The Fixed
And Variable Annuity
issued by
COVA VARIABLE ANNUITY
ACCOUNT ONE
and
COVA FINANCIAL SERVICES
LIFE INSURANCE COMPANY
This prospectus describes the Fixed and Variable Annuity Contract offered by
Cova Financial Services Life Insurance Company (Cova).
The annuity contract has 32 investment choices a fixed account which offers an
interest rate which is guaranteed by Cova, and 31 investment portfolios listed
below. You can put your money in the fixed account and/or any of these
investment portfolios.
AIM Variable Insurance Funds, Inc.:
Managed by A I M Advisors, Inc.
AIM V.I. Capital Appreciation
AIM V.I. International Equity
AIM V.I. Value
Cova Series Trust:
Managed by Riggs Bank N.A.
Riggs Stock
Riggs U.S. Government Securities
Managed by J.P. Morgan
Investment Management Inc.
Select Equity
Small Cap Stock
International Equity
Quality Bond
Large Cap Stock
Managed by Lord, Abbett & Co.
Bond Debenture
Mid-Cap Value
Large Cap Research
Developing Growth
Lord Abbett Growth and Income
General American Capital Company:
Managed by Conning Asset
Management Company
Money Market
MFS Variable Insurance Trust:
Managed by Massachusetts Financial
Services Company
MFS Emerging Growth
MFS Research
MFS Growth With Income
MFS High Income
MFS Global Governments
Oppenheimer Variable Account Funds:
Managed by OppenheimerFunds, Inc.
Oppenheimer High Income Fund/VA
Oppenheimer Bond Fund/VA
Oppenheimer Capital Appreciation Fund/VA
(formerly Oppenheimer Growth)
Oppenheimer Main Street Growth & Income Fund/VA
(formerly Oppenheimer Growth & Income)
Oppenheimer Strategic Bond Fund/VA
Variable Insurance Products Fund:
Managed by Fidelity Management
& Research Company
VIP Growth
VIP Equity-Income
Variable Insurance Products Fund II:
Managed by Fidelity Management
& Research Company
VIP II Contrafund
Variable Insurance Products Fund III:
Managed by Fidelity Management
& Research Company
VIP III Growth Opportunities
VIP III Growth & Income
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the Cova Fixed and Variable
Annuity Contract.
To learn more about the Cova Fixed and Variable Annuity Contract, you can obtain
a copy of the Statement of Additional Information (SAI) dated May 1, 1999. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
legally a part of the prospectus. The SEC maintains a Web site
(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 21 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.
July 1, 1999
TABLE OF CONTENTS Page
INDEX OF SPECIAL TERMS 3
SUMMARY 4
Fee Table 6
Examples 8
1. THE ANNUITY CONTRACT 11
2. ANNUITY PAYMENTS (THE INCOME PHASE) 11
Annuity Date 11
Annuity Payments 11
Annuity Options 11
3. PURCHASE 12
Purchase Payments 12
Allocation of Purchase Payments 12
Free Look 12
Accumulation Units 12
4. INVESTMENT OPTIONS 13
AIM Variable Insurance Funds, Inc. 13
Cova Series Trust 13
General American Capital Company 13
MFS Variable Insurance Trust 13
Oppenheimer Variable Account Funds 13
Variable Insurance Products Fund 13
Variable Insurance Products Fund II 13
Variable Insurance Products Fund III 13
Transfers 14
Dollar Cost Averaging Program 14
Automatic Rebalancing Program 14
Approved Asset Allocation Programs 15
Voting Rights 15
Substitution 15
5. EXPENSES 15
Insurance Charges 15
Contract Maintenance Charge 15
Withdrawal Charge 16
Reduction or Elimination of the Withdrawal Charge 16
Premium Taxes 16
Transfer Fee 16
Income Taxes 16
Investment Portfolio Expenses 17
6. TAXES 17
Annuity Contracts in General 17
Qualified and Non-Qualified Contracts 17
Withdrawals - Non-Qualified Contracts 17
Withdrawals - Qualified Contracts 17
Withdrawals - Tax-Sheltered Annuities 17
Diversification 18
7. ACCESS TO YOUR MONEY 18
Systematic Withdrawal Program 18
Suspension of Payments or Transfers 18
8. PERFORMANCE 18
9. DEATH BENEFIT 19
Upon Your Death 19
Death of Annuitant 20
10. OTHER INFORMATION 20
Cova 20
Year 2000 20
The Separate Account 20
Distributor 20
Ownership 20
Beneficiary 20
Assignment 21
Financial Statements 21
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION 21
APPENDIX A
Condensed Financial Information A-1
APPENDIX B
Performance Information B-1
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the contract, however, certain technical words
or terms are unavoidable and need an explanation. We have identified the
following as some of these words or terms. They are identified in the text in
italic and the page that is indicated here is where we believe you will find the
best explanation for the word or term.
Page
Accumulation Phase 11
Accumulation Unit 12
Annuitant 11
Annuity Date 11
Annuity Options 11
Annuity Payments 11
Annuity Unit 12
Beneficiary 20
Fixed Account 11
Income Phase 11
Investment Portfolios 13
Joint Owner 20
Non-Qualified 17
Owner 20
Purchase Payment 12
Qualified 17
Tax Deferral 17
<PAGE>
SUMMARY
The sections in this Summary correspond to sections in this prospectus which
discuss the topics in more detail.
1. THE ANNUITY CONTRACT:
The fixed and variable annuity contract offered by Cova is a contract between
you, the owner, and Cova, an insurance company. The contract provides a means
for investing on a tax-deferred basis. 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 31 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 fixed account offers an interest rate that is guaranteed by the insurance
company, Cova. While your money is in the fixed account, the interest your money
will earn as well as your principal is guaranteed by Cova.
You can transfer between accounts up to 12 times a year without charge or tax
implications.
The contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving regular payments
from your contract.
The amount of money you are able to accumulate in your account during the
accumulation phase will determine, in part, the amount of income payments during
the income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE):
If you want to receive regular income from your annuity, you can choose an
annuity option. Once you begin receiving regular payments, you cannot change
your payment plan. During the income phase, you have the same investment choices
you had during the accumulation phase. You can choose to have payments come from
the fixed account, the investment portfolios or both. If you choose to have any
part of your payments come from the investment portfolios, the dollar amount of
your payments may go up or down.
3. HOW TO PURCHASE THE CONTRACT:
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. Your
registered representative can help you fill out the proper forms.
4. INVESTMENT OPTIONS:
You can put your money in the investment portfolios which are described herein
and in the prospectuses for the funds. Currently, if you are not participating
in an asset allocation program, you can only invest in 15 investment portfolios
at any one time. The investment objectives and policies of certain of the
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.
Depending upon market conditions and the performance of the portfolio(s) you
select, you can make or lose money in any of these portfolios.
5. EXPENSES:
The contract has insurance features and investment features, and there are costs
related to each.
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 for its insurance charges which total 1.40% of the
average daily value of your contract allocated to the investment
portfolios.
o If you take your money out, Cova may assess a withdrawal charge which is
equal to 5% of the purchase payment you withdraw. After Cova has had a
purchase payment for 5 years, there is no charge by Cova for a withdrawal
of that purchase payment.
o When you begin receiving regular income payments from your annuity, Cova
will assess a state premium tax charge which ranges from 0% - 4%, depending
upon the state.
o The first 12 transfers in a year are free. After that, a transfer fee of
$25 or 2% of the amount transferred (whichever is less) is assessed.
o There are also investment charges which range from .205% to 1.30% of the
average daily value of the investment portfolio depending upon the
investment portfolio.
6. TAXES:
Your earnings are not taxed until you take them out. If you take money out
during the accumulation phase, earnings come out first and are taxed as income.
If you are younger than 59 1/2 when you take money out, you may be charged a 10%
federal tax penalty on the earnings. Payments during the income phase are
considered partly a return of your original investment. That part of each
payment is not taxable as income.
7. ACCESS TO YOUR MONEY:
You can take money out at any time during the accumulation phase. After the
first year, you can take up to 10% of your total purchase payments each year
without charge from Cova. Withdrawals of purchase payments in excess of that may
be charged a withdrawal charge, depending on how long your money has been in the
contract. However, Cova will never assess a withdrawal charge on earnings you
withdraw. Earnings are defined as the value in your contract minus the remaining
purchase payments in your contract. Of course, you may also have to pay income
tax and a tax penalty on any money you take out.
8. DEATH BENEFIT:
If you die before moving to the income phase, the person you have chosen as your
beneficiary will receive a death benefit.
