THE FIXED
AND VARIABLE ANNUITY
ISSUED BY
COVA VARIABLE ANNUITY ACCOUNT FIVE
FORMERLY,
XEROX VARIABLE ANNUITY
ACCOUNT FIVE
AND
COVA FINANCIAL LIFE INSURANCE COMPANY
FORMERLY,
XEROX FINANCIAL
LIFE INSURANCE COMPANY
This prospectus describes the Fixed and Variable Annuity Contract offered by
Cova Financial Life Insurance Company (Cova).
The annuity contract has 12 investment choices - a fixed account which offers
an interest rate which is guaranteed by Cova, and 11 investment portfolios
listed below. The 11 investment portfolios are part of the Cova Series Trust
and the Lord Abbett Series Fund, Inc. You can put your money in the fixed
account and/or any of these investment portfolios (except as noted).
COVA SERIES TRUST:
MANAGED BY J.P. MORGAN
INVESTMENT MANAGEMENT INC.
Select Equity
Large Cap Stock
Small Cap Stock
International Equity
Quality Bond
MANAGED BY VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
Growth and Income
Money Market
Quality Income
Stock Index
MANAGED BY LORD, ABBETT & CO.
Bond Debenture (a "high yield" portfolio under California
insurance regulations)
LORD ABBETT SERIES FUND, INC.:
MANAGED BY LORD, ABBETT & CO.
Growth and 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,
1996. The SAI has been filed with the Securities and Exchange Commission (SEC)
and is legally a part of the prospectus. The Table of Contents of the SAI is
on Page 17 of this prospectus. For a free copy of the SAI, call us at (800)
831-5433 or write us at : One Tower Lane, Suite 3000, Oakbrook Terrace,
Illinois 60181-4644.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
May 1, 1996.
TABLE OF CONTENTS
PAGE
INDEX OF SPECIAL TERMS
SUMMARY
FEE TABLE
EXAMPLES
1. THE ANNUITY CONTRACT
2. ANNUITY PAYMENTS (THE INCOME PHASE)
3. PURCHASE
Purchase Payments
Allocation of Purchase Payments
Accumulation Units
4. INVESTMENT OPTIONS
Cova Series Trust
Lord Abbett Series Fund, Inc.
Transfers
Dollar Cost Averaging Program
Automatic Rebalancing Program
Approved Asset Allocation Programs
Voting Rights
Substitution
5. EXPENSES
Insurance Charges
Contract Maintenance Charge
Withdrawal Charge
Reduction or Elimination of the Withdrawal Charge
Premium Taxes
Transfer Fee
Income Taxes
Investment Portfolio Expenses
6. TAXES
Annuity Contracts in General
Qualified and Non-Qualified Contracts
Withdrawals - Non-Qualified Contracts
Withdrawals - Qualified Contracts
Withdrawals - Tax-Sheltered Annuities
Diversification
7. ACCESS TO YOUR MONEY
Systematic Withdrawal Program
8. PERFORMANCE
9. DEATH BENEFIT
Upon Your Death
Death of Annuitant
10. OTHER INFORMATION
Cova
The Separate Account
Distributor
Ownership
Beneficiary
Assignment
Suspension of Payments or Transfers
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
APPENDIX A
APPENDIX B
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you
as possible. By the very nature of the contract, however, certain technical
words or terms are unavoidable. We have identified the following as some of
these words or terms. They are identified in the text in italic and the page
that is indicated here is where we believe you will find the best explanation
for the word or term.
PAGE
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Date
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Fixed Account
Income Phase
Investment Portfolios
Joint Owner
Non-Qualified
Owner
Purchase Payment
Qualified
Tax Deferral
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 in a fixed account of Cova and 11
investment portfolios. The Contract is intended for retirement savings or
other long-term investment purposes and provides for a death benefit and
guaranteed income options.
The fixed account offers an interest rate that is guaranteed by the insurance
company, Cova. This interest rate is set once each year. While your money is
in the fixed account, the interest your money will earn as well as your
principal is guaranteed by Cova.
This Contract also offers 11 investment portfolios which are listed in Section
4. These portfolios are designed to offer a better return than the fixed
account. However, this is NOT guaranteed. You can also lose your money.
