redeemed Gain (Loss)
----------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Cova Select Equity 1999 $ 2,126 $ 1,843 $ 283
1998 1,485 1,274 211
Cova International Equity 1999 7,673 6,613 1,060
1998 4,919 4,609 310
Cova Balanced 1999 507 464 43
1998 30 30 -
Cova Small Cap Equity 1999 1,828 1,752 76
1998 39 42 (3)
Cova Equity Income 1999 355 328 27
1998 75 75 -
Cova Growth and Income Equity 1999 510 448 62
1998 210 204 6
Cova Riggs U.S. Government Securities 1999 201 200 1
1998 - - -
Cova Riggs Stock 1999 100 100 -
1998 - - -
GACC Money Market 1999 54,974 54,019 955
1998 37,059 36,624 435
Lord Abbett Growth and Income 1999 700,973 555,507 145,466
1998 12,298 10,217 2,081
Russell Multi-Style Equity 1999 1,756 1,634 122
1998 62 61 1
Russell Aggressive Equity 1999 568 578 (10)
1998 203 247 (44)
Russell Non-US 1999 604 559 45
1998 92 90 2
Russell Core Bond 1999 2,193 2,264 (71)
1998 523 522 1
(Continued)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION, CONTINUED
Realized Gain (Loss)
------------------------------------------------------------------
Aggregate Aggregate Cost
Year or Proceeds from Sales of Fund Shares Realized
Period of Fund Shares Redeemed Gain (Loss)
----------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Russell Real Estate Securities 1999 $ 6 $ 6 $ -
1998 - - -
AIM V.I. Value 1999 231 215 16
1998 253 263 (10)
AIM V.I. Capital Appreciation 1999 191 177 14
1998 73 75 (2)
AIM V.I. International Equity 1999 12,169 11,498 671
1998 8,247 8,249 (2)
Alliance Premier Growth 1999 617 559 58
1998 54 58 (4)
Alliance Real Estate Investment 1999 310 332 (22)
1998 28 30 (2)
Liberty Newport Tiger Fund, Variable 1999 1,971 1,801 170
1998 416 445 (29)
Goldman Sachs Growth and Income 1999 1,183 1,203 (20)
1998 126 138 (12)
Goldman Sachs International Equity 1999 3,457 3,299 158
1998 29 29 -
Goldman Sachs Global Income 1999 51 51 -
1998 17 16 1
Kemper-Dreman High Return Equity 1999 8 8 -
1998 - - -
Kemper Small Cap Growth 1999 401 364 37
1998 1,008 1,035 (27)
Kemper Small Cap Value 1999 446 464 (18)
1998 21 25 (4)
Kemper Government Securities 1999 206 207 (1)
1998 17 17 -
(Continued)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION, CONTINUED
Realized Gain (Loss)
-----------------------------------------------------------------
Aggregate Aggregate Cost
Year or Proceeds from Sales of Fund Shares Realized
Period of Fund Shares Redeemed Gain (Loss)
---------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
MFS Bond 1999 $ 14 $ 14 $ -
1998 - - -
MFS Research 1999 335 308 27
1998 120 122 (2)
MFS Growth with Income 1999 391 371 20
1998 28 28 -
MFS Emerging Growth 1999 671 532 139
1998 129 140 (11)
MFS/Foreign & Colonial
Emerging Markets Equity 1999 561 573 (12)
1998 1,059 1,156 (97)
MFS High Income 1999 307 312 (5)
1998 61 63 (2)
MFS Global Governments 1999 6 6 -
1998 - - -
Oppenheimer Capital Appreciation 1999 219 201 18
1998 187 189 (2)
Oppenheimer Main Street Growth & Income 1999 438 411 27
1998 326 364 (38)
Oppenheimer High Income 1999 42 43 (1)
1998 32 32 -
Oppenheimer Bond 1999 246 253 (7)
1998 49 49 -
Oppenheimer Strategic Bond 1999 170 174 (4)
1998 3 3 -
Putnam VT Growth and Income 1999 362 360 2
1998 294 302 (8)
Putnam VT New Value 1999 231 238 (7)
1998 2 3 (1)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION, CONTINUED
Realized Gain (Loss)
----------------------------------------------------------------
Aggregate Aggregate Cost
Year or Proceeds from Sales of Fund Shares Realized
Period of Fund Shares Redeemed Gain (Loss)
----------- ------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Putnam VT Vista 1999 $ 175 $ 153 $ 22
1998 27 28 (1)
Putnam VT International Growth 1999 4,284 3,820 464
1998 4,316 4,354 (38)
Putnam VT International New Opportunities 1999 3,566 3,316 250
1998 2,989 2,965 24
Templeton Bond 1999 6 6 -
1998 - - -
Franklin Small Cap Investments 1999 72 60 12
1998 - - -
Templeton Stock 1999 49 47 2
1998 - - -
Templeton International 1999 10,350 10,164 186
1998 6,057 6,049 8
Templeton Developing Markets 1999 1,026 958 68
1998 357 361 (4)
Templeton Mutual Shares Investments 1999 187 177 10
1998 7 7 -
Franklin Growth Investments 1999 165 158 7
1998 - - -
Fidelity VIP Growth 1999 99 90 9
1998 35 37 (2)
Fidelity VIP II Contrafund 1999 426 386 40
1998 17 19 (2)
Fidelity VIP III Growth Opportunities 1999 65 64 1
1998 24 25 (1)
Fidelity VIP III Growth & Income 1999 275 255 20
1998 69 74 (5)
(Continued)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION, CONTINUED
Realized Gain (Loss)
------------------------------------------------------------------
Aggregate Aggregate Cost
Year or Proceeds from Sales of Fund Shares Realized
Period of Fund Shares Redeemed Gain (Loss)
----------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Fidelity VIP Equity-Income 1999 $ 141 $ 139 $ 2
1998 27 30 (3)
American Century VP Income & Growth 1999 - - -
1998 - - -
American Century VP International 1999 16 16 -
1998 - - -
American Century VP Value 1999 - - -
1998 - - -
Dreyfus Stock Index 1999 - - -
1998 - - -
Dreyfus VIF Disciplined Stock 1999 - - -
1998 - - -
Dreyfus VIF Capital Appreciation 1999 - - -
1998 - - -
INVESCO VIF Dynamics 1999 - - -
1998 - - -
INVESCO VIF High Yield 1999 - - -
1998 - - -
PIMCO High Yield Bond 1999 - - -
1998 - - -
PIMCO Low Duration Bond 1999 - - -
1998 - - -
PIMCO StocksPLUS Growth & Income 1999 - - -
1998 - - -
PIMCO Total Return Bond 1999 - - -
1998 - - -
Scudder International 1999 - - -
1998 - - -
(Continued)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION, CONTINUED
Unrealized Appreciation (Depreciation)
------------------------------------------------------------------
Appreciation Appreciation
Year or (Depreciation) (Depreciation)
Period End of Period Beginning of Period Change
----------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Cova Quality Income 1999 $ - $ 1,307 $ (1,307)
1998 1,307 1,301 6
Cova Money Market 1999 - - -
1998 - - -
Cova High Yield 1999 - 174 (174)
1998 174 842 (668)
Cova Stock Index 1999 - 25,838 (25,838)
1998 25,838 25,000 838
Cova VKAC Growth and Income 1999 - 11,521 (11,521)
1998 11,521 10,887 634
Cova Lord Abbett Growth and Income 1999 84,856 - 84,856
1998 - - -
Cova Bond Debenture 1999 4,348 3,523 825
1998 3,523 1,958 1,565
Cova Developing Growth 1999 7,602 890 6,712
1998 890 7 883
Cova Large Cap Research 1999 6,817 1,284 5,533
1998 1,284 6 1,278
Cova Mid-Cap Value 1999 1,426 160 1,266
1998 160 40 120
Cova Quality Bond 1999 (1,015) 1,598 (2,613)
1998 1,598 186 1,412
Cova Small Cap Stock 1999 30,039 346 29,693
1998 346 6,523 (6,177)
Cova Large Cap Stock 1999 36,556 16,535 20,021
1998 16,535 2,855 13,680
Cova Select Equity 1999 33,989 33,585 404
1998 33,585 13,520 20,065
(Continued)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION, CONTINUED
Unrealized Appreciation (Depreciation)
------------------------------------------------------------------
Appreciation Appreciation
Year or (Depreciation) (Depreciation)
Period End of Period Beginning of Period Change
---------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Cova International Equity 1999 $ 33,733 $ 9,278 $ 24,455
1998 9,278 1,309 7,969
Cova Balanced 1999 311 173 138
1998 173 - 173
Cova Small Cap Equity 1999 - 34 (34)
1998 34 (5) 39
Cova Equity Income 1999 (266) 70 (336)
1998 70 21 49
Cova Growth and Income Equity 1999 2,123 566 1,557
1998 566 18 548
Cova Riggs U.S. Government Securities 1999 (4) - (4)
1998 - - -
Cova Riggs Stock 1999 4 - 4
1998 - - -
GACC Money Market 1999 1,215 231 984
1998 231 46 185
Lord Abbett Growth and Income 1999 - 114,453 (114,453)
1998 114,453 87,861 26,592
Russell Multi-Style Equity 1999 5,696 3,199 2,497
1998 3,199 - 3,199
Russell Aggressive Equity 1999 736 75 661
1998 75 - 75
Russell Non-US 1999 4,785 412 4,373
1998 412 - 412
Russell Core Bond 1999 (1,947) 268 (2,215)
1998 268 - 268
Russell Real Estate Securities 1999 (9) - (9)
1998 - - -
(Continued)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION, CONTINUED
Unrealized Appreciation (Depreciation)
------------------------------------------------------------------
Appreciation Appreciation
Year or (Depreciation) (Depreciation)
Period End of Period Beginning of Period Change
----------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
AIM V.I. Value 1999 $ 6,206 $ 668 $ 5,538
1998 668 - 668