9. OTHER INFORMATION:
Free Look. If you cancel the contract within 10 days after receiving it (or
whatever period is required in your state), we will send your money back without
assessing a withdrawal charge. You will receive whatever your contract is worth
on the day we receive your request. This may be more or less than your original
payment. If we're required by law to return your original payment, we reserve
the right to put your money in the Money Market Fund during the free-look
period.
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 You can arrange to have money automatically sent to you each month while
your contract is still in the accumulation phase. Of course, you'll have to
pay taxes on money you receive. We call this feature the Systematic
Withdrawal Program.
o You can arrange to have a regular amount of money automatically invested in
investment portfolios each month, theoretically giving you a lower average
cost per unit over time than a single one time purchase. We call this
feature Dollar Cost Averaging.
o You can arrange to automatically readjust the money between investment
portfolios periodically to keep the blend you select. We call this feature
Automatic Rebalancing.
o Under certain circumstances, Cova will give you your money without a
withdrawal charge if you need it while you're in a nursing home. We call
this feature the Nursing Home Waiver.
These features are not available in all states and may not be suitable for your
particular situation.
10. 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
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 of the investment portfolios.
Owner Transaction Expenses
Withdrawal Charge (see Note 1 below)
5% of purchase payment withdrawn
Transfer Fee (see Note 2 below)
No charge for first 12 transfers in a contract year; thereafter, the fee is
$25 per transfer or, if less, 2% of the amount transferred.
Contract Maintenance Charge (see Note 3 below)
$30 per contract per year
Separate Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Premium 1.25%
Administrative Expense Charge .15%
---
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES 1.40%
<TABLE>
<CAPTION>
Investment Portfolio Expenses
(as a percentage of the average daily net assets of an investment portfolio)
Management Other Expenses (after expense Total Annual
Fees reimbursement for certain Portfolios) Portfolio Expenses
- -------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds, Inc.
Managed by A I M Advisors, Inc.
<S> <C> <C> <C>
AIM V.I. Capital Appreciation .62% .05% .67%
AIM V.I. International Equity .75% .16% .91%
AIM V.I. Value .61% .05% .66%
- -------------------------------------------------------------------------------------------------------------------
Cova Series Trust (a)
Managed by Riggs Bank N.A.(b)
Riggs Stock .95% .10% 1.05%
Riggs U.S. Government Securities .75% .10% .85%
- -------------------------------------------------------------------------------------------------------------------
Managed by J.P. Morgan
Investment Management Inc.
Select Equity .68% .18% .86%
Small Cap Stock .85% .27% 1.12%
International Equity .80% .28% 1.08%
Quality Bond .55% .10% .65%
Large Cap Stock .65% .10% .75%
- -------------------------------------------------------------------------------------------------------------------
Managed by Lord, Abbett & Co.
Bond Debenture .75% .10% .85%
Mid-Cap Value 1.00% .30% 1.30%
Large Cap Research 1.00% .30% 1.30%
Developing Growth .90% .30% 1.20%
Lord Abbett Growth and Income(c) .65% .07% .72%
- -------------------------------------------------------------------------------------------------------------------
General American Capital Company
Managed by Conning Asset
Management Company
Money Market .125% .08% .205%
- -------------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust (d)
Managed by Massachusetts Financial
Services Company
MFS Emerging Growth .75% .10% .85%
MFS Research .75% .11% .86%
MFS Growth With Income .75% .13% .88%
MFS High Income .75% .28% 1.03%
MFS Global Governments(e) .75% .26% 1.01%
- -------------------------------------------------------------------------------------------------------------------
Investment Portfolio Expenses (continued)
(as a percentage of the average daily net assets of an investment portfolio)
Management Other Expenses (after expense Total Annual
Fees reimbursement for certain Portfolios) Portfolio Expenses
- -------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds
Managed by OppenheimerFunds, Inc.
Oppenheimer High Income Fund/VA .74% .04% .78%
Oppenheimer Bond Fund/VA .72% .02% .74%
Oppenheimer Capital Appreciation Fund/VA .72% .03% .75%
Oppenheimer Main Street Growth & Income Fund/VA .74% .05% .79%
Oppenheimer Strategic Bond Fund/VA .74% .06% .80%
- -------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund
Variable Insurance Products Fund II
Variable Insurance Products Fund III
Managed by Fidelity Management
& Research Company
VIP III Growth Opportunities(f) .59% .11% .70%
VIP Growth(f) .59% .07% .66%
VIP III Growth & Income(f) .49% .11% .60%
VIP Equity-Income(f) .49% .08% .57%
VIP II Contrafund(f) .59% .07% .66%
- -------------------------------------------------------------------------------------------------------------------
<FN>
(a) Since May 1, 1996, Cova has been reimbursing the investment portfolios of
Cova Series Trust (except the Riggs Stock and Riggs U.S. Government
Securities Portfolios which have not yet commenced investment operations)
for all operating expenses (exclusive of the management fees) in excess of
approximately .10%. Beginning May 1, 1999, Cova will discontinue this
reimbursement arrangement for the Select Equity, Small Cap Stock and
International Equity Portfolios. Therefore, the amounts shown above under
"Other Expenses" have been restated to reflect the actual expenses for
these Portfolios for the year ended December 31, 1998. Also beginning May
1, 1999, Cova will reimburse the Mid-Cap Value, Large Cap Research and
Developing Growth Portfolios for all operating expenses (exclusive of the
management fees) in excess of approximately .30%, instead of .10%. This
change is reflected above under "Other Expenses" for these three
Portfolios. Absent the expense reimbursement, the percentages shown for
total annual portfolio expenses for the year ended December 31, 1998 would
have been .86% for the Quality Bond Portfolio, .94% for the Large Cap Stock
Portfolio, .93% for the Bond Debenture Portfolio, 1.68% for the Mid-Cap
Value Portfolio, 1.95% for the Large Cap Research Portfolio and 1.70% for
the Developing Growth Portfolio.
(b) Estimated. The Riggs Stock and Riggs U.S. Government Securities Portfolios
are expected to commence investment operations in July, 1999. Riggs Bank
N.A. has agreed to voluntarily reimburse the Riggs Stock and Riggs U.S.
Government Securities Portfolios for all operating expenses (exclusive of
the management fees) in excess of approximately .10%. Absent the expense
reimbursement, the total estimated expenses, on an annualized basis, for
these Portfolios are 3.80% for the Riggs Stock Portfolio and 3.50% for the
Riggs U.S. Government Securities Portfolio.
(c) Estimated. The Portfolio commenced investment operations on January 8,
1999.
(d) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. Expenses do not take
into account these expense reductions, and are therefore higher than the
actual expenses of the series.
(e) MFS has agreed to bear expenses for this series, subject to reimbursement
by this series, such that the series' "Other Expenses" shall not exceed
.25% of the average daily net assets of the series during the current
fiscal year. The payments made by MFS on behalf of the series under this
arrangement are subject to reimbursement by the series to MFS, which will
be accomplished by the payment of an expense reimbursement fee by the
series to MFS computed and paid monthly at a percentage of the series'
average daily net assets for its then current fiscal year, with a
limitation that immediately after such payment, the series' "Other
Expenses" will not exceed the percentage set forth above for this series.
The obligation of MFS to bear the series' "Other Expenses" pursuant to this
arrangement, and the series' obligation to pay the reimbursement fee to
MFS, terminates on the earlier of the date on which payments made by the
series equal the prior payment of such reimbursable expenses by MFS or
December 31, 2004. MFS may, in its discretion, terminate this arrangement
at an earlier date provided that the arrangement will continue for the
series until at least May 1, 2000, unless terminated with the consent of
the board of trustees which oversees the series.
(f) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or the investment adviser
on behalf of certain funds, have entered into arrangements with their
custodian whereby credits realized as a result of uninvested cash balances
were used to reduce custodian expenses. Including these reductions, the
Total Annual Portfolio Expenses presented in the table would have been .70%
for the VIP III Growth Opportunities Portfolio; .66% for the VIP Growth
Portfolio; .60% for the VIP III Growth & Income Portfolio; .57% for the VIP
Equity-Income Portfolio; and .66% for the VIP II Contrafund Portfolio.
</FN>
</TABLE>
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.
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
(a) if you surrender the contract at the end of each time period;
(b) if you do not surrender the contract or if you apply the contract
value to an annuity option.
Time Periods
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds, Inc.
Managed by A I M Advisors, Inc.
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation (a) $71.99 (a) $112.73 (a) $160.90 (a) $247.97
(b) $21.99 (b) $ 67.73 (b) $115.90 (b) $247.97
AIM V.I. International Equity (a) $74.40 (a) $119.97 (a) $173.00 (a) $272.25
(b) $24.40 (b) $ 74.97 (b) $128.00 (b) $272.25
AIM V.I. Value (a) $71.89 (a) $112.42 (a) $160.39 (a) $246.95
(b) $21.89 (b) $ 67.42 (b) $115.39 (b) $246.95
- -------------------------------------------------------------------------------------------------------------------
Cova Series Trust
Managed by Riggs Bank N.A.