You can put money into any or all of the investment portfolios (except as
noted) and the fixed account. You can transfer between accounts up to 12 times
a year without charge or tax implications. After 12 transfers, the charge is
$25 or 2% of the amount transferred, whichever is less.
The Contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as income when you
make a withdrawal. The income phase occurs when you begin receiving regular
payments from your contract.
The amount of money you are able to accumulate in your account during the
accumulation phase will determine the amount of income payments during the
income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE):
If you want to receive regular income from your annuity, you can choose one of
three options: (1) monthly payments for your life (assuming you are the
annuitant); (2) monthly payments for your life, but with payments continuing
to the beneficiary for 5, 10 or 20 years (as you select) if you die before the
end of the selected period; and (3) monthly payments for your life and for the
life of another person (usually your spouse) selected by you. Once you begin
receiving regular payments, you cannot change your payment plan.
During the income phase, you have the same investment choices you had during
the accumulation phase. You can choose to have payments come from the fixed
account, the investment portfolios or both. If you choose to have any part of
your payments come from the investment portfolios, the dollar amount of your
payments may go up or down.
3. PURCHASE:
You can buy this Contract with $5,000 or more under most circumstances. You
can add $2,000 or more any time you like during the accumulation phase. Your
registered representative can help you fill out the proper forms.
4. INVESTMENT OPTIONS:
You can put your money in any or all of these investment portfolios which are
described in the prospectuses for the funds:
MANAGED BY J.P. MORGAN INVESTMENT
MANAGEMENT INC.
Select Equity
Large Cap Stock
Small Cap Stock
International Equity
Quality Bond
MANAGED BY LORD, ABBETT & CO.
Bond Debenture (a "high yield" portfolio under
California insurance regulations)
Growth and Income
MANAGED BY VAN KAMPEN AMERICAN
CAPITAL INVESTMENT ADVISORY CORP.
Growth and Income
Money Market
Quality Income
Stock Index
Depending upon market conditions, you can make or lose money in any of these
portfolios.
5. EXPENSES:
The Contract has insurance features and investment features, and there are
costs related to each.
Each year Cova deducts a $30 contract fee from your Contract. Cova currently
waives this charge if the value of your Contract is at least $50,000. Cova
also deducts for its insurance charges which total 1.40% of the average daily
value of your Contract allocated to the investment portfolios.
There are also investment charges which range from .11% to .95% of the average
daily value of the investment portfolio depending upon the investment
portfolio.
If you take your money out, Cova may assess a withdrawal charge which is equal
to 5% of the purchase payment you withdraw. When you make a complete
withdrawal or you begin receiving regular income payments from your annuity,
Cova will assess a state premium tax which ranges from 0-4% depending upon the
state.
6. TAXES:
Your earnings are not taxed until you take them out. If you take money out,
earnings come out first and are taxed as income. If you are younger than
59-1/2 when you take money out, you may be charged a 10% federal tax penalty
on the earnings. Payments during the income phase are considered partly a
return of your original investment. That part of each payment is not taxable
as income.
7. ACCESS TO YOUR MONEY:
You can take money out at any time during the accumulation phase. After the
first year, you can take up to 10% of your total purchase payments each year
without charge from Cova. Withdrawals in excess of that will be charged 5% of
each payment you take out. After Cova has had a payment for 5 years, there is
no charge for withdrawals. Of course, you may also have to pay income tax and
a tax penalty on any money you take out. Each purchase payment you add to your
Contract has its own 5 year withdrawal charge period.
8. PERFORMANCE:
The value of the Contract will vary up or down depending upon the investment
performance of the Portfolio(s) you choose. The Company may provide total
return figures for each investment portfolio.
9. DEATH BENEFIT:
If you die before moving to the income phase, the person you have chosen as
your beneficiary will receive a death benefit. This death benefit will be the
greater of three amounts: 1) the money you've put in less any money you've
taken out, and the related withdrawal charges, accumulated at 4% until you
reach age 80, or 2) the current value of your Contract, or 3) the value of
your Contract at the most recent 5th-year-anniversary plus any money you've
added since that anniversary minus any money you've taken out since that
anniversary, and the related withdrawal charges. If you die after age 80,
slightly different rules apply.
10. OTHER INFORMATION:
FREE LOOK. If you cancel the Contract within 10 days after receiving it (or
within 30 days if you are 60 years or older when we issue the Contract), we
will send your money back without assessing a withdrawal charge. You will
receive whatever your Contract is worth on the day we receive your request.