AIM V.I. Capital Appreciation 1999 3,597 164 3,433
1998 164 - 164
AIM V.I. International Equity 1999 1,008 81 927
1998 81 - 81
Alliance Premier Growth 1999 8,366 1,522 6,844
1998 1,522 - 1,522
Alliance Real Estate Investment 1999 (407) (170) (237)
1998 (170) - (170)
Liberty Newport Tiger Fund, Variable 1999 101 54 47
1998 54 - 54
Goldman Sachs Growth and Income 1999 (2) (207) 205
1998 (207) - (207)
Goldman Sachs International Equity 1999 436 56 380
1998 56 - 56
Goldman Sachs Global Income 1999 (15) (1) (14)
1998 (1) - (1)
Kemper-Dreman High Return Equity 1999 (20) 1 (21)
1998 1 - 1
Kemper Small Cap Growth 1999 542 107 435
1998 107 - 107
Kemper Small Cap Value 1999 40 (155) 195
1998 (155) - (155)
Kemper Government Securities 1999 (48) 9 (57)
1998 9 - 9
MFS Bond 1999 (6) 1 (7)
1998 1 - 1
(Continued)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION, CONTINUED
Unrealized Appreciation (Depreciation)
------------------------------------------------------------------
Appreciation Appreciation
Year or (Depreciation) (Depreciation)
Period End of Period Beginning of Period Change
---------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
MFS Research 1999 $ 3,094 $ 481 $ 2,613
1998 481 - 481
MFS Growth with Income 1999 1,415 574 841
1998 574 - 574
MFS Emerging Growth 1999 12,069 985 11,084
1998 985 - 985
MFS/Foreign & Colonial
Emerging Markets Equity 1999 24 (94) 118
1998 (94) - (94)
MFS High Income 1999 (58) (34) (24)
1998 (34) - (34)
MFS Global Governments 1999 (3) 1 (4)
1998 1 - 1
Oppenheimer Capital Appreciation 1999 1,754 134 1,620
1998 134 - 134
Oppenheimer Main Street Growth & Income 1999 877 (28) 905
1998 (28) - (28)
Oppenheimer High Income 1999 (40) (15) (25)
1998 (15) - (15)
Oppenheimer Bond 1999 (317) 95 (412)
1998 95 - 95
Oppenheimer Strategic Bond 1999 - 3 (3)
1998 3 - 3
Putnam VT Growth and Income 1999 (991) 660 (1,651)
1998 660 - 660
Putnam VT New Value 1999 (22) 6 (28)
1998 6 - 6
Putnam VT Vista 1999 1,687 173 1,514
1998 173 - 173
(Continued)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION, CONTINUED
Unrealized Appreciation (Depreciation)
------------------------------------------------------------------
Appreciation Appreciation
Year or (Depreciation) (Depreciation)
Period End of Period Beginning of Period Change
---------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Putnam VT International Growth 1999 $ 6,805 $ 353 $ 6,452
1998 353 - 353
Putnam VT International New Opportunities 1999 860 40 820
1998 40 - 40
Templeton Bond 1999 (3) - (3)
1998 - - -
Franklin Small Cap Investments 1999 231 - 231
1998 - - -
Templeton Stock 1999 60 - 60
1998 - - -
Templeton International 1999 1,005 48 957
1998 48 - 48
Templeton Developing Markets 1999 872 44 828
1998 44 - 44
Templeton Mutual Shares Investments 1999 153 32 121
1998 32 - 32
Franklin Growth Investments 1999 161 - 161
1998 - - -
Fidelity VIP Growth 1999 310 12 298
1998 12 - 12
Fidelity VIP II Contrafund 1999 267 48 219
1998 48 - 48
Fidelity VIP III Growth Opportunities 1999 28 13 15
1998 13 - 13
Fidelity VIP III Growth & Income 1999 213 94 119
1998 94 - 94
Fidelity VIP Equity-Income 1999 17 17 -
1998 17 - 17
(Continued)
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION, CONTINUED
Unrealized Appreciation (Depreciation)
------------------------------------------------------------------
Appreciation Appreciation
Year or (Depreciation) (Depreciation)
Period End of Period Beginning of Period Change
----------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
American Century VP Income & Growth 1999 $ 7 $ - $ 7
1998 - - -
American Century VP International 1999 - - -
1998 - - -
American Century VP Value 1999 2 - 2
1998 - - -
Dreyfus Stock Index 1999 - - -
1998 - - -
Dreyfus VIF Disciplined Stock 1999 - - -
1998 - - -
Dreyfus VIF Capital Appreciation 1999 1 - 1
1998 - - -
INVESCO VIF Dynamics 1999 8 - 8
1998 - - -
INVESCO VIF High Yield 1999 - - -
1998 - - -
PIMCO High Yield Bond 1999 - - -
1998 - - -
PIMCO Low Duration Bond 1999 - - -
1998 - - -
PIMCO StocksPLUS Growth & Income 1999 - - -
1998 - - -
PIMCO Total Return Bond 1999 - - -
1998 - - -
Scudder International 1999 11 - 11
1998 - - -
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(8) UNIT TRANSACTIONS
The change in the number of units for each sub-account follows:
Cova
--------------------------------------------------------------------------------------------------
VKAC Lord Abbett
Growth Growth
Quality Money High Stock and and Bond
Income Market Yield Index Income Income Debenture
------------- ---------- ----------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation units:
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
Cova units purchased - - - - - - -
Cova units redeemed - - - - - - -
Contract units purchased - - 83 187 - 642,997 506,293
Contract units transferred, net (2,215,623) (606,382) (1,202,292) (3,084,953) (2,098,056) 22,553,102 3,839,982
Contract units redeemed (8,056) (3,184) (2,950) (8,203) (3,163) (2,067,478) (1,117,176)
------------- ----------- ----------- ------------ ----------- ------------- -------------
Unit balance at 12/31/99 - - - - - 21,128,621 11,413,993
============= =========== =========== ============ =========== ============= =============
Annuity units:
Unit balance at 12/31/97 8,069 4,562 2,229 4,097 1,803 - -
Contract units purchased - - 798 - 798 - 272
Contract 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
Contract units purchased - - - - - 614,517 184,677
Contract units transferred, net (6,225) (3,576) (2,444) (3,431) (2,373) 33,239 -
Contract units redeemed (158) (85) (60) (58) (32) (588,108) (148,800)
------------- ----------- ----------- ------------ ----------- ------------- -------------
Unit balance at 12/31/99 - - - - - 59,648 36,141
============= =========== =========== ============ =========== ============= =============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(8)UNIT TRANSACTIONS, CONTINUED
Cova
----------------------------------------------------------------------------------
Large Small Large
Developing Cap Mid-Cap Quality Cap Cap Select
Growth Research Value Bond Stock Stock Equity
---------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation units:
Unit balance at 12/31/97 148,658 124,559 194,386 1,433,081 3,940,243 1,473,929 6,903,606
Cova units purchased - - - - - - -
Cova units redeemed (10,000) (10,000) (10,000) - - - -
Contract units purchased 596,000 569,392 755,701 833,031 619,802 1,118,109 1,382,912
Contract units transferred, net 630,230 437,664 736,868 1,236,444 1,172,828 1,713,122 2,562,725
Contract units redeemed (22,687) (26,695) (34,402) (179,213) (200,263) (127,125) (304,425)
---------- ---------- ---------- ---------- ---------- ----------- ----------
Unit balance at 12/31/98 1,342,201 1,094,920 1,642,553 3,323,343 5,532,610 4,178,035 10,544,818
Cova units purchased - - - - - - -
Cova units redeemed - - - - - - -
Contract units purchased 243,231 289,429 311,212 516,514 203,018 731,340 510,633
Contract units transferred, net 645,209 965,273 698,565 5,060,268 132,023 6,332,217 1,861,802
Contract units redeemed (76,742) (89,198) (123,430) (1,291,515) (431,799) (1,191,443) (645,967)
---------- ---------- ---------- ---------- ---------- ----------- ----------
Unit balance at 12/31/99 2,153,899 2,260,424 2,528,900 7,608,610 5,435,852 10,050,149 12,271,286
========== ========== ========== ========== ========== =========== ==========
Annuity units:
Unit balance at 12/31/97 - - - - 773 3,028 3,237
Contract units purchased - 2,090 - 3,947 1,944 9,187 9,682
Contract units redeemed - (266) - (109) (162) (1,259) (1,203)
---------- ---------- ---------- ---------- ---------- ----------- ----------
Unit balance at 12/31/98 - 1,824 - 3,838 2,555 10,956 11,716
Contract units purchased 479 452 474 30,174 1,448 13,399 1,722
Contract units transferred, net - - - - 504 - 732
Contract units redeemed (66) (456) (65) (18,208) (1,459) (7,939) (3,936)
---------- ---------- ---------- ---------- ---------- ----------- ----------
Unit balance at 12/31/99 413 1,820 409 15,804 3,048 16,416 10,234
========== ========== ========== ========== ========== =========== ==========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(8) UNIT TRANSACTIONS, CONTINUED
Cova
---------------------------------------------------------------------------------------
Growth Riggs
and U.S.