Riggs Stock (a) $75.80 (a) $124.17
(b) $25.80 (b) $ 79.17
Riggs U.S. Government Securities (a) $73.80 (a) $118.16
(b) $23.80 (b) $ 73.16
- -------------------------------------------------------------------------------------------------------------------
Managed by J.P. Morgan Investment Management Inc.
Select Equity (a) $73.90 (a) $118.46 (a) $170.49 (a) $267.24
(b) $23.90 (b) $ 73.46 (b) $125.49 (b) $267.24
Small Cap Stock (a) $76.50 (a) $126.26 (a) $183.47 (a) $292.98
(b) $26.50 (b) $ 81.26 (b) $138.47 (b) $292.98
International Equity (a) $76.10 (a) $125.06 (a) $181.48 (a) $289.07
(b) $26.10 (b) $ 80.06 (b) $136.48 (b) $289.07
Quality Bond (a) $71.79 (a) $112.12 (a) $159.89 (a) $245.92
(b) $21.79 (b) $ 67.12 (b) $114.89 (b) $245.92
Large Cap Stock (a) $72.80 (a) $115.15 (a) $164.95 (a) $256.13
(b) $22.80 (b) $ 70.15 (b) $119.95 (b) $256.13
- -------------------------------------------------------------------------------------------------------------------
Managed by Lord, Abbett & Co.
Bond Debenture (a) $73.80 (a) $118.16 (a) $169.99 (a) $266.24
(b) $23.80 (b) $ 73.16 (b) $124.99 (b) $266.24
Mid-Cap Value (a) $78.30 (a) $131.62 (a) $192.35 (a) $310.37
(b) $28.30 (b) $ 86.62 (b) $147.35 (b) $310.37
Large Cap Research (a) $78.30 (a) $131.62 (a) $192.35 (a) $310.37
(b) $28.30 (b) $ 86.62 (b) $147.35 (b) $310.37
Developing Growth (a) $77.30 (a) $128.65 (a) $187.42 (a) $300.75
(b) $27.30 (b) $ 83.65 (b) $142.42 (b) $300.75
Lord Abbett Growth and Income (a) $72.49 (a) $114.24 (a) $163.43 (a) $253.08
(b) $22.49 (b) $ 69.24 (b) $118.43 (b) $253.08
- -------------------------------------------------------------------------------------------------------------------
Examples (continued)
Time Periods
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------------
General American Capital Company
Managed by Conning Asset Management Company
Money Market (a) $67.31 (a) $ 98.54 (a) $137.02 (a) $199.08
(b) $17.31 (b) $ 53.54 (b) $ 92.02 (b) $199.08
- ------------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust
Managed by Massachusetts Financial
Services Company
MFS Emerging Growth (a) $73.80 (a) $118.16 (a) $169.99 (a) $266.24
(b) $23.80 (b) $ 73.16 (b) $124.99 (b) $266.24
MFS Research (a) $73.90 (a) $118.46 (a) $170.49 (a) $267.24
(b) $23.90 (b) $ 73.46 (b) $125.49 (b) $267.24
MFS Growth With Income (a) $74.10 (a) $119.07 (a) $171.50 (a) $269.25
(b) $24.10 (b) $ 74.07 (b) $126.50 (b) $269.25
MFS High Income (a) $75.60 (a) $123.57 (a) $179.00 (a) $284.15
(b) $25.60 (b) $ 78.57 (b) $134.00 (b) $284.15
MFS Global Governments (a) $75.40 (a) $122.97 (a) $178.00 (a) $282.18
(b) $25.40 (b) $ 77.97 (b) $133.00 (b) $282.18
- -------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds
Managed by OppenheimerFunds, Inc.
Oppenheimer High Income Fund/VA (a) $73.10 (a) $116.05 (a) $166.47 (a) $259.18
(b) $23.10 (b) $ 71.05 (b) $121.47 (b) $259.18
Oppenheimer Bond Fund/VA (a) $72.69 (a) $114.84 (a) $164.45 (a) $255.12
(b) $22.69 (b) $ 69.84 (b) $119.45 (b) $255.12
Oppenheimer Capital Appreciation Fund/VA (a) $72.80 (a) $115.15 (a) $164.95 (a) $256.13
(b) $22.80 (b) $ 70.15 (b) $119.95 (b) $256.13
Oppenheimer Main Street
Growth & Income Fund/VA (a) $73.20 (a) $ 16.35 (a) $166.97 (a) $260.19
(b) $23.20 (b) $ 71.35 (b) $121.97 (b) $260.19
Oppenheimer Strategic Bond Fund/VA (a) $73.30 (a) $116.65 (a) $167.47 (a) $261.20
(b) $23.30 (b) $ 71.65 (b) $122.47 (b) $261.20
- -------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund
Variable Insurance Products Fund II
Variable Insurance Products Fund III
Managed by Fidelity Management
& Research Company
VIP III Growth Opportunities (a) $72.29 (a) $113.63 (a) $162.42 (a) $251.04
(b) $22.29 (b) $ 68.63 (b) $117.42 (b) $251.04
VIP Growth (a) $71.89 (a) $112.42 (a) $160.39 (a) $246.95
(b) $21.89 (b) $ 67.42 (b) $115.39 (b) $246.95
VIP III Growth & Income (a) $71.29 (a) $110.60 (a) $157.34 (a) $240.77
(b) $21.29 (b) $ 65.60 (b) $112.34 (b) $240.77
VIP Equity-Income (a) $70.99 (a) $109.69 (a) $155.81 (a) $237.67
(b) $20.99 (b) $ 64.69 (b) $110.81 (b) $237.67
VIP II Contrafund (a) $71.89 (a) $112.42 (a) $160.39 (a) $246.95
(b) $21.89 (b) $ 67.42 (b) $115.39 (b) $246.95
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Explanation of Fee Table
1. The withdrawal charge is 5% of the purchase payments you withdraw. After
Cova has had a purchase payment for 5 years, there is no charge by Cova for
a withdrawal of that purchase payment. You may also have to pay income tax
and a tax penalty on any money you take out. After the first year, you can
take up to 10% of your total purchase payments each year without a charge
from Cova.
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,
Automatic Rebalancing or Approved Asset Allocation 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. 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.
There is an accumulation unit value history (Condensed Financial Information)
contained in Appendix A.
1. THE ANNUITY CONTRACT
This Prospectus describes the Fixed and Variable Annuity Contract offered by
Cova.
An annuity is a contract between you, the owner, and an insurance company (in
this case Cova), where the insurance company promises to pay income to you, in
the form of annuity payments. Annuity payments must begin on a designated date
that is at least 30 days in the future. Until you decide to begin receiving
annuity payments, your annuity is in the accumulation phase. Once you begin
receiving annuity payments, your contract switches to the income phase.
The contract benefits from tax deferral. Tax deferral means that you are not
taxed on earnings or appreciation on the assets in your contract until you take
money out of your contract.
The contract is called a variable annuity because you can choose among 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, in part, on 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 with respect to contracts
issued on or after May 1, 1996. If you select the fixed account, your money will
be placed with the other general assets of Cova. If you select the fixed
account, the amount of money you are able to accumulate in your contract during
the accumulation phase depends upon the total interest credited to your
contract. The amount of the annuity payments you receive during the income phase
from the fixed account portion of the contract will remain level for the entire
income phase.
As owner of the contract, you exercise all interest and 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."
2. ANNUITY PAYMENTS (THE INCOME PHASE)
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
You will receive annuity payments during the income phase. In general, annuity
payments must begin by the annuitant's 85th birthday or 10 years from the date
the contract was issued, whichever is later (this requirement may differ
slightly for special programs). The annuitant is the person whose life we look
to when we make 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 the:
o fixed account,
o the investment portfolio(s) 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 3% assumed investment rate used in the annuity table for the contract,
and
3) the performance of the investment portfolios you selected.
If the actual performance exceeds the 3% assumed investment rate, your annuity
payments will increase. Similarly, if the actual investment rate is less than
3%, your annuity payments will decrease.
Annuity payments are made monthly unless you have less than $5,000 to apply
toward a payment, except in New Jersey ($2,000 if the contract is issued in
Massachusetts or Texas). 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 ($20 in Texas), Cova has the right to change the frequency of payments so
that your annuity payments are at least $100 ($20 in Texas).
Annuity Options
You can choose among income plans. We call those annuity options. We ask you to
choose an annuity option when you purchase the contract. You can change it at
any time before the annuity date with 30 days notice to us. 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 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 an annuity payment each
month so long as the annuitant is alive. After the annuitant dies, we stop
making annuity payments.