This may be more or less than your original payment. If we're required by law
to return your original payment, we will put your money in the Money Market
Portfolio 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 tax brackets. You should not buy this
Contract if you are looking for a short-term investment or if you cannot take
the risk of getting back less money than you put in.
ADDITIONAL FEATURES. This Contract has additional features you might be
interested in. These include:
-- You can arrange to have money automatically sent to you each month
while your Contract is still in the accumulation phase. Of course, you'll have
to pay taxes on money you receive. We call this feature the Systematic
Withdrawal Program.
-- You can arrange to have a regular amount of money automatically
invested in investment portfolios each month, theoretically giving you a lower
average cost per unit over time than a single one time purchase. We call this
feature Dollar Cost Averaging.
-- Cova will automatically readjust the money between investment
portfolios periodically to keep the blend you select. We call this feature
Automatic Rebalancing.
-- Under certain circumstances, Cova will give you your money without a
withdrawal charge if you need it while you're in a nursing home. We call this
feature the Nursing Home Waiver.
These features may not be suitable for your particular situation.
11. INQUIRIES:
If you need more information, please contact us at:
Cova Life Sales Company
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181
800-523-1661
COVA VARIABLE ANNUITY ACCOUNT FIVE FEE TABLE
OWNER TRANSACTION EXPENSES
Withdrawal Charge (see Note 2 below)
5% of purchase payment withdrawn
Transfer Fee (see Note 3 below)
No charge for first 12 transfers in a contract year; thereafter,
the fee is $25 per transfer or, if less, 2% of the amount transferred.
Contract Maintenance Charge (see Note 4 below)
$30 per contract per year
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Premium 1.25%
Administrative Expense Charge .15%
_____
TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES 1.40%
INVESTMENT PORTFOLIO CHARGES
(as a percentage of the average daily net assets of an investment portfolio)
<TABLE>
<CAPTION>
Other Expenses
(after expense
reimbursement for
Management certain Portfolios) Total Portfolio
Fees (see Note 5 below) Annual Expenses
----------- ------------------- ----------------
<S> <C> <C> <C>
COVA SERIES TRUST
Managed by J.P. Morgan
Investment Management Inc.
Select Equity* .75% .10% .85%
Large Cap Stock* .65% .10% .75%
Small Cap Stock* .85% .10% .95%
International Equity* .85% .10% .95%
Quality Bond* .55% .10% .65%
Managed by Lord, Abbett & Co.
Bond Debenture* (a "high yield" .75% .10% .85%
portfolio under California
insurance regulations)
Managed By Van Kampen American
Capital Investment Advisory Corp.
Growth and Income .60% .09% .69%
Money Market# .00% .11% .11%
Quality Income .50% .10% .60%
Stock Index .50% .11% .61%
LORD ABBETT SERIES FUND, INC.
Managed by Lord Abbett
Growth and Income## .50% .02% .52%
<FN>
* Estimated. The Portfolio commenced regular investment operations on April 1, 1996.
# Cova Investment Advisory Corporation (Cova Advisory), the investment adviser for
Cova Series Trust, currently waives its fees for the Money Market Portfolio. Although not
obligated to, Cova Advisory expects to continue to waive its fees for the Money Market
Portfolio. In the future, Cova Advisory may charge its fees on a partial or complete
basis. Absent the management fee waiver, the total management fee on an annual basis for
the Money Market Portfolio is .50%. The examples shown below for the Money Market
Portfolio are calculated based upon a waiver of the management fee.
## Although the expenses for the Growth and Income Portfolio of Lord Abbett Series
Fund, Inc. do not reflect a 12b-1 plan, one has been adopted which provides for payments
to Lord, Abbett & Co. for remittance to a life insurance company for certain distribution
expenses (see the Fund Prospectus). The 12b-1 Plan provides that such remittances, in the
aggregate, will not exceed .15%, on an annual basis, of the daily net asset value of
shares of the Growth and Income Portfolio. The 12b-1 plan has not been implemented. The
examples below for this Portfolio do not reflect the imposition of the 12b-1 fee.