International Small Cap Equity Income Government Riggs
Equity Balanced Equity Income Equity Securities Stock
----------- ----------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation units:
Unit balance at 12/31/97 5,440,592 38,079 26,148 49,725 121,673 - -
Cova units purchased - - - - - - -
Cova units redeemed - - - - - - -
Contract units purchased 651,488 128,875 44,062 157,967 269,879 - -
Contract units transferred, net 1,460,450 124,051 61,306 83,645 260,136 - -
Contract units redeemed (243,205) (4,494) (1,880) (4,384) (9,899) - -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Unit balance at 12/31/98 7,309,325 286,511 129,636 286,953 641,789 - -
Cova units purchased - - - - - 20,033 10,014
Cova units redeemed - - - - - - -
Contract units purchased 179,705 114,865 17,649 75,387 156,781 9,232 11,330
Contract units transferred, net 567,208 299,533 (143,078) 120,762 314,093 - -
Contract units redeemed (477,287) (21,972) (4,207) (15,381) (40,597) - -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Unit balance at 12/31/99 7,578,951 678,937 - 467,721 1,072,066 29,265 21,344
=========== =========== =========== =========== =========== =========== ===========
Annuity units:
Unit balance at 12/31/97 790
Contract units purchased 2,208
Contract units redeemed (173)
-----------
Unit balance at 12/31/98 2,825
Contract units purchased 6,131
Contract units transferred, net 559
Contract units redeemed (2,313)
-----------
Unit balance at 12/31/99 7,202
===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(8) UNIT TRANSACTIONS, CONTINUED
GACC Lord Abbett Russell
---------- ------------ --------------------------------------------------------------
Growth Multi- Real
Money and Style Aggressive Core Estate
Market Income Equity Equity Non-US Bond Securities
---------- ------------ ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation units:
Unit balance at 12/31/97 311,051 15,788,404 - - - - -
Cova units purchased - - 10 10 10 10 -
Cova units redeemed - - (10) (10) (10) (10) -
Contract units purchased 3,293,174 1,737,150 1,960,886 438,734 773,431 1,318,370 -
Contract units transferred, net (1,834,605) 3,166,896 416,532 107,823 180,088 360,854 -
Contract units redeemed (295,883) (1,222,057) (48,988) (10,279) (27,727) (69,373) -
---------- ------------ ----------- ---------- ----------- ----------- -----------
Unit balance at 12/31/98 1,473,737 19,470,393 2,328,430 536,278 925,792 1,609,851 -
Cova units purchased - - - - - - -
Cova units redeemed - - - - - - -
Contract units purchased 386,321 21,056 728,717 174,001 269,355 304,076 30,745
Contract units transferred, net 3,471,617 (19,468,292) 911,226 217,404 416,224 810,756 37,642
Contract units redeemed (1,622,502) (23,157) (128,684) (20,425) (44,584) (70,534) (1,123)
---------- ------------ ----------- ---------- ----------- ----------- -----------
Unit balance at 12/31/99 3,709,173 - 3,839,689 907,258 1,566,787 2,654,149 67,264
========== ============ =========== ========== =========== =========== ===========
Annuity units:
Unit balance at 12/31/97 - 26,046 - - - -
Contract units purchased 9,003 10,428 - - - -
Contract units redeemed (128) (3,208) - - - -
---------- ------------ ----------- ---------- ----------- -----------
Unit balance at 12/31/98 8,875 33,266 - - - -
Contract units purchased 6,080 - 644 171 417 380
Contract units transferred, net - (32,829) - - - -
Contract units redeemed (970) (437) (28) (7) (19) (17)
---------- ------------ ----------- ---------- ----------- -----------
Unit balance at 12/31/99 13,985 - 616 164 398 363
========== ============ =========== ========== =========== ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(8) UNIT TRANSACTIONS, CONTINUED
AIM Alliance Liberty Goldman Sachs
------------------------------------ ------------------------ ---------- -------------
Newport
V.I. Real Tiger Growth
V.I. Capital International Premier Estate Fund, and
V.I. Value Appreciation Equity Growth Investment Variable Income
----------- ----------- ----------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation units:
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) (10)
Contract units purchased 365,254 134,252 148,215 523,722 136,005 18,873 298,119
Contract units transferred, net 177,976 57,235 57,321 149,553 58,393 13,289 178,567
Contract units redeemed (21,340) (7,999) (1,464) (5,421) (2,987) (226) (9,011)
----------- ----------- ----------- ----------- ----------- ---------- -------------
Unit balance at 12/31/98 521,890 183,488 204,072 667,854 191,411 31,936 467,675
Cova units purchased - - - - - - -
Cova units redeemed - - - - - - -
Contract units purchased 817,276 258,835 39,014 894,320 201,575 8,694 68,346
Contract units transferred, net 1,315,650 489,743 43,444 574,874 97,095 516 114,482
Contract units redeemed (110,055) (30,831) (8,532) (71,589) (14,606) (498) (29,935)
----------- ----------- ----------- ----------- ----------- ---------- -------------
Unit balance at 12/31/99 2,544,761 901,235 277,998 2,065,459 475,475 40,648 620,568
=========== =========== =========== =========== =========== ========== =============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(8) UNIT TRANSACTIONS, CONTINUED
Goldman Sachs Kemper MFS
------------------------ ------------------------------------------------- -----------
Kemper-
Dreman Small Small
International Global High-Return Cap Cap Government
Equity Income Equity Growth Value Securities Bond
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation units:
Unit balance at 12/31/97 - - - - - - -
Cova units purchased 10 10 10 10 10 10 10
Cova units redeemed (10) (10) - (10) (10) (10) -
Contract units purchased 89,807 12,114 - 61,682 178,532 48,334 245
Contract units transferred, net 23,575 8,062 9,213 15,201 69,892 11,575 16,283
Contract units redeemed (558) (1,343) - (391) (3,332) (197) -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Unit balance at 12/31/98 112,824 18,833 9,223 76,492 245,092 59,712 16,538
Cova units purchased - - - - - - -
Cova units redeemed - - (10) - - - (10)
Contract units purchased 50,978 7,735 1,434 35,023 192,093 65,778 207
Contract units transferred, net 85,746 5,384 8,161 9,941 74,108 98,962 4,791
Contract units redeemed (9,378) (411) - (7,896) (15,210) (5,648) (1)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Unit balance at 12/31/99 240,170 31,541 18,808 113,560 496,083 218,804 21,525
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(8) UNIT TRANSACTIONS, CONTINUED
MFS Oppenheimer
-------------------------------------------------------------------------- ------------
F&C
Growth Emerging
with Emerging Markets High Global Capital
Research Income Growth Equity Income Governments Appreciation
---------- ----------- ----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation units:
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 337,107 416,517 438,345 45,159 164,144 423 83,004
Contract units transferred, net 137,437 171,689 106,215 28,739 57,879 1,674 19,949
Contract units redeemed (9,758) (6,772) (4,901) (727) (2,814) (25) (5,792)
---------- ----------- ----------- ---------- ----------- ----------- ------------
Unit balance at 12/31/98 464,786 581,434 539,659 73,171 219,209 2,082 97,161
Cova units purchased - - - - - - -
Cova units redeemed - - - - - (10) -
Contract units purchased 321,715 408,104 462,628 225 99,258 554 126,688
Contract units transferred, net 352,320 433,658 278,360 (53,623) 131,707 4,906 231,902
Contract units redeemed (40,235) (50,182) (43,286) (3,086) (12,298) (59) (19,059)
---------- ----------- ----------- ---------- ----------- ----------- ------------
Unit balance at 12/31/99 1,098,586 1,373,014 1,237,361 16,687 437,876 7,473 436,692
========== =========== =========== ========== =========== =========== ============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(8) UNIT TRANSACTIONS, CONTINUED
Oppenheimer Putnam
-------------------------------------------------- ------------------------------------
Main Street
Growth VT Growth
& High Strategic and VT New
Income Income Bond Bond Income Value VT Vista
------------ ----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation units:
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) (10)
Contract units purchased 211,120 51,949 320,045 71,817 820,015 16,925 116,318
Contract units transferred, net 78,591 27,811 86,123 36,774 304,805 25,293 36,195
Contract units redeemed (4,881) (1,247) (4,178) (722) (9,152) (127) (1,108)
------------ ----------- ----------- ----------- ----------- ---------- -----------
Unit balance at 12/31/98 284,830 78,513 401,990 107,869 1,115,668 42,091 151,405
Cova units purchased - - - - - - -
Cova units redeemed - - - - - - -
Contract units purchased 217,620 65,326 286,718 88,595 570,960 21,598 107,080
Contract units transferred, net 138,599 100,092 372,208 117,379 695,247 9,722 144,797
Contract units redeemed (22,278) (5,665) (30,377) (7,316) (77,862) (6,511) (17,937)
------------ ----------- ----------- ----------- ----------- ---------- -----------
Unit balance at 12/31/99 618,771 238,266 1,030,539 306,527 2,304,013 66,900 385,345
============ =========== =========== =========== =========== ========== ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(8) UNIT TRANSACTIONS, CONTINUED
Putnam Templeton
-------------------------- ----------------------------------------------------------------
VT
VT International Franklin
International New Small Cap Developing
Growth Opportunities Bond Investments Stock International Markets
----------- ------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation units:
Unit balance at 12/31/97 - - - - - - -
Cova units purchased 10 10 - - - 10 10
Cova units redeemed (10) (10) - - - (10) (10)
Contract units purchased 394,877 38,270 - - - 140,734 72,847
Contract units transferred, net 141,372 14,803 - - - 26,597 18,743
Contract units redeemed (6,194) (264) - - - (2,556) (1,630)
----------- ------------- ----------- ----------- ----------- ------------- -----------
Unit balance at 12/31/98 530,055 52,809 - - - 164,775 89,960
Cova units purchased - - 10 10 10 - -
Cova units redeemed - - (10) (10) (10) - -
Contract units purchased 392,488 27,922 3,637 11,648 11,900 341,262 139,782
Contract units transferred, net 209,762 35,664 30,636 46,259 31,002 335,736 84,543
Contract units redeemed (39,926) (6,310) (553) (2,509) (67) (15,636) (9,796)