Option 2. Life Annuity with 5, 10 or 20 Years Guaranteed. Under this option, we
will make an annuity payment each month so long as the annuitant is alive.
However, if, when the annuitant dies, we have made annuity payments for less
than the selected guaranteed period, we will then continue to make annuity
payments for the rest of the guaranteed period to the beneficiary. If the
beneficiary does not want to receive annuity payments, he or she can ask us for
a single lump sum.
Option 3. Joint and Last Survivor Annuity. Under this option, we will make
annuity payments each month so long as the annuitant and a second person are
both alive. When either of these people dies, we will continue to make annuity
payments, so long as the survivor continues to live. The amount of the annuity
payments we will make to the survivor can be equal to 100%, 66 2/3% or 50% of
the amount that we would have paid if both were alive.
3. PURCHASE
Purchase Payments
A purchase payment is the money you give us to invest in the contract. The
minimum 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 we
will accept is $2,000. The maximum purchase payment we accept is $1 million
without our prior approval. You can make additional purchase payments of $500 or
more to any type of contract. Cova reserves the right to reject any purchase
payment (except in New Jersey).
Allocation of Purchase Payments
When you purchase a contract, we will allocate your purchase payment to the
fixed account and/or one or more of the investment portfolios you have selected.
If you make additional purchase payments, we will allocate them in the same way
as your first purchase payment unless you tell us otherwise. 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 two 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 five
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). When you cancel
the contract within this time period, Cova will not assess a withdrawal charge.
You will receive back whatever your contract is worth on the day we receive your
request. In certain states, or if you have purchased the contract as an IRA, we
may be required to give you back your purchase payment if you decide to cancel
your contract within 10 days after receiving it (or whatever period is required
in your state). If that is the case, we reserve the right to put your purchase
payment in the Money Market Fund for 15 days before we allocate your first
purchase payment to the investment portfolio(s) you have selected. (In some
states, the period may be longer.) In such case, we will refund the greater of
purchase payments (less withdrawals) or contract value. Currently, Cova directly
allocates your purchase payment to the investment portfolios and/or fixed
account you select.
Accumulation Units
The value of the variable annuity portion of your contract will go up or down
depending upon the investment performance of the investment portfolio(s) you
choose. In order to keep track of the value of your contract, we use a unit of
measure we call an accumulation unit. (An accumulation unit works like a share
of a mutual fund.)
During the income phase of the contract we call the unit an annuity unit.
Every day we determine the value of an accumulation unit for each of the
investment portfolios. We do this by:
1. determining the total amount of money invested in the particular investment
portfolio;
2. subtracting from that amount any insurance charges and any other charges
such as taxes we have deducted; and
3. dividing this amount by the number of outstanding accumulation units.
The value of an accumulation unit may go up or down from day to day.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited is determined by dividing the
amount of the purchase payment allocated to an investment portfolio by the value
of the accumulation unit for that investment portfolio.
We calculate the value of an accumulation unit for each investment portfolio
after the New York Stock Exchange closes each day and then credit your contract.
Example:
On Monday we receive an additional purchase payment of $5,000 from you. You
have told us you want this to go to the Quality Bond Portfolio. When the New
York Stock Exchange closes on that Monday, we determine that the value of an
accumulation unit for the Quality Bond Portfolio is $13.90. We then divide
$5,000 by $13.90 and credit your contract on Monday night with 359.71
accumulation units for the Quality Bond Portfolio.
4. INVESTMENT OPTIONS
The contract offers 31 investment portfolios which are listed below. Additional
investment portfolios may be available in the future.
You should read the prospectuses for these funds carefully before investing.
Copies of these prospectuses are attached to this prospectus. Certain portfolios
contained in the fund prospectuses may not be available with your contract.
AIM Variable Insurance Funds, Inc.
AIM Variable Insurance Funds, Inc. is a 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:
Riggs Bank N.A. is the sub-adviser to the following portfolios:
Riggs Stock Portfolio
Riggs U.S. Government Securities Portfolio
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
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
MFS Variable Insurance Trust
MFS Variable Insurance Trust is a mutual fund with multiple portfolios.
Massachusetts Financial Services Company is the investment adviser to each
portfolio. The following portfolios are available under the contract:
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS High Income Series
MFS Global Governments Series
(formerly MFS World Governments Series)
Oppenheimer Variable Account Funds
Oppenheimer Variable Account Funds is a mutual fund with multiple portfolios.
OppenheimerFunds, Inc. is the investment adviser to each portfolio. The
following portfolios are available under the contract:
Oppenheimer High Income Fund/VA
Oppenheimer Bond Fund/VA
Oppenheimer Capital Appreciation Fund/VA
(formerly Oppenheimer Growth Fund)
Oppenheimer Main Street Growth & Income Fund/VA
(formerly Oppenheimer Growth & Income Fund)
Oppenheimer Strategic Bond Fund/VA
Variable Insurance Products Fund
Variable Insurance Products Fund II
Variable Insurance Products Fund III
Variable Insurance Products Fund, Variable Insurance Products Fund II and
Variable Insurance Products Fund III are each a mutual fund with multiple
portfolios managed by Fidelity Management & Research Company. The following
portfolios are available under the contract:
Variable Insurance Products Fund:
VIP Growth Portfolio
VIP Equity-Income Portfolio
Variable Insurance Products Fund II:
VIP II Contrafund Portfolio
Variable Insurance Products Fund III:
VIP III Growth Opportunities Portfolio
VIP III Growth & Income Portfolio
Shares of the investment portfolios may be offered in connection with certain
variable annuity contracts and variable life insurance policies of various life
insurance companies which may or may not be affiliated with Cova. Certain
investment portfolios may also be sold directly to qualified plans. The funds
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 which it provides to the portfolios.
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, subject to applicable state laws and regulations.
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.
Transfers during the Accumulation Phase. You can make 12 transfers every year
during the accumulation phase without charge. We measure a year from the
anniversary of the day we issued your contract. You can make a transfer to or
from the fixed account and to or from any investment portfolio. If you make more
than 12 transfers in a year, there is a transfer fee deducted. The 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.
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. You cannot make any transfers within 7 calendar days of the annuity date.
Transfers during the Income Phase. You can only make transfers between the
investment portfolios once each year. We measure a year from the anniversary of
the day we issued your contract. You cannot transfer from the fixed account to
an investment portfolio, but you can transfer from one or more investment
portfolios to the fixed account at any time.
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. Currently, Cova does not charge for participating
in the Dollar Cost Averaging Program.
Cova reserves the right to modify, terminate or suspend the Dollar Cost
Averaging Program.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
Cova may, from time to time, offer other dollar cost averaging programs which
may have terms different from those described above.
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.
All owners who are participating in an Approved Asset Allocation Program are in
the Automatic Rebalancing Program. We will automatically rebalance each such
owner's contract on a quarterly basis to return to the owner's original
percentage allocations.
The Automatic Rebalancing Program is available only during the accumulation
phase. Currently, Cova does not charge for participating in the Automatic
Rebalancing Program. If you participate in the Automatic Rebalancing Program,
the transfers made under the program are not taken into account in determining
any transfer fee.
Example:
Assume that you want your initial purchase payment split between 2
investment portfolios. You want 40% to be in the Quality Bond Portfolio and
60% to be in the Select Equity Portfolio. Over the next 2 1/2 months the
bond market does very well while the stock market performs poorly. At the
end of the first quarter, the Quality Bond Portfolio now represents 50% of
your holdings because of its increase in value. If you have chosen to have
your holdings rebalanced quarterly, on the first day of the next quarter,
Cova will sell some of your units in the Quality Bond Portfolio to bring
its value back to 40% and use the money to buy more units in the Select
Equity Portfolio to increase those holdings to 60%.
Approved Asset Allocation Programs
Cova recognizes the value to certain owners of having available, on a continuous
basis, advice for the allocation of your money among the investment options
available under the contracts. Certain providers of these types of services have
agreed to provide such services to owners in accordance with Cova's
administrative rules regarding such programs.
Cova has made no independent investigation of these programs. Cova has only
established that these programs are compatible with our administrative systems
and rules. Approved asset allocation programs are only available during the
accumulation phase. Currently, Cova does not charge for participating in an
approved asset allocation program.
Even though Cova permits the use of approved asset allocation programs, the
contract was not designed for professional market timing organizations. Repeated
patterns of frequent transfers are disruptive to the operations of the
investment portfolios, and when Cova becomes aware of such disruptive practices,
we may modify the transfer provisions of the contract.
All owners who are participating in an Approved Asset Allocation Program are in
the Automatic Rebalancing Program.
If you participate in an Approved Asset Allocation Program, the transfers made
under the program are not taken into account in determining any transfer fee.
Voting Rights
Cova is the legal owner of the investment portfolio shares. However, Cova
believes that when an investment portfolio solicits proxies in conjunction with
a vote of shareholders, it is required to obtain from you and other 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 of the investment portfolios you have
selected with another portfolio. We would not do this without the prior approval
of the Securities and Exchange Commission. We will give you notice of our intent
to do this.
5. EXPENSES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses are:
Insurance Charges
Each day, Cova makes a deduction for its insurance charges. Cova does this as
part of its calculation of the value of the accumulation units and the annuity
units. The insurance charge has two parts:
o the mortality and expense risk premium, and
o the administrative expense charge.
Mortality and Expense Risk Premium. This charge is equivalent, on an annual
basis, to 1.25% of the daily value of the contracts invested in an investment
portfolio, after fund expenses have been deducted. This charge is for the
insurance benefits e.g., guarantee of annuity rates, the death benefits, for
certain expenses of the contract, and for assuming the risk (expense risk) that
the current charges will be insufficient in the future to cover the cost of
administering the contract. If the charges under the contract are not
sufficient, then Cova will bear the loss. Cova does, however, expect to profit
from this charge. The mortality and expense risk premium cannot be increased.
Cova may use any profits it makes from this charge to pay for the costs of
distributing the contract.
Administrative Expense Charge. This charge is equal, on an annual basis, to .15%
of the daily value of the contracts invested in an investment portfolio, after
fund expenses have been deducted. This charge, together with the contract
maintenance charge (see below), is for the expenses associated with the
administration of the contract. Some of these expenses are: preparation of the
contract, confirmations, annual reports and statements, maintenance of contract
records, personnel costs, legal and accounting fees, filing fees, and computer
and systems costs. Because this charge is taken out of every unit value, you may
pay more in administrative costs than those that are associated solely with your
contract. Cova does not intend to profit from this charge. However, if this
charge and the contract maintenance charge are not enough to cover the costs of
the contracts in the future, Cova will bear the loss.
Contract Maintenance Charge
During the accumulation phase, every year on the anniversary of the date when
your contract was issued, Cova deducts $30 from your contract as a contract
maintenance charge. (In South Carolina, the charge is the lesser of $30 or 2% of
the value of the contract.) This charge is for administrative expenses (see
above). This charge 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 monthly out of the annuity payment.
Withdrawal Charge
During the accumulation phase, you can make withdrawals from your contract. Cova
keeps track of each purchase payment. Once a year after the first year (and once
a year during the first year for purposes of payment of charitable remainder
trust administration fees), you can withdraw up to 10% of your total purchase
payments and no withdrawal charge will be assessed on the 10%, if on the day you
make your withdrawal (in New Jersey, on the day Cova processes the withdrawal)
the value of your contract is $5,000 or more. Withdrawals for purposes of
payment of charitable remainder trust administration fees are included in the
10% free withdrawal amount. Otherwise, the charge is 5% of each purchase payment
you take out unless the purchase payment was made more than 5 years ago. After
Cova has had a purchase payment for 5 years, there is no charge when you
withdraw that purchase payment. Cova does not assess a withdrawal charge on
earnings withdrawn from the contract. Earnings are defined as the value in your
contract minus the remaining purchase payments in your contract. The withdrawal
order for calculating the withdrawal charge is shown below.
o 10% of purchase payments free.
o Remaining purchase payments that are over 5 years old and not subject to a
withdrawal charge.
o Earnings in the contract free.
o Remaining purchase payments that are less than 5 years old and are subject
to a withdrawal charge.
For purposes of calculating the withdrawal charge, slightly different rules may
apply to Section 1035 exchanges.
When the withdrawal is for only part of the value of your contract, the
withdrawal charge is deducted from the remaining value in your contract.
Cova does not assess the withdrawal charge on any payments paid out as annuity
payments or as death benefits.
NOTE: For tax purposes, earnings are considered to come out first.
Reduction or Elimination of the Withdrawal Charge
General
Cova will reduce or eliminate the amount of the withdrawal charge when the
contract is sold under circumstances which reduce its sales expense. Some
examples are: if there is a large group of individuals that will be purchasing
the contract or a prospective purchaser already had a relationship with Cova.
Cova will not deduct a withdrawal charge under a contract issued to an officer,
director or employee of Cova or any of its affiliates.
Nursing Home Waiver
After you have owned the contract for one year, if you, or your joint owner,
becomes confined to a nursing home or hospital for at least 90 consecutive days
under a doctor's care and you need part or all of the money from your contract,
Cova will not impose a withdrawal charge. You or your joint owner cannot have
been so confined when you purchased your contract (confinement must begin after
the first contract anniversary) if you want to take advantage of this provision.
This is called the Nursing Home Waiver. This provision is not available in all
states.
Premium Taxes
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. Cova is responsible for the payment of these
taxes and will make a deduction from the value of the contract for them. Some of
these taxes are due when the contract is issued, others are due when annuity
payments begin. It is Cova's current practice to not charge anyone for these
taxes until annuity payments begin. Cova may, some time in the future,
discontinue this practice and assess the charge when the tax is due. Premium
taxes generally range from 0% to 4%, depending on the state.
Transfer Fee
You can make 12 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 or 2% of the amount that is transferred, whichever is less.
If the transfer is part of the Dollar Cost Averaging Program, the Automatic
Rebalancing Program or an Approved Asset Allocation Program, it will not count
in determining the transfer fee.
Income Taxes
Cova will deduct from the contract for any income taxes which it incurs because
of the contract. At the present time, we are not making any such deductions.
Investment Portfolio Expenses
There are deductions from and expenses paid out of the assets of the various
investment portfolios, which are described in the attached fund prospectuses.
6. TAXES
NOTE: Cova has prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. Cova has
included in the Statement of Additional Information an additional discussion
regarding taxes.
Annuity Contracts in General
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of contract -
qualified or non-qualified (see following sections).
You, as the owner, will not be taxed on increases in the value of your contract
until a distribution occurs either as a withdrawal or as annuity payments. When
you make a withdrawal you are taxed on the amount of the withdrawal that is
earnings. For annuity payments, different rules apply. A portion of each annuity
payment is treated as a partial return of your purchase payments and will not be
taxed. The remaining portion of the annuity payment will be treated as ordinary
income. How the annuity payment is divided between taxable and non-taxable
portions depends upon the period over which the annuity payments are expected to
be made. Annuity payments received after you have received all of your purchase
payments are fully includible in income.
When a non-qualified contract is owned by a non-natural person (e.g.,corporation
or certain other entities other than 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.
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
The above information describing the taxation of non-qualified contracts does
not apply to qualified contracts. There are special rules that govern with
respect to qualified contracts. We have provided a more complete discussion in
the Statement of Additional Information.
Withdrawals - Tax-Sheltered Annuities
The Code limits the withdrawal of 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 shares of the
investment portfolios.
Due to the uncertainty in this area, Cova reserves the right to modify the
contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
You can have access to the money in your contract:
(1) by making a withdrawal (either a partial or a complete withdrawal);
(2) by electing to receive annuity payments; or
(3) when a death benefit is paid to your beneficiary.
Under most circumstances, withdrawals can only be made during the accumulation
phase.
When you make a complete withdrawal you will receive the withdrawal value of the
contract. The withdrawal value of the contract is the value of the contract at
the end of the business day when Cova receives a written request for a
withdrawal:
o less any applicable withdrawal charge,
o less any premium tax, and
o less any contract maintenance charge.
Unless you instruct Cova 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 withdrawal is made you keep at least $500 in any
selected investment portfolio. If the remaining withdrawal value would be less
than $500 ($1,000 in New Jersey) after you make a partial withdrawal, the
partial withdrawal amount will be the remaining withdrawal value.
When you make a withdrawal, the amount of the death benefit may be reduced. See
"Death Benefits."
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.
Systematic Withdrawal Program
You may use the Systematic Withdrawal Program. This program provides an
automatic monthly payment to you of up to 10% of your total purchase payments
each year. No withdrawal charge will be made for these payments. Cova does not
have any charge for this program, but reserves the right to charge in the
future. If you use this program, you may not also make a single 10% free
withdrawal. For a discussion of the withdrawal charge and the 10% free
withdrawal, see "Expenses."
Income taxes, tax penalties and certain restrictions may apply to Systematic
Withdrawals.
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.
8. PERFORMANCE
Cova periodically advertises performance of the various investment portfolios.