----------- ------------- ----------- ----------- ----------- ------------- -----------
Unit balance at 12/31/99 1,092,379 110,085 33,720 55,398 42,835 826,137 304,489
=========== ============= =========== =========== =========== ============= ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(8) UNIT TRANSACTIONS, CONTINUED
Templeton Fidelity
------------------------- ----------------------------------------------------------------
Mutual Franklin VIP III VIP III VIP
Shares Growth VIP VIP II Growth Growth & Equity-
Investments Investments Growth Contrafund Opportunities Income Income
------------ ----------- ---------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation units:
Unit balance at 12/31/97 - - - - - - -
Cova units purchased 10 - 10 10 10 10 10
Cova units redeemed (10) - (10) (10) (10) (10) (10)
Contract units purchased 61,499 - 8,130 30,391 11,440 53,646 20,381
Contract units transferred, net 45,054 - (1,021) 2,056 (1,406) 30,141 4,635
Contract units redeemed (518) - (361) (93) (511) (13,954) (884)
------------ ----------- ---------- ----------- -------------- ----------- -----------
Unit balance at 12/31/98 106,035 - 6,748 32,354 9,523 69,833 24,132
Cova units purchased - 10 - - - - -
Cova units redeemed - (10) - - - - -
Contract units purchased 72,494 14,183 38,395 34,583 13,353 35,444 25,192
Contract units transferred, net 78,011 65,739 64,277 59,264 39,571 92,257 65,071
Contract units redeemed (8,734) (10,434) (6,180) (6,278) (2,053) (8,623) (4,213)
------------ ----------- ---------- ----------- -------------- ----------- -----------
Unit balance at 12/31/99 247,806 69,488 103,240 119,923 60,394 188,911 110,182
============ =========== ========== =========== ============== =========== ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(8) UNIT TRANSACTIONS, CONTINUED
American Century Dreyfus INVESCO
-------------------------------------- --------------------------------------- -----------
VP VIF VIF
Income & VP Stock Disciplined Capital VIF
Growth International VP Value Index Stock Appreciation Dynamics
---------- ------------- ----------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation units:
Unit balance at 12/31/97 - - - - - - -
Cova units purchased - - - - - - -
Cova units redeemed - - - - - - -
Contract units purchased - - - - - - -
Contract units transferred, net - - - - - - -
Contract units redeemed - - - - - - -
---------- ------------- ----------- ----------- ----------- -------------- -----------
Unit balance at 12/31/98 - - - - - - -
Cova units purchased 10 10 10 10 10 10 10
Cova units redeemed (10) - (10) - - (10) (10)
Contract units purchased 26,706 145 17,835 1,363 934 21,909 16,138
Contract units transferred, net 306 - 164 - - 312 121
Contract units redeemed - - - - - - -
---------- ------------- ----------- ----------- ----------- -------------- -----------
Unit balance at 12/31/99 27,012 155 17,999 1,373 944 22,221 16,259
========== ============= =========== =========== =========== ============== ===========
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(8) UNIT TRANSACTIONS, CONTINUED
INVESCO PIMCO Scudder
------------ ---------------------------------------------------- --------------
VIF High Low StocksPLUS Total
High Yield Duration Growth & Return
Yield Bond Bond Income Bond International
------------ ----------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units:
Unit balance at 12/31/97 - - - - - -
Cova units purchased - - - - - -
Cova units redeemed - - - - - -
Contract units purchased - - - - - -
Contract units transferred, net - - - - - -
Contract units redeemed - - - - - -
------------ ----------- ----------- -------------- ---------- --------------
Unit balance at 12/31/98 - - - - - -
Cova units purchased 10 10 10 10 10 10
Cova units redeemed - - - - - (10)
Contract units purchased 5,538 - - 877 7,160 14,363
Contract units transferred, net - - - - - 136
Contract units redeemed - - - - - -
------------ ----------- ----------- -------------- ---------- --------------
Unit balance at 12/31/99 5,548 10 10 887 7,170 14,499
============ =========== =========== ============== ========== ==============
</TABLE>
COVA FINANCIAL SERVICES
LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(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, 1999 and
1998, 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, 1999. 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, 1999 and 1998, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
February 4, 2000
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Investments:
Debt securities available-for-sale, at fair value (cost of
$1,575,536 in 1999 and $1,375,198 in 1998) $ 1,481,997 1,371,513
Preferred stock - affiliate, at fair value 6,892 9,000
Common stock, at fair value 12 37
Mortgage loans, net of allowance for potential loan loss
of $1,090 in 1999 and $510 in 1998 376,147 312,865
Policy loans 27,778 26,295
Other invested assets 4,625 --
------------ ------------
Total investments 1,897,451 1,719,710
Cash and cash equivalents - interest-bearing 86,038 94,770
Cash - noninterest-bearing 5,893 5,008
Receivable from sale of securities 1,452 5,845
Accrued investment income 24,992 21,505
Deferred policy acquisition costs 214,120 131,973
Present value of future profits 55,406 42,230
Goodwill 16,157 18,585
Deferred tax asset, net 21,964 4,786
Receivable from OakRe 336,376 720,904
Federal and state income taxes recoverable 1,190 --
Due from affiliates -- 246,198
Other assets 741 829
Separate account assets 2,537,962 1,832,396
------------ ------------
Total assets $ 5,199,742 4,844,739
============ ============
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Balance Sheets, Continued
December 31, 1999 and 1998
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY 1999 1998
------------- -------------
(IN THOUSANDS)
Liabilities:
<S> <C> <C>
Policyholder deposits $ 2,270,795 2,643,124
Future policy benefits 58,432 54,336
Payable on return of collateral on loaned securities 37,862 25,923
Payable on purchase of securities 516 1,040
Due to affiliates 4,220 --
Federal and state income taxes payable -- 446
Accounts payable and other liabilities 22,905 18,714
Future purchase price payable to OakRe 2,898 6,976
Guaranty fund assessments 9,900 9,700
Separate account liabilities 2,537,652 1,832,394
------------- -------------
Total liabilities 4,945,180 4,592,653
------------- -------------
Shareholder's equity:
Common stock, $2 par value. Authorized
5,000,000 shares; issued and outstanding
2,899,466 shares in 1999 and 1998 5,799 5,799
Additional paid-in capital 260,491 220,491
Retained earnings 12,906 26,410
Accumulated other comprehensive
loss - net of tax (24,634) (614)
------------- -------------
Total shareholder's equity 254,562 252,086
------------- -------------
Total liabilities and shareholder's equity $ 5,199,742 4,844,739
============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Income
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(in thousands)
Revenues:
<S> <C> <C> <C>
Premiums $ 8,468 23,875 9,368
Net investment income 131,372 127,812 111,661
Net realized (losses) gains on sales
of investments (20,214) (1,600) 563
Separate account fees 30,999 20,820 12,455
Other income 6,142 1,197 2,400
----------- ----------- -----------
Total revenues 156,767 172,104 136,447
----------- ----------- -----------
Benefits and expenses:
Interest on policyholder deposits 102,274 93,759 81,129
Current and future policy benefits 27,409 25,225 11,496
Operating and other expenses 37,270 20,151 16,179
Amortization of purchased
intangible assets 6,087 6,309 6,697
Amortization of deferred policy
acquisition costs 3,621 9,393 6,307
----------- ----------- -----------
Total benefits and expenses 176,661 154,837 121,808
----------- ----------- -----------
(Loss) income before income taxes (19,894) 17,267 14,639
----------- ----------- -----------
Income tax (benefit) expense:
Current (2,146) (1,576) 1,951
Deferred (4,244) 4,949 3,710
----------- ----------- -----------
Total income tax (benefit) expense (6,390) 3,373 5,661
----------- ----------- -----------
Net (loss) income $ (13,504) 13,894 8,978
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
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, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(in thousands)
Common stock, balance at beginning
<S> <C> <C> <C>
and end of period $ 5,799 5,799 5,799
----------- ----------- -----------
Additional paid-in capital:
Balance at beginning of period 220,491 191,491 166,491
Capital contribution 40,000 29,000 25,000
----------- ----------- -----------
Balance at end of period 260,491 220,491 191,491
----------- ----------- -----------
Retained earnings:
Balance at beginning of period 26,410 12,516 3,538
Net (loss) income (13,504) 13,894 8,978
----------- ----------- -----------
Balance at end of period 12,906 26,410 12,516
----------- ----------- -----------
Accumulated other comprehensive (loss) income:
Balance at beginning of period (614) 2,732 (784)
Change in unrealized (depreciation) appreciation
of debt and equity securities (91,987) (14,571) 14,077
Deferred federal income tax impact 12,934 1,801 (1,893)
Change in deferred policy acquisition costs attributable
to unrealized depreciation (appreciation) 39,975 6,996 (5,342)
Change in present value of future profits
attributable to unrealized depreciation (appreciation) 15,058 2,428 (3,326)
----------- ----------- -----------
Balance at end of period (24,634) (614) 2,732
----------- ----------- -----------
Total shareholder's equity $ 254,562 252,086 212,538
=========== =========== ===========
Total comprehensive (loss) income:
Net (loss) income $ (13,504) 13,894 8,978
Other comprehensive (loss) income (change in net unrealized
(depreciation) appreciation of debt and equity securities) (24,020) (3,346) 3,516
----------- ----------- -----------
Total comprehensive (loss) income $ (37,524) 10,548 12,494
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- ------------
(in thousands)
Reconciliations of net income to net cash provided by operating activities:
<S> <C> <C> <C>
Net income (loss) $ (13,504) 13,894 8,978
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in future policy benefits 4,096 15,975 6,019
Increase (decrease) in payables and
accrued liabilities 1,620 (9,419) (9,278)