Cova will calculate performance by determining the percentage change in the
value of an accumulation unit by dividing the increase (decrease) for that unit
by the value of the accumulation unit at the beginning of the period. This
performance number reflects the deduction of the insurance charges. It does not
reflect the deduction of any applicable contract maintenance charge and
withdrawal charge. The deduction of any applicable contract maintenance charge
and withdrawal charges would reduce the percentage increase or make greater any
percentage decrease. Any advertisement will also include total return figures
which reflect the deduction of the insurance charges, contract maintenance
charge and withdrawal charges.
For periods starting prior to the date the contracts were first offered, the
performance will be based on the historical performance of the corresponding
investment portfolios for the periods commencing from the date on which the
particular investment portfolio was made available through the Separate Account.
In addition, for certain investment portfolios performance may be shown for the
period commencing from the inception date of the investment portfolio. These
figures should not be interpreted to reflect actual historical performance of
the Separate Account.
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.
9. DEATH BENEFIT
Upon Your Death
If you die before annuity payments begin, Cova will pay a death benefit to your
beneficiary (see below). If you have a joint owner, the death benefit will be
paid when the first of you dies. Joint owners must be spouses. The surviving
joint owner will be treated as the beneficiary.
Beginning May 1, 1999, at the time you buy the contract, you can select the 5
Year Step-Up with 4% Accumulation Option or the Annual Step-Up Option. If you do
not choose an 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.
5 Year Step-Up with 4% Accumulation Option:
Prior to you, or your joint owner, reaching age 80, the death benefit will be
the greatest of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals) accumulated at an annual rate of 4% until the date
of death; or
2. The value of your contract at the time the death benefit is to be paid; or
3. The greatest of the values of your contract resulting from taking the
contract value on any five (5) year contract anniversary prior to your, or
your joint owner's death; plus any payments you made subsequent to that
contract anniversary, less any withdrawals (and any withdrawal charges paid
on the withdrawals) subsequent to that contract anniversary.
After you, or your joint owner, reaches age 80, the death benefit will be the
greatest of:
1. Total purchase payments made on or before your, or your joint owner's, 80th
birthday, less any withdrawals (and any withdrawal charges paid on the
withdrawals) accumulated at an annual rate of 4% until you, or your joint
owner, reach age 80, plus any subsequent purchase payments, less any
subsequent withdrawals (and any withdrawal charges paid on the
withdrawals); or
2. The value of your contract at the time the death benefit is to be paid; or
3. The greatest of the values of the contract resulting from taking the
contract value on any prior five (5) year contract anniversary on or before
your or your joint owner's 80th birthday, plus any purchase payments made
after that contract anniversary, less any withdrawals (and any withdrawal
charges paid on the withdrawals) made after that contract anniversary.
Annual Step-Up Option:
Prior to you, or your joint owner, reaching age 80, the death benefit will be
the greatest of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The greatest contract value on any contract anniversary prior to your, or
your joint owner's death; plus any purchase payments you made subsequent to
that contract anniversary, less any withdrawals (and any withdrawal charges
paid on the withdrawals) subsequent to that contract anniversary.
After you, or your joint owner, reaches age 80, the death benefit will be the
greatest of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The greatest contract value on any prior contract anniversary on or before
your, or your joint owner's 80th birthday; plus any purchase payments you
made after that contract anniversary, less any withdrawals (and any
withdrawal charges paid on the withdrawals) you made after that contract
anniversary.
Check your contract and applicable endorsement for your death benefit.
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.
Payment under an annuity option may only be elected during the 60 day period
beginning with the date Cova receives proof of death. If Cova does not receive
an election during such time, it will make a single sum payment to the
beneficiary at the end of the 60 day period.
Death of Annuitant
If the annuitant, not an owner or joint owner, dies before annuity payments
begin, you can name a new annuitant. If no annuitant is named within 30 days of
the death of the annuitant, you will become the annuitant. However, if the owner
is a non-natural person (for example, a corporation), then the death or change
of annuitant will be treated as the death of the owner, and a new annuitant may
not be named.
Upon the death of the annuitant after annuity payments begin, the death benefit,
if any, will be as provided for in the annuity option selected.
10. OTHER INFORMATION
Cova
Cova Financial Services Life Insurance Company (Cova) was incorporated on August
17, 1981 as Assurance Life Company, a Missouri corporation, and changed its name
to Xerox Financial Services Life Insurance Company in 1985. On June 1, 1995, a
wholly-owned subsidiary of General American Life Insurance Company purchased
Cova which on that date changed its name to Cova Financial Services Life
Insurance Company.
Cova is licensed to do business in the District of Columbia and all states
except California, Maine, New Hampshire, New York and Vermont.
Year 2000
Cova has developed and initiated plans to assure that its computer systems will
function properly in the year 2000 and later years. These efforts have included
receiving assurances from outside service providers that their computer systems
will also function properly in this context. Included within these plans are the
computer systems of the advisers and sub-advisers of the various investment
portfolios underlying the Separate Account.
Although an assessment of the total cost of implementing these plans has not
been completed, the total amounts to be expended are not expected to have a
material effect on Cova's financial position or results of operations. Cova
believes that it has taken all reasonable steps to address these potential
problems. There can be no guarantee, however, that the steps taken will be
adequate to avoid any adverse impact.
The Separate Account
Cova has established a separate account, Cova Variable Annuity Account One
(Separate Account), to hold the assets that underlie the contracts. The Board of
Directors of Cova adopted a resolution to establish the Separate Account under
Missouri insurance law on February 24, 1987. We have registered the Separate
Account with the Securities and Exchange Commission as a unit investment trust
under the Investment Company Act of 1940. The 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 up to 6.0% of purchase payments. Cova
may, under certain circumstances, pay an additional wholesaling fee to certain
entities in connection with the distribution of the contracts.
Ownership
Owner. You, as the owner of the contract, have all the interest and rights under
the contract. Prior to the annuity date, the owner is as designated at the time
the contract is issued, unless changed. On and after the annuity date, the
annuitant is the owner (this may be a taxable event). The beneficiary becomes
the owner when a death benefit is payable. When this occurs, some ownership
rights may be limited.
Joint Owner. The contract can be owned by joint owners. Any joint owner must be
the spouse of the other owner (except in Pennsylvania). Upon the death of either
joint owner, the surviving spouse will be the designated beneficiary. Any other
beneficiary designation at the time the contract was issued or as may have been
later changed will be treated as a contingent beneficiary unless otherwise
indicated.
Beneficiary
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued unless
changed at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before you die.
Assignment
You can assign the contract at any time during your lifetime. Cova will not be
bound by the assignment until it receives the written notice of the assignment.
Cova will not be liable for any payment or other action we take in accordance
with the contract before we receive notice of the assignment. An assignment may
be a taxable event.
If the contract is issued pursuant to a qualified plan, there may be limitations
on your ability to assign the contract.
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
<TABLE>
<CAPTION>
APPENDIX A
Condensed Financial Information
Accumulation Unit Value History
The following schedule includes accumulation unit values for the periods
indicated. This data has been extracted from the Separate Account's Financial
Statements. This information should be read in conjunction with the Separate
Account's Financial Statements and related notes which are included in the
Statement of Additional Information.
Year or Period Year or Period Year or Period
Ended 12/31/98 Ended 12/31/97 Ended 12/31/96
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds, Inc.
Managed by A I M Advisors, Inc.
AIM V.I. Capital Appreciation Sub-Account
<S> <C>
Beginning of Period $10.00 * *
End of Period 11.77
Number of Accum. Units Outstanding 183,488
- ---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. International Equity Sub-Account
Beginning of Period $10.00 * *
End of Period 11.39
Number of Accum. Units Outstanding 204,072
- ---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Sub-Account
Beginning of Period $10.00 * *
End of Period 13.06
Number of Accum. Units Outstanding 521,890
- ---------------------------------------------------------------------------------------------------------------------------------
Cova Series Trust
Managed by Lord, Abbett & Co.
Bond Debenture Sub-Account
Beginning of Period $12.88 $11.29 $10.10
End of Period 13.50 12.88 11.29
Number of Accum. Units Outstanding 8,184,894 3,945,097 659,663
- ---------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Sub-Account
Beginning of Period $10.47 $10.00 *
End of Period 10.44 10.47
Number of Accum. Units Outstanding 1,642,553 194,386
- ---------------------------------------------------------------------------------------------------------------------------------
Large Cap Research Sub-Account
Beginning of Period $9.90 $10.00 *
End of Period 11.83 9.90
Number of Accum. Units Outstanding 1,094,920 124,559
- ---------------------------------------------------------------------------------------------------------------------------------
Developing Growth Sub-Account
Beginning of Period $10.53 $10.00 *
End of Period 11.07 10.53
Number of Accum. Units Outstanding 1,342,201 148,658
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value History (continued)
Year or Period Year or Period Year or Period
Ended 12/31/98 Ended 12/31/97 Ended 12/31/96
- ---------------------------------------------------------------------------------------------------------------------------------
Managed by J.P. Morgan
Investment Management Inc.