Increase in accrued investment income (1,483) (903) (5,591)
Amortization of intangible assets and
deferred policy acquisition costs 14,963 15,702 13,004
Amortization and accretion of securities
premiums and discounts (59) (1,767) 1,664
Decrease in recapture commissions payable to OakRe (4,078) (5,197) (4,837)
Net SPDA benefits recaptured from RGA 14,043 -- --
Net realized loss (gain) on sale of investments 20,214 1,600 (563)
Interest accumulated on policyholder deposits 102,274 93,759 81,129
(Decrease) increase in current and
deferred federal income taxes (1,360) 4,083 5,022
Separate account net income 1 (12) (2,637)
Commissions and expenses deferred (45,793) (50,044) (46,142)
Other (8,720) (2,011) 2,413
------------- -------------- ------------
Net cash provided by operating activities 82,214 75,660 49,181
------------- -------------- ------------
Cash flows from investing activities:
Cash used in the purchase of investment securities (560,288) (733,049) (809,814)
Proceeds from investment securities sold and matured 478,398 642,481 382,783
Other (3,524) (1,159) 15,400
------------- -------------- ------------
Net cash used in investing activities $ (85,414) (91,727) (411,631)
------------- -------------- ------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- ------------
(in thousands)
Cash flows from financing activities:
<S> <C> <C> <C>
Policyholder deposits $ 740,599 1,014,075 841,174
Transfers from OakRe 441,742 812,520 637,168
Transfer to separate accounts (404,241) (789,872) (450,303)
Return of policyholder deposits (878,516) (889,202) (597,425)
Proceeds from security collateral on securities lending 11,939 25,923 --
Transfers from (to) RGA 43,830 (103,175) (120,411)
Capital contributions received 40,000 29,000 25,000
------------- -------------- ------------
Net cash (used) provided by financing activities (4,647) 99,269 335,203
------------- -------------- ------------
(Decrease) increase in cash and
cash equivalents (7,847) 83,202 (27,247)
Cash and cash equivalents at beginning of period 99,778 16,576 43,823
------------- -------------- ------------
Cash and cash equivalents at end of period $ 91,931 99,778 16,576
============= ============== ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
AND SUBSIDIARIES
(a wholly owned subsidiary of Cova Corporation)
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(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 86%, 89%, and 73% of the
Company's sales have been through two specific brokerage firms, A.
G. Edwards & Sons, Incorporated and Edward Jones & Company, in
1999, 1998, and 1997, respectively.
<PAGE>
ORGANIZATION
The Company is a wholly owned subsidiary of Cova Corporation,
which is a wholly owned subsidiary of General American Life
Insurance Company (GALIC), a Missouri domiciled life insurance
company. GALIC is a wholly owned subsidiary of GenAmerica
Corporation, which in turn is wholly owned by the ultimate parent,
General American Mutual Holding Company (GAMHC). The Company owns
100% of the outstanding shares of two subsidiaries, First Cova
Life Insurance Company (a New York domiciled insurance company)
(FCLIC) and Cova Financial Life Insurance Company (a California
domiciled insurance company) (CFLIC).
On August 26, 1999, GAMHC entered into a definitive agreement,
whereby Metropolitan Life Insurance Company (MetLife), a New York
domiciled life insurance company, will acquire GenAmerica
Corporation and all its holdings for $1.2 billion in cash. The
purchase was approved by the Missouri Director of Insurance on
November 10, 1999. The purchase, however, was not consummated as
of December 31, 1999, and, as a result, these financial statements
do not reflect purchase accounting treatment of this transaction.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles (GAAP) and include the accounts and operations of the
Company. Significant intercompany transactions have been
eliminated. The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions
that affect the amounts reported. Actual results could differ from
these estimates.
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, 1999 and 1998 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").
<PAGE>
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.
SECURITIES LENDING
The Company recognizes on its consolidated balance sheet cash
related to collateral controlled on securities lending
transactions and a corresponding obligation to return such
collateral at the termination of such transactions.
PREFERRED STOCK - AFFILIATE
Preferred stock represents an investment in nonredeemable
preferred stock in GenAmerica Management Company, an affiliate.
The security is 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.
COMMON STOCK
Common stock represents an investment in common stock warrants.
The security is 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 at December 31, 1999. The
valuation allowance for potential losses on mortgage loans was
$1,090,000 and $510,000 at December 31, 1999 and 1998,
respectively.
<PAGE>
OTHER INVESTED ASSETS
Other invested assets consist of investments in joint ventures in
real estate.
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, 1999 and 1998 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. The Company sets a
limit on the deferral of acquisition costs incurred from internal
marketing and wholesaling operations in any year at 1% to 1.5% of
premiums and deposits receipts, varying according to specific
product. This limit is based on typical market rates of
independent marketing service and wholesaling organizations. This
practice also avoids possible deferral of costs in excess of
amounts recoverable.
The costs deferred 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.
<PAGE>
<TABLE>
<CAPTION>
The components of deferred policy acquisition costs are shown
below.
1999 1998 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred policy acquisition costs, beginning of period $ 131,973 84,326 49,833
Commissions and costs deferred 45,793 50,044 46,142
Amortization (3,621) (9,393) (6,307)
Deferred policy acquisition costs attributable to
unrealized depreciation (appreciation) of investments 39,975 6,996 (5,342)
------------ ------------ -------------
Deferred policy acquisition costs, end of period $ 214,120 131,973 84,326
============ ============ =============
Costs expensed that exceeded the established deferred
limit $ 9,789 4,933 3,016
============ ============ =============
</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
date the Company was purchased by GALIC.
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
single premium deferred annuity (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 PVFP 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.
<PAGE>
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 7.6%, 7.7%, 7.5%, 6.8%, and
6.4% for the years ended December 31, 2000 through 2004,
respectively. Actual amortization incurred during these years
may be more or less as assumptions are modified to incorporate
actual results. The average crediting rate on the original
in-force PVFP asset is 6.8% for 1999, 1998 and 1997.
<TABLE>
<CAPTION>
The components of PVFP are shown below.
1999 1998 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
PVFP - beginning of period $ 42,230 41,486 46,389
Interest credited 2,695 2,864 3,029
Amortization (4,577) (4,548) (4,606)
Present value of future profits attributable to unrealized
depreciation (appreciation) of investments
15,058 2,428 (3,326)
------------ ------------ -------------
PVFP - end of period $ 55,406 42,230 41,486
============ ============ =============
</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.
1999 1998 1997
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill - beginning of period $ 18,585 19,717 20,849
Amortization (1,132) (1,132) (1,132)
Experience adjustment to future purchase price payable to
OakRe (1,296) -- --
----------- ------------ ------------
Goodwill - end of period $ 16,157 18,585 19,717
=========== ============ ============
</TABLE>
<PAGE>
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.
1999 1998 1997
----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Future payable - beginning of period $ 6,976 12,173 16,051
Interest added 378 629 959
Payments to OakRe (3,160) (5,826) (4,837)
Experience adjustment to future purchase price
payable to OakRe (1,296) -- --
----------- ------------ -----------
Future payable - end of period $ 2,898 6,976 12,173
=========== ============ ===========
</TABLE>
DEFERRED TAX ASSETS AND LIABILITIES
Xerox Financial Services, Inc. (XFSI) (previous parent of the
Company) 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.
<PAGE>
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, 1999 was 5.9%.
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 4.50% to 8.00%, depending upon date 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 and
fees from a modified coinsurance agreement with GALIC.
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.
<PAGE>
COMPREHENSIVE INCOME
The Company reports and presents comprehensive income and its
components in accordance with SFAS No. 130, Reporting
Comprehensive Income. 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 or depreciation on debt and equity
securities held at available-for-sale.
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:
O Investment valuation
O Amortization of deferred policy acquisition costs
O Amortization of present value of future profits
O 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.
<PAGE>
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, 1999.
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).
<PAGE>
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, 1999 and 1998, the cash
surrender value of policyholder deposits was approximately
$84.9 million and $103.7 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 its parent, GALIC, and the receivable from OakRe equal to
the SPDA obligations is guaranteed by OakRe's parent, XFSI.
REINSURANCE
Effective July 25, 1999, the Company entered into a modified
coinsurance reinsurance agreement with MetLife. Under the
reinsurance agreement, the Company ceded life insurance and
annuity business that was issued or renewed from July 25, 1999
through December 31, 1999 to MetLife amounting to $259 million.