Select Equity Sub-Account
Beginning of Period $14.05 $10.84 $10.08
End of Period 16.99 14.05 10.84
Number of Accum. Units Outstanding 10,544,818 6,903,606 2,044,523
- ---------------------------------------------------------------------------------------------------------------------------------
Small Cap Stock Sub-Account
Beginning of Period $13.49 $11.31 $10.51
End of Period 12.58 13.49 11.31
Number of Accum. Units Outstanding 5,532,610 3,940,243 1,237,405
- ---------------------------------------------------------------------------------------------------------------------------------
International Equity Sub-Account
Beginning of Period $11.46 $10.97 $10.21
End of Period 12.89 11.46 10.97
Number of Accum. Units Outstanding 7,309,325 5,440,592 1,306,892
- ---------------------------------------------------------------------------------------------------------------------------------
Quality Bond Sub-Account
Beginning of Period $11.16 $10.37 $9.90
End of Period 11.91 11.16 10.37
Number of Accum. Units Outstanding 3,323,343 1,433,081 508,830
- ---------------------------------------------------------------------------------------------------------------------------------
Large Cap Stock Sub-Account
Beginning of Period $14.89 $11.33 $10.00
End of Period 19.43 14.89 11.33
Number of Accum. Units Outstanding 4,178,035 1,473,929 1,389,606
- ---------------------------------------------------------------------------------------------------------------------------------
General American Capital Company
Managed by Conning Asset
Management Company
Money Market Sub-Account
Beginning of Period $10.67 $10.23 $10.00
End of Period 11.11 10.67 10.23
Number of Accum. Units Outstanding 1,473,737 311,051 34,964
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value History (continued)
Year or Period Year or Period Year or Period
Ended 12/31/98 Ended 12/31/97 Ended 12/31/96
- ---------------------------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust
Managed by Massachusetts Financial
Services Company
MFS Emerging Growth Sub-Account
Beginning of Period $10.00 * *
End of Period 13.23
Number of Accum. Units Outstanding 539,659
- ---------------------------------------------------------------------------------------------------------------------------------
MFS Research Sub-Account
Beginning of Period $10.00 * *
End of Period 12.17
Number of Accum. Units Outstanding 464,786
- ---------------------------------------------------------------------------------------------------------------------------------
MFS Growth With Income Sub-Account
Beginning of Period $10.00 * *
End of Period 12.07
Number of Accum. Units Outstanding 581,434
- ---------------------------------------------------------------------------------------------------------------------------------
MFS High Income Sub-Account
Beginning of Period $10.00 * *
End of Period 9.85
Number of Accum. Units Outstanding 219,209
- ---------------------------------------------------------------------------------------------------------------------------------
MFS Global Governments Sub-Account
Beginning of Period $10.00 * *
End of Period 10.67
Number of Accum. Units Outstanding 2,082
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value History (continued)
Year or Period Year or Period Year or Period
Ended 12/31/98 Ended 12/31/97 Ended 12/31/96
- ---------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds
Managed by OppenheimerFunds, Inc.
Oppenheimer High Income Sub-Account
Beginning of Period $10.00 * *
End of Period 9.89
Number of Accum. Units Outstanding 78,513
- ---------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Bond Sub-Account
Beginning of Period $10.00 * *
End of Period 10.53
Number of Accum. Units Outstanding 401,990
- ---------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Sub-Account
Beginning of Period $10.00 * *
End of Period 12.23
Number of Accum. Units Outstanding 97,161
- ---------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Sub-Account
Beginning of Period $10.00 * *
End of Period 10.33
Number of Accum. Units Outstanding 284,830
- ---------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Sub-Account
Beginning of Period $10.00 * *
End of Period 10.15
Number of Accum. Units Outstanding 107,869
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value History (continued)
Year or Period Year or Period Year or Period
Ended 12/31/98 Ended 12/31/97 Ended 12/31/96
- ---------------------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund
Managed by Fidelity Management & Research Company
VIP Growth Sub-Account
Beginning of Period $10.00 * *
End of Period 13.08
Number of Accum. Units Outstanding 6,748
- ---------------------------------------------------------------------------------------------------------------------------------
VIP Equity-Income Sub-Account
Beginning of Period $10.00 * *
End of Period 10.63
Number of Accum. Units Outstanding 24,132
- ---------------------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund II
Managed by Fidelity Management & Research Company
VIP II Contrafund Sub-Account
Beginning of Period $10.00 * *
End of Period 12.36
Number of Accum. Units Outstanding 32,354
- ---------------------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund III
Managed by Fidelity Management & Research Company
VIP III Growth Opportunities Sub-Account
Beginning of Period $10.00 * *
End of Period 11.74
Number of Accum. Units Outstanding 9,523
- ---------------------------------------------------------------------------------------------------------------------------------
VIP III Growth & Income Sub-Account
Beginning of Period $10.00 * *
End of Period 12.20
Number of Accum. Units Outstanding 69,833
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accumulation unit values shown above for the beginning of the period for the
Select Equity, Small Cap Stock, International Equity, Quality Bond and Large Cap
Stock Portfolios managed by J.P. Morgan Investment Management Inc., and the Bond
Debenture Portfolio managed by Lord, Abbett & Co. reflect the date these
investment portfolios were offered for sale to the public (5/1/96). Separate
Account inception dates in the other investment portfolios are as follows: Money
Market Fund - June 3, 1996; Mid-Cap Value, Large Cap Research and Developing
Growth Portfolios - August 20, 1997; Lord Abbett Growth and Income Portfolio -
January 8, 1999; AIM Variable Insurance Funds, Inc., MFS Variable Insurance
Trust and Oppenheimer Variable Account Funds - December 31, 1997; and Variable
Insurance Products Funds - February 17, 1998.
APPENDIX B
PERFORMANCE INFORMATION
Future performance will vary and the results shown are not necessarily
representative of future results.
Note: The figures below present investment performance information for the
periods ended December 31, 1998. While these numbers represent the returns as of
that date, they do not represent performance information of the portfolios since
that date. Performance information for the periods after December 31, 1998 may
be different than the numbers shown below.
PART 1 - SEPARATE ACCOUNT PERFORMANCE
The portfolios listed below began operations before December 31, 1998. As a
result, performance information is available for the accumulation unit values
investing in these portfolios.
o Column A presents performance figures for the accumulation units which
reflect the insurance charges, the contract maintenance charge, the fees
and expenses of the investment portfolio, and assume that you make a
withdrawal at the end of the period and therefore the withdrawal charge is
reflected.
o Column B presents performance figures for the accumulation units which
reflect the insurance charges as well as the fees and expenses of the
investment portfolio.
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, Inc.
Average Annual Total Return for the periods ended 12/31/98
- -------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects all (reflects insurance
charges and charges and
portfolio expenses) portfolio expenses)
- -----------------------------------------------------------------------------------------------------------------------------
Separate Account
Inception Date Since Since
Portfolio in Portfolio 1 yr Inception 1 yr Inception
- -----------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital
<S> <C> <C> <C> <C> <C> <C>
Appreciation 12/31/97 13.09% 13.09% 17.71% 17.71%
AIM V.I. International
Equity 12/31/97 9.30% 9.30% 13.91% 13.91%
AIM V.I. Value 12/31/97 25.97% 25.97% 30.60% 30.60%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
APPENDIX B
PERFORMANCE INFORMATION (continued)
Part 1 Cova Series Trust
Average Annual Total Return for the periods ended 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects all (reflects insurance
charges and charges and
portfolio expenses) portfolio expenses)
- -----------------------------------------------------------------------------------------------------------------------------
Separate Account
Inception Date Since Since
Portfolio in Portfolio 1 yr 5 yrs Inception 1 yr 5yrs Inception
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Select Equity 5/1/96 16.25% - - 20.19% 20.88% - - 21.56%
Small Cap Stock 5/1/96 (11.33)% - - 5.31% (6.74)% - - 6.96%
International Equity 5/1/96 7.84% - - 7.50% 12.45% - - 9.10%
Quality Bond 5/1/96 2.20% - - 5.55% 6.81% - - 7.19%
Large Cap Stock 5/1/96 25.86% - - 26.95% 30.49% - - 28.21%
Bond Debenture 5/1/96 0.17% - - 9.92% 4.77% - - 11.47%
Mid-Cap Value 8/20/97 (4.89)% - - (0.24)% (0.29)% - - 3.18%
Large Cap Research 8/20/97 14.84% - - 9.72% 19.46% - - 13.05%
Developing Growth 8/20/97 0.53% - - 4.32% 5.13% - - 7.70%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Part 1 General American Capital Company
Average Annual Total Return for the period ended 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects all (reflects insurance
charges and charges 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 6/3/96 (0.45)% 2.39% 4.15% 4.17%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
APPENDIX B
PERFORMANCE INFORMATION (continued)
Part 1 MFS Variable Insurance Trust
Average Annual Total Return for the periods ended 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects all (reflects insurance
charges and charges 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>
MFS Emerging Growth 12/31/97 27.70% 27.70% 32.33 32.33%
MFS Research 12/31/97 17.11% 17.11% 21.73% 21.73%
MFS Growth With Income 12/31/97 16.05% 16.05% 20.67% 20.67%
MFS High Income 12/31/97 (6.15)% (6.15)% (1.55)% (1.55)%
MFS Global Governments 12/31/97 2.09% 2.09% 6.70% 6.70%
</TABLE>
<TABLE>
<CAPTION>
Part 1 Oppenheimer Variable Account Funds
Average Annual Total Return for the periods ended 12/31/98
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects all (reflects insurance
charges and charges and
portfolio expenses) portfolio expenses)
- ---------------------------------------------------------------------------------------------------------------------------------
Separate Account
Inception Date Since Since
Portfolio in Portfolio 1 yr Inception 1 yr Inception
- ---------------------------------------------------------------------------------------------------------------------------------
Oppenheimer High Income
<S> <C> <C> <C> <C> <C> <C>
Fund/VA 12/31/97 (5.66)% (5.66)% (1.06)% (1.06)%
Oppenheimer Bond Fund/VA 12/31/97 0.72% 0.72% 5.33% 5.33%
Oppenheimer Capital
Appreciation Fund/VA 12/31/97 17.71% 17.71% 22.33% 22.33%
Oppenheimer Main Street
Growth & Income Fund/VA 12/31/97 (1.34)% (1.34)% 3.27% 3.27%
Oppenheimer Strategic
Bond Fund/VA 12/31/97 (3.09)% (3.09)% 1.51% 1.51%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
APPENDIX B
PERFORMANCE INFORMATION (continued)
Part 1 Variable Insurance Products Fund, Variable Insurance Products Fund II,
Variable Insurance Products Fund III
Average Annual Total Return for the periods ended 12/31/98
- -------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects all (reflects insurance
charges and charges 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>
VIP Growth 2/17/98 - - 25.65% - - 30.78%
VIP Equity-Income 2/17/98 - - 1.16% - - 6.27%
VIP II Contrafund 2/17/98 - - 18.45% - - 23.57%
VIP III Growth
Opportunities 2/17/98 - - 12.31% - - 17.42%
VIP III Growth & Income 2/17/98 - - 16.90% - - 22.03%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
APPENDIX B
PERFORMANCE INFORMATION (continued)
PART 2 - HISTORICAL FUND PERFORMANCE
Shares of the General American Capital Company Money Market Fund were first
offered under the Contract on June 3, 1996. Shares of the Portfolios of Variable
Insurance Products Fund, Variable Insurance Products Fund II and Variable
Insurance Products Fund III, AIM Variable Insurance Funds, Inc., Oppenheimer
Variable Account Funds and MFS Variable Insurance Trust were first offered under
the contract on December 30,1997 (collectively, the "Existing Funds"). However,
the Existing Funds have been in existence for some time and therefore have an
investment performance history. In order to show how investment performance of
the Existing Funds affects accumulation unit values, we have developed
performance information.
The chart below shows the investment performance of the Existing Funds and the
accumulation units performance calculated by assuming that accumulation units
were invested in the Portfolio of the Existing Fund for the same periods.
o The performance figures in Column A for the Existing Funds reflect the fees
and expenses paid by the Portfolio.
o Column B presents performance figures for the accumulation units which
reflect the insurance charges, the contract maintenance charge, the fees
and expenses of the Portfolio and assumes that you make a withdrawal at the
end of the period and therefore the withdrawal charge is reflected.
o Column C presents performance figures for the accumulation units which
reflect the insurance charges as well as the fees and expenses of the
Portfolio.
<TABLE>
<CAPTION>
Part 2 AIM Variable Insurance Funds, Inc.
Average Annual Total Return for the periods ended 12/31/98
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column B Column C
(reflects all (reflects insurance
Fund Performance charges and charges 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
- ---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Appreciation 5/5/93 19.30% 17.23% 18.77% 13.09% 15.73% 17.27% 17.71% 15.83% 17.37%
AIM V.I. International
Equity 5/2/93 15.49% 11.33% 13.36% 9.30% 9.83% 11.86% 13.91% 9.93% 11.96%
AIM V.I. Value 5/5/93 32.41% 21.70% 21.90% 25.97% 20.20% 20.40% 30.60% 20.30% 20.50%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Part 2 General American Capital Company Money Market Fund
Average Annual Total Return for the periods ended 12/31/98
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column B Column C
(reflects all (reflects insurance
Fund Performance charges and charges 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 10/1/87 5.62% 5.40% 5.78% (0.45)% 3.90% 4.28% 4.15% 4.00% 4.38%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
APPENDIX B
PERFORMANCE INFORMATION (continued)
Part 2 MFS Variable Insurance Trust
Average Annual Total Return for the periods ended 12/31/98
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column B Column C
(reflects all (reflects insurance
Fund Performance charges and charges 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> <C>
MFS Emerging Growth 7/24/95 34.16% 26.55% 27.70% 20.55% 32.33% 25.15%
MFS Research 7/26/95 23.39% 22.52% 17.11% 16.52% 21.73% 21.12%
MFS Growth With Income 10/9/95 22.32% 25.98% 16.05% 19.98% 20.67% 24.58%
MFS High Income 7/26/95 (0.18)% 8.77% (6.15)% 2.77% (1.55)% 7.37%
MFS Global Governments 6/14/94 7.90% 5.57% 2.09% (0.43)% 6.70% 4.17%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Part 2 Oppenheimer Variable Account Funds
Average Annual Total Return for the periods ended 12/31/98
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column B Column C
(reflects all (reflects insurance
Fund Performance charges and charges and
Column A portfolio expenses) portfolio expenses)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio 10 yrs or 10 yrs or 10 yrs or
Inception since since since
Portfolio Date 1 yr 5 yrs inception 1 yr 5 yrs inception 1 yr 5 yrs inception
- ---------------------------------------------------------------------------------------------------------------------------------
Oppenheimer High
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Fund/VA 4/30/86 0.30% 8.62% 12.71% (5.66)% 7.12% 11.21% (1.06)% 7.22% 11.31%
Oppenheimer Bond
Fund/VA 4/3/85 6.80% 7.01% 9.28% 0.72% 5.51% 7.78% 5.33% 5.61% 7.88%
Oppenheimer Capital
Appreciation Fund/VA 4/3/85 24.00% 22.10% 16.85% 17.71% 20.60% 15.35% 22.33% 20.70% 15.45%
Oppenheimer Main Street
Growth & Income Fund/VA 7/5/95 4.70% - - 27.00% (1.34)% - - 21.00% 3.27% - - 25.60%
Oppenheimer Strategic
Bond Fund/VA 5/3/93 2.90% 6.83% 6.79% (3.09)% 5.33% 5.29% 1.51% 5.43% 5.39%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
APPENDIX B
PERFORMANCE INFORMATION (continued)
Part 2 Variable Insurance Products Fund, Variable Insurance Products Fund II,
Variable Insurance Products Fund III
Average Annual Total Return for the periods ended 12/31/98
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column B Column C
(reflects all (reflects insurance
Fund Performance charges and charges 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>
VIP Growth 10/9/86 39.49% 21.74% 19.41% 33.49% 20.24% 17.91% 38.09% 20.34% 18.01%
VIP Equity-Income 10/9/86 11.63% 18.77% 15.62% 5.63% 17.27% 14.12% 10.23% 17.37% 14.22%
VIP II Contrafund 1/3/95 29.98% - - 28.62% 23.98% - - 22.62% 28.58% - - 27.22%
VIP III Growth
Opportunities 1/3/95 24.51% - - 26.23% 18.51% - - 20.23% 23.11% - - 24.83%
VIP III Growth & Income 12/31/96 29.59% - - 29.14% 23.59% - - 23.14% 28.19% - - 27.74%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------
- ------------------------------
- ------------------------------
Cova Financial Services Life
Insurance Company
Attn: Variable Products
One Tower Lane
Suite 3000
Oakbrook Terrace, Illinois 60181-4644
Please send me, at no charge, the Statement of Additional Information dated May
1, 1999, for the annuity contract issued by Cova.
(Please print or type and fill in all information)
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip Code
CL-4227 (5/99) PREVAIL
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-4226(7/99) Policy Form Series XL-407,CL-407,XL-617,CL-617 21-PREV-MO