Net earnings to MetLife from that business are experience refunded
to the Company. The agreement does not meet the conditions for
reinsurance accounting under GAAP. In substance, the agreement
represents a guarantee by MetLife of new business and renewed SPDA
business during this period. There was no impact on the Company's
financial statements resulting from the reinsurance transaction
with MetLife.
Effective January 1, 1998, the Company entered into a modified
coinsurance financial reinsurance agreement with GALIC. The
reinsurance agreement provided that the Company would reinsurance
a block of "stable value" annuity business issued by GALIC on a
36% coinsurance basis amounting to $88 million and $635 million in
1999 and 1998, respectively. The agreement does not meet the
conditions for reinsurance accounting under GAAP, and no assets
were transferred. Effective July 1, 1999, the Company terminated
the financing reinsurance agreement with GALIC. The Company
recognized income of $1.6 million from this transaction in both
1999 and 1998.
<PAGE>
Effective January 1, 1997, the Company entered into a financial
reinsurance agreement with RGA Reinsurance Company (RGA), an
affiliate, related to certain of the Company's single premium
deferred annuity products, and transferred assets equal to 60% of
deposits received. The agreement does not meet the conditions for
reinsurance accounting under GAAP. Deposits reinsured under the
contract were approximately $219 million at December 31, 1998, and
are reflected as policyholder deposits of the Company and a "Due
from affiliate" asset in the consolidated balance sheets.
On January 31, 1999, the Company suspended ceding new business to
RGA, and on November 30, 1999, the Company recaptured all of the
obligations and related investments from RGA. The Company
recognized an operating expense of $12.6 million related to the
recapture.
On June 1, 1995, when GALIC formed Cova Corporation and purchased
CSFLIC, then known as Xerox Financial Services Life Insurance
Company (XFSLIC), from XFSI, a wholly owned subsidiary of Xerox
Corporation, it entered into a financing reinsurance transaction
with OakRe Life Insurance Company (OakRe), then a subsidiary of
XFSLIC, for OakRe to assume the economic benefits and risks of the
existing single premium deferred annuity deposits of XFSLIC.
Ownership of OakRe was retained by XFSI subsequent to the sale of
XFSLIC and other affiliates.
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 financing reinsurance agreement entered into with OakRe as
condition to the purchase of the Company does not meet the
criteria for reinsurance accounting under GAAP. The net assets
initially transferred to OakRe were established as a receivable
and are subsequently increased as interest accrued on the
underlying deposits and decrease as funds are transferred back to
the Company when policies reach their crediting rate reset date or
benefits are claimed. 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 mid-year 2000, and completely by mid-year
2002. The liquidations transfer cash daily 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 since inception of the
agreement.
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARD
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, issued in June 1998, requires all derivative financial
instruments to be recorded on the balance sheet at estimated fair
value. The Company's present accounting policies applies 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.
The 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.
In June 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS No. 133. SFAS No. 137 defers for one year
the effective date of Statement of SFAS No 133, Accounting for
Derivative Instruments and Hedging Activities. The Company plans
to adopt the provision of SFAS No. 133 effective January 1, 2001.
At this time the Company does not believe it will have a material
effect on the Company's consolidated financial position or results
of operations.
OTHER
Certain 1998 and 1997 amounts have been reclassified to conform to
the 1999 presentation.
<PAGE>
(3) INVESTMENTS
<TABLE>
<CAPTION>
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, 1999 and
1998, are as follows:
1999
-----------------------------------------------------------------------------
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. treasury securities $ 28,209 35 (2,665) 25,579 25,579
Government agency
obligations 34,121 76 (318) 33,879 33,879
Corporate securities 1,040,309 1,901 (60,641) 981,569 981,569
Mortgage-backed
securities 199,979 42 (7,335) 192,686 192,686
Asset-backed securities 272,918 389 (25,023) 248,284 248,284
-------------- -------------- --------------- --------------- --------------
Total debt securities 1,575,536 2,443 (95,982) 1,481,997 1,481,997
Preferred stock - affiliate 9,000 -- (2,108) 6,892 6,892
Common stock 37 -- (25) 12 12
Mortgage loans (net) 376,147 -- (1,979) 374,168 376,147
Other invested assets 4,625 -- -- 4,625 4,625
Policy loans 27,778 -- -- 27,778 27,778
-------------- -------------- --------------- --------------- --------------
Total investments $ 1,993,123 2,443 (100,094) 1,895,472 1,897,451
============== ============== =============== =============== ==============
Company's beneficial interest
in separate accounts
$ 310 -- -- 310 310
============== ============== =============== =============== ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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. treasury securities $ 28,288 249 (84) 28,453 28,453
Government agency
obligations 53,869 1,015 (1) 54,883 54,883
Corporate securities 902,139 16,583 (24,799) 893,923 893,923
Mortgage-backed
securities 253,704 2,118 (1,570) 254,252 254,252
Asset-backed securities 137,198 3,087 (283) 140,002 140,002
-------------- -------------- --------------- --------------- --------------
Total debt securities 1,375,198 23,052 (26,737) 1,371,513 1,371,513
Preferred stock - affiliate 9,000 -- -- 9,000 9,000
Common stock 37 -- -- 37 37
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>
<PAGE>
The amortized cost and estimated fair value of debt securities at
December 31, 1999, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties. Maturities of mortgage-backed securities will be
substantially shorter than their contractual maturity because they
require monthly principal installments and mortgagees may prepay
principal.
<TABLE>
<CAPTION>
1999
------------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Less than one year $ 65,222 65,553
Due after one year through five years 513,181 488,850
Due after five years through ten years 504,184 465,079
Due after ten years 292,970 269,828
Mortgage-backed securities 199,979 192,687
-------------- --------------
Total $ 1,575,536 1,481,997
============== ==============
</TABLE>
At December 31, 1999, approximately 91.1% of the Company's debt
securities are investment grade or are nonrated but considered to be of
investment grade. Of the 8.9% noninvestment grade debt securities, 7.3%
are rated as BB, 0.8% are rated as B, and 0.8% are rated C and treated
as impaired.
At December 31, 1999, the Company had nine impaired debt securities with
estimated fair value of $9.4 million, of which seven debt securities,
with estimated fair value of $8.1 million, became non-income producing
in 1999. At December 31, 1998, the Company had two impaired debt
securities with estimated value of $2.1 million, of which one debt
security, with estimated fair value of $0.5 million, became non-income
producing.
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, 1999 had market values totaling
$36,957,975. Cash of $37,861,652 was held as collateral to secure this
agreement. Income on the Company's security lending program in 1999
was immaterial.
<PAGE>
<TABLE>
<CAPTION>
The components of investment income, realized capital gains (losses),
and unrealized appreciation (depreciation) are as follows:
1999 1998 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income on debt securities $ 100,969 94,876 84,203
Income on cash and cash equivalents 2,459 2,720 2,265
Income on equity securities 563 -- --
Interest on mortgage loans 27,161 28,650 24,890
Income on real estate 103 -- --
Income on policy loans 2,136 1,980 1,852
Income on separate account investments -- 13 2,637
Loss on derivatives -- -- (2,035)
Miscellaneous interest 335 1,715 (215)
------------ ------------ -------------
Total investment income 133,726 129,954 113,597
Investment expenses (2,354) (2,142) (1,936)
------------ ------------ -------------
Net investment income $ 131,372 127,812 111,661
============ ============ =============
Net realized capital (losses) gains are as follows:
Debt securities $ (20,011) (1,600) 537
Equity securities 3 -- --
Mortgage loans -- -- 27
Real estate (38) -- --
Other investments (168) -- (1)
------------ ------------ -------------
Net realized (losses) gains on investments $ (20,214) (1,600) 563
============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
(IN THOUSANDS)
Unrealized appreciation (depreciation) are as follows:
<S> <C> <C>
Debt securities $ (93,540) (3,685)
Preferred stock - affiliate (2,108) --
Common stock (25) --
Effects on deferred acquisition costs amortization 43,190 3,215
Effects on PVFP amortization 14,585 (473)
-------------- --------------
Unrealized depreciation before income tax (37,898) (943)
Unrealized income tax benefit 13,264 329
-------------- --------------
Unrealized depreciation on investments $ (24,634) (614)
============== ==============
</TABLE>
Proceeds from sales, redemptions, and paydowns of investments in debt
securities during 1999 were $439,069,999. Gross gains of $2,445,497 and
gross losses of $22,456,541 were realized on those sales. Included in
these amounts were $500,674 of gross gains and $1,938,767 of gross
losses realized on the sale of noninvestment grade securities. Net
realized losses include a 1999 impairment adjustment totaling
$18,768,778 related to ten debt securities held by the Company.
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.
Securities with a carrying value of approximately $7,019,456 at December
31, 1999 were deposited with government authorities as required by law.
<PAGE>
(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, 1999 and 1998.
(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 gain or loss adjusts the unamortized cost of the
hedged security, and the resulting premium or discount is amortized or
accreted over the remaining life of the hedge security.
Summarized below are the specific types of derivative instruments used
by the Company.
INTEREST RATE SWAPS
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.
At December 31, 1999, the Company does not have any outstanding
interest rate swap agreements. The swap agreements outstanding at
December 31, 1998 were terminated during 1999 by the
counterparties at a loss of $167,500 to the Company.
At December 31, 1998, the Company had two outstanding interest
rate swap agreements which would have expired in 2002 and 2003.
Under the agreements, the Company received a fixed rate of 6.63%
and 6.70% on a notional amount of $7 and $8 million, respectively,
and paid 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.
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 on the S&P 500
index during 1997. No financial futures contracts were held during
1999 or 1998. The Company recorded $-0-, $-0-, and $2,035,309 of
losses from terminated contracts as a component of net investment
income during 1999, 1998, and 1997, respectively. The Company also
recorded gains of $-0-, $-0-, and $2,636,999 as a component of net
investment income from market appreciation on the underlying
hedged securities within the separate account during 1999, 1998,
and 1997, respectively.
A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon
price. 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.
<PAGE>
<TABLE>
<CAPTION>
(6) COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
1999 1998 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net (loss) income $ (13,504) 13,894 8,978
------------ ------------ -------------
Other comprehensive (loss) income, before tax -
unrealized (depreciation) appreciation of debt and
equity securities arising during period:
Unrealized holding (depreciation) appreciation
of debt and equity securities (71,773) (12,971) 13,514
Adjustment to deferred acquisition costs
attributable to unrealized depreciation
(appreciation) 31,191 6,228 (5,128)
Adjustment to PVFP attributable to unrealized
depreciation (appreciation) 11,749 2,161 (3,193)
------------ ------------ -------------
Total unrealized (depreciation) appreciation
arising during period (28,833) (4,582) 5,193
------------ ------------ -------------
Less reclassification adjustments for realized losses (gains)
included in net income:
Adjustment for losses (gains) included in
net realized (losses) gains on sales
of investments 20,214 1,600 (563)
Adjustment for (gains) losses included in
amortization of deferred acquisition costs (8,784) (768) 214
Adjustment for (gains) losses included in
amortization of PVFP (3,309) (267) 133
------------ ------------ -------------
Total reclassification adjustments for losses
(gains) included in net income 8,121 565 (216)
------------ ------------ -------------
Other comprehensive (loss) income before related
income tax (benefit) expense (36,954) (5,147) 5,409
Related income tax (benefit) expense (12,934) (1,801) 1,893
------------ ------------ -------------
Other comprehensive (loss) income, net of tax (24,020) (3,346) 3,516
------------ ------------ -------------
Comprehensive (loss) income $ (37,524) 10,548 12,494
============ ============ =============
</TABLE>
<PAGE>
(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
under 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 1999, 1998, and 1997, the Company was allocated a
portion of benefit costs including severance pay, accumulated vacations,
and disability benefits. At December 31, 1999, 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:
1999 1998 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Statements of income:
Operating (loss) income (excluding realized
investment gains and losses) $ (4,830) 3,906 5,464
Realized investment (losses) gains (1,560) (533) 197
------------ ------------ -------------
Income tax (benefit) expense
included in the consolidated
statements of income (6,390) 3,373 5,661
Shareholder's equity -
change in deferred federal income
taxes related to unrealized (depreciation)
appreciation on securities (12,934) (1,801) 1,893
------------ ------------ -------------
Total income tax (benefit) expense $ (19,324) 1,572 7,554
============ ============ =============
</TABLE>
<PAGE>
<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:
1999 1998 1997
--------------------- --------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax (benefit) expense $ (6,963) (35.0)% $ 6,043 35.0% $ 5,124 35.0%
State income taxes, net (10) -- (8) -- (33) (0.2)
Amortization of intangible assets 396 2.0 396 2.3 396 2.7
Dividend received deduction - separate
account (2,175) (10.9) (3,183) (18.5) -- --
Valuation allowance for permanent impairments
2,996 15.0 -- -- -- --
Return to provision adjustment (759) (3.8) -- -- -- --
Other 125 0.6 125 0.7 174 1.2
--------- ----------- ---------- ---------- --------- ----------
Total $ (6,390) (32.1)% $ 3,373 19.5% $ 5,661 38.7%
========= ========== ========== ========== ========= ==========
</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, 1999 and 1998 follows:
1999 1998
----------- ------------
(IN THOUSANDS)
Deferred tax assets:
<S> <C> <C>
Policy reserves $ 31,657 31,003
Liability for commissions on recapture 1,014 2,896
Tax basis of intangible assets purchased 4,577 5,351
DAC "Proxy Tax" 23,832 20,619
Permanent impairments 5,482 --
Unrealized depreciation on investments 13,264 330
Net operating and capital loss 8,519 --
Other deferred tax assets 7,294 2,690
----------- ------------
Total deferred tax assets 95,639 62,889
Valuation allowance - permanent impairments (2,996) --
----------- ------------
Total deferred tax assets, net of valuation allowance 92,643 62,889
Deferred tax liabilities:
PVFP 10,507 11,013
Deferred policy acquisition costs 59,825 46,190
Other deferred tax liabilities 347 900
----------- ------------
Total deferred tax liabilities 70,679 58,103
----------- ------------
Net deferred tax assets $ 21,964 4,786
=========== ============
</TABLE>
<PAGE>
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. As of
December 31, 1999, the Company has provided a 55% valuation allowance
against the deferred tax asset related to the permanent impairments,
based on income projections for future years. Management believes that
it is more likely than not that the results of future operations will
generate sufficient taxable income to realize the remaining deferred
tax asset.
(9) RELATED-PARTY TRANSACTIONS
On December 31, 1997, Cova Life Management Company (CLMC) and Navisys
Incorporated (Navisys), both affiliated companies, purchased certain
assets of Johnson & Higgins/Kirke Van Orsdel, Inc. (J&H/KVI), an
unaffiliated Delaware corporation, for $2,500,000, and merged them into
Cova Life Administrative Service Company (CLASC), a joint subsidiary of
CLMC and Navisys. Navisys purchased 51% of CLASC, and the remaining 49%
was purchased by CLMC. The purchased assets are the administrative and
service systems and organization that provide the policy service
functions for the Company's life and annuity products. On October 31,
1999, CLMC purchased the remaining 51% interest in CLASC from Navisys
for $1,184,414.
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; Conning
Asset Management, which provides investment advice; and CLASC, which
provides underwriting, policy issuance, claims, and other policy
administration functions. Additionally, a portion of overhead and other
corporate expenses is allocated by the Company's parent, GALIC. Expenses
and fees paid to affiliated companies in 1999, 1998, and 1997 for the
Company were $28,995,330, $20,923,330, and $9,400,517, respectively.
In 1999 and 1998, the Company's affiliate, CLMC, received approximately
$3.9 million and $3.2 million, respectively, in advisory fees from GALIC
related to advisory services on GALIC's individual annuity products.
<PAGE>
(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 taxes 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 at the date of purchase 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:
1999 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Statutory capital and surplus $ 102,041 104,740
Reconciling items:
GAAP investment valuation reserves (1,090) (510)
Statutory asset valuation reserve 7,362 19,206
Statutory interest maintenance reserve 6,466 5,983
GAAP investment adjustments to fair value (95,673) (3,685)
GAAP deferred policy acquisition costs 214,120 131,973
GAAP basis policy reserves (57,802) (52,305)
GAAP deferred federal income taxes (net) 21,964 4,786
GAAP guarantee assessment adjustment (9,900) (9,700)
GAAP goodwill 16,157 18,585
GAAP present value of future profits 55,406 42,230
GAAP future purchase price payable (2,898) (6,976)
Other (1,591) (2,241)
------------- -------------
GAAP shareholder's equity $ 254,562 252,086
============= =============
</TABLE>
<PAGE>
Statutory net losses for CFSLIC for the years ended December 31, 1999,
1998, and 1997 were $46,095,427, $2,830,105, and $9,816,357,
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
1999 statutory net loss and the Company's negative earned surplus at
December 31, 1999, no dividends are permissible in 2000 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,
1999, the Company's total adjusted capital and authorized control level
RBC were $109,402,439 and $28,033,662 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 1999, 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 taxes over, most commonly, five
years.
In November 1999, 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
$9,900,000 in future assessments on insolvencies that occurred before
December 31, 1999. 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 $9,900,000. The Company paid
approximately $36,000, $1,500,000, and $3,000,000 in guaranty fund
assessments in 1999, 1998, and 1997, 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 1999, 1998 and 1997 were not material.
(12) SUBSEQUENT EVENT
The purchase of GenAmerica Corporation and subsidiary, including the
Company, by MetLife was completed on January 6, 2000. On that date also,
the Company's modified coinsurance agreement with MetLife was suspended
for subsequent business.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
---------------------------------------------------------------
The following financial statements of the Separate Account are
included in Part B hereof:
1. Independent Auditors' Report.
2. Statement of Assets and Liabilities as of December 31, 1999.
3. Statement of Operations for the year ended December 31,
1999.
4. Statements of Changes in Net Assets for the years ended
December 31, 1999 and 1998.
5. Notes to Financial Statements - December 31, 1999 and 1998.
The following financial statements of the Company are included
in Part B hereof.
1. Independent Auditors' Report.
2. Consolidated Balance Sheets as of December 31, 1999 and 1998.
3. Consolidated Statements of Income for the years ended December
31, 1999, 1998 and 1997.
4. Consolidated Statements of Shareholder's Equity for the years
ended December 31, 1999, 1998 and 1997.
5. Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
6. Notes to Consolidated Financial Statements - December 31,
1999, 1998 and 1997.
b. Exhibits
---------------------------------------------------------------
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account.(1)
2. Not Applicable.
3. Principal Underwriter's Agreement.(2)
4. Individual Flexible Purchase Payment Deferred Variable Annuity
Contract.(1)
5. Application for Variable Annuity.(1)
6.(i) Copy of Articles of Incorporation of the Company.(3)
(ii) Copy of the Bylaws of the Company.(3)
7. Not Applicable.
8.(i) Form of Fund Participation Agreement by and among AIM Variable
Insurance Funds, Inc., A I M Distributors, Inc., Cova Financial
Services Life Insurance Company, on behalf of itself and its
Separate Accounts, and Cova Life Sales Company(4)
(ii) Form of Participation Agreement among Templeton Variable Products
Series Fund, Franklin Templeton Distributors, Inc. and Cova
Financial Services Life Insurance Company(5)
9. Opinion and Consent of Counsel.
10. Consent of Independent Auditors.
11. Not Applicable.
12. Agreement Governing Contribution.(1)
13. Not Applicable
14. Company Organizational Chart.(6)
(1) incorporated by reference to Registrant's Form N-4 (File Nos.
333-90405 and 811-5200) as electronically filed on November 5, 1999.
(2) incorporated by reference to Registrant's Amendment No. 24 (File
Nos. 333-34741 and 811-5200) as electronically filed on November 19,
1997.
(3) incorporated by reference to Registrant's Amendment No. 20 to
Form N-4 (File Nos. 33-39100 and 811-5200) as electronically filed
on April 23, 1997.
(4) incorporated by reference to Registrant's Post-Effective Amendment
No. 1 to Form N-4 (File Nos. 333-34741 and 811-5200) as electronically
filed on January 26, 1998.
(5) incorporated by reference to Registrant's Post-Effective Amendment
No. 4 to Form N-4 (File Nos. 333-34741 and 811-5200) as electronically
filed on April 30, 1999.
(6) incorporated by reference to Registrant's Pre-Effective Amendment
No. 1 to Form N-4 (File Nos. 333-90405 and 811-5200) as electronically
filed on February 1, 2000.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Officers and Directors of the Company:
Name and Principal Positions and Offices
Business Address with Depositor
_______________________________ ____________________________________
Richard A. Liddy Chairman of the Board and Director
700 Market Street
St. Louis, MO 63101
Lorry J. Stensrud President and Director
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
John W. Barber Director
13045 Tesson Ferry Road
St. Louis, MO 63128
William P. Boscow Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Connie A. Doern Vice President
4700 Westown Parkway
West Des Moines, IA 50266
Patricia E. Gubbe Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Philip A. Haley Executive Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
J. Robert Hopson Vice President,
One Tower Lane, Suite 3000 Chief Actuary and Director
Oakbrook Terrace, IL 60181-4644
E. Thomas Hughes, Jr. Treasurer and Director
700 Market St.
St. Louis, MO 63101
Douglas E. Jacobs Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Lisa O. Kirchner Vice President
4700 Westown Parkway
West Des Moines, IA 50266
James W. Koeger Assistant Treasurer
700 Market Street
St. Louis, MO 63101
William C. Mair Vice President
One Tower Lane, Suite 3000 and Director
Oakbrook Terrace, IL 60181-4644
Matthew P. McCauley Assistant Secretary and Director
700 Market St.
St. Louis, MO 63101
John J. Myers Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Mark E. Reynolds Executive Vice President and Director
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Myron H. Sandberg Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
John W. Schaus Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Bernard J. Spaulding Senior Vice President, General
One Tower Lane, Suite 3000 Counsel and Secretary
Oakbrook Terrace, IL 60181-4644
Joann T. Tanaka Senior Vice President and Director
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Patricia M. Wersching Assistant Treasurer
700 Market Street
St. Louis, MO 63101
Peter L. Witkewiz Vice President and Controller
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
A company organizational chart was filed as Exhibit 14 in Pre-Effective
Amendment No. 1 (File Nos. 333-90405 and 811-5200) and is incorporated
herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 12, 2000, there were 7 non-qualified contract owners and
- -0- qualified contract owners.
ITEM 28. INDEMNIFICATION
The Bylaws of the Company (Article IV, Section 1) provide that:
Each person who is or was a director, officer or employee of the corporation or
is or was serving at the request of the corporation as a director, officer or
employee of another corporation, partnership, joint venture, trust or other
enterprise (including the heirs, executors, administrators or estate of such
person) shall be indemnified by the corporation as of right to the full extent
permitted or authorized by the laws of the State of Missouri, as now in effect
and as hereafter amended, against any liability, judgment, fine, amount paid in
settlement, cost and expenses (including attorney's fees) asserted or threatened
against and incurred by such person in his capacity as or arising out of his
status as a director, officer or employee of the corporation or if serving at
the request of the corporation, as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnification provided by this bylaw provision shall not be exclusive of any
other rights to which those indemnified may be entitled under any other bylaw or
under any agreement, vote of shareholders or disinterested directors or
otherwise, and shall not limit in any way any right which the corporation may
have to make different or further indemnification with respect to the same or
different persons or classes of persons.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Cova Life Sales Company is the principal underwriter for the following
investment companies (other than Registrant):
Cova Variable Annuity Account Five
Cova Variable Life Account One
Cova Variable Life Account Five
First Cova Variable Annuity Account One
Cova Variable Annuity Account Four
General American Separate Account Twenty-Eight
General American Separate Account Twenty-Nine
Security Equity Separate Account 26
Security Equity Separate Account 27
(b) Cova Life Sales Company is the principal underwriter for the Contracts.
The following persons are the officers and directors of Cova Life Sales Company.
The principal business address for each officer and director of Cova Life Sales
Company is One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644.
Name and Principal Positions and Offices
Business Address with Underwriter
Lorry J. Stensrud Director
Patricia E. Gubbe President, Chief Compliance Officer and Director
William C. Mair Director
Philip A. Haley Vice President
Shari Ruecker Vice President
Mark E. Reynolds Treasurer
James W. Koeger Assistant Treasurer
Bernard J. Spaulding Secretary
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
William Flory, whose address is One Tower Lane, Suite 3000, Oakbrook Terrace,
Illinois 60181-4644 and Cova Life Administration Services Company, 4700
Westown Parkway, Bldg. 4, Suite 200, West Des Moines, IA 50266 maintain physical
possession of the accounts, books or documents of the Variable Account
required to be maintained by Section 31(a) of the Investment Company Act of 1940
and the rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. Cova Financial Services Life Insurance Company ("Company") hereby
represents that the fees and charges deducted under the Contracts described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has caused this
Registration Statement to be signed on its behalf, in the City of Oakbrook
Terrace, and State of Illinois on this 28th day of April, 2000.
COVA VARIABLE ANNUITY ACCOUNT ONE
(Registrant)
By: COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
By: /s/BERNARD J. SPAULDING
-------------------------------------------
Senior Vice President, General Counsel and
Secretary
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
Depositor
By: /s/BERNARD J. SPAULDING
-----------------------------------------------------
Senior Vice President, General Counsel and Secretary
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
Chairman of the Board and
- ---------------------- Director --------
Richard A. Liddy Date
/s/LORRY J. STENSRUD President and Director 4-28-00
- ---------------------- --------
Lorry J. Stensrud Date
/s/J. ROBERT HOPSON Director 4-28-00
- ---------------------- --------
J. Robert Hopson Date
William C. Mair* Director 4-28-00
- ---------------------- --------
William C. Mair Date
E. Thomas Hughes, Jr.* Treasurer and Director 4-28-00
- ---------------------- --------
E. Thomas Hughes, Jr. Date
Matthew P. McCauley* Director 4-28-00
- ---------------------- --------
Matthew P. McCauley Date
John W. Barber* Director 4-28-00
- ---------------------- --------
John W. Barber Date
/s/MARK E. REYNOLDS Director 4-28-00
- ---------------------- --------
Mark E. Reynolds Date
J. TERRI TANAKA 4-28-00
- --------------------- Director --------
J. Terri Tanaka Date
/s/PETER L. WITKEWIZ 4-28-00
- ---------------------- Controller --------
Peter L. Witkewiz Date
*By: /s/LORRY J. STENSRUD
____________________________________
Lorry J. Stensrud, Attorney-in-Fact
INDEX TO EXHIBITS
EX-99.B9 Opinion and Consent of Counsel.
EX-99.B10 Consent of Independent Auditors.
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 28, 2000
Board of Directors
Cova Financial Services Life Insurance Company
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
RE: Opinion of Counsel - Cova Variable Annuity Account One
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form N-4 for the Individual Flexible Purchase Payment
Deferred Variable Annuity Contracts (the "Contracts") to be issued by Cova
Financial Services Life Insurance Company and its separate account, Cova
Variable Annuity Account One.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. Cova Variable Annuity Account One is a Unit Investment Trust as that
term is defined in Section 4(2) of the Investment Company Act of 1940 (the
"Act"), and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by an Owner pursuant to a
Contract issued in accordance with the Prospectus contained in the Registration
Statement and upon compliance with applicable law, such an Owner will have a
legally-issued, fully paid, non-assessable contractual interest under such
Contract.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /S/ LYNN KORMAN STONE
_____________________________________
Lynn Korman Stone
Consent of Independent Auditors
The Board of Directors
Cova Financial Services Life Insurance Company
We consent to the use of our reports on the consolidated financial statements of
Cova Financial Services Life Insurance Company and subsidiaries (the Company)
dated February 4, 2000, and on the financial statements of the sub-accounts of
Cova Variable Annuity Account One dated March 20, 2000, and to the reference to
our firm under the heading "Experts" in the Statement of Additional Information,
in the Post-Effective Amendment No. 1 to the Registration Statement (Form N-4,
File No. 333-90405) of Cova Variable Annuity Account One.
/s/KPMG LLP
------------
KPMG LLP
Chicago, Illinois
April 28, 2000