</TABLE>
EXAMPLES
You will pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
(a) upon surrender at the end of each time period;
(b) if the contract is not surrendered or is annuitized.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TIME PERIODS
1 year 3 years 5 years 10 years
------- -------- -------- ---------
COVA SERIES TRUST
Managed by J.P. Morgan
Investment Management Inc.
Select Equity (a) $73.80 (a) $118.16
(b) $23.80 (b) $73.16
Large Cap Stock (a) $72.80 (a) $115.15
(b) $22.80 (b) $70.15
Small Cap Stock (a) $74.80 (a) $121.17
(b) $24.80 (b) $76.17
International Equity (a) $74.80 (a) $121.17
(b) $24.80 (b) $76.17
Quality Bond (a) $71.79 (a) $112.12
(b) $21.79 (b) $67.12
Managed by Lord, Abbett & Co.
Bond Debenture (a "high yield"
portfolio under California (a) $73.80 (a) $118.16
insurance regulations) (b) $23.80 (b) $73.16
Managed By Van Kampen American
Capital Investment Advisory Corp.
Growth and Income (a) $72.19 (a) $113.33 (a) $161.92 (a) $250.02
(b) $22.19 (b) $68.33 (b) $116.92 (b) $250.02
Money Market (a) $66.36 (a) $95.62 (a) $132.07 (a) $188.79
(b) $16.36 (b) $50.62 (b) $87.07 (b) $188.79
Quality 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
Stock Index (a) $71.39 (a) $110.91 (a) $157.85 (a) $241.80
(b) $21.39 (b) $65.91 (b) $112.85 (b) $241.80
LORD ABBETT SERIES FUND, INC.
Managed by Lord, Abbett & Co.
Growth and Income (a) $70.49 (a) $108.17 (a) $153.26 (a) $232.47
(b) $20.49 (b) $63.17 (b) $108.26 (b) $232.47
</TABLE>
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the Fee Table is to show you the various expenses you
will incur directly or indirectly with the contract.
2. The withdrawal charge is 5% of the purchase payments you withdraw.
After Cova has had a purchase payment for 5 years, there is no charge by Cova
for a withdrawal of that purchase payment. You may also have to pay income tax
and a tax penalty on any money you take out. After the first year, you can
take up to 10% of your total purchase payments each year without a charge from
Cova.
3. Cova will not charge you the transfer fee even if there are more than
12 transfers in a year if the transfer is for the Dollar Cost Averaging,
Automatic Rebalancing or approved Asset Allocation Programs.
4. Cova will not charge the contract maintenance charge if the value of
your contract is $50,000 or more, although, if you make a complete withdrawal,
Cova will charge the contract maintenance charge.
5. Since August 20, 1990, an affiliate of Cova has been reimbursing
certain investment portfolios of Cova Series Trust for all operating expenses
(exclusive of the management fees) in excess of approximately .10%. The actual
expense percentages for all operating expenses (exclusive of the management
fees) for the year ended December 31, 1995 were: .25% for the Quality Income
Portfolio, .28% for the Stock Index Portfolio, .14% for the Money Market
Portfolio, and .59% for the Cova Series Trust Growth and Income Portfolio.
Absent the expense reimbursement and management fee waiver, the percentages
shown for total expenses (on an annualized basis) for the year or period ended
December 31, 1995 would have been .75% for the Quality Income Portfolio , .64%
for the Money Market Portfolio, .78% for the Stock Index Portfolio, and 1.19%
for the Cova Series Trust Growth and Income Portfolio.
6. Premium taxes are not reflected. Premium taxes may apply depending on
the state where you live.
7. The assumed average contract size is $30,000.
8. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
There is an accumulation unit value history contained in Appendix A -
Condensed Financial Information.
1. THE ANNUITY CONTRACT
This Prospectus describes the Fixed and Variable Annuity Contract offered by
Cova.
An annuity is a contract between you, the owner, and an insurance company (in
this case Cova), where the insurance company promises to pay you an income,
in the form of annuity payments, beginning on a designated date that's at
least 30 days in the future. Until you decide to begin receiving annuity
payments, your annuity is in the accumulation phase. Once you begin receiving
annuity payments, your contract switches to the income phase. The Contract
benefits from tax deferral.
Tax deferral means that you are not taxed on earnings or appreciation on the
assets in your contract until you take money out of your contract.
The contract is called a variable annuity because you can choose among 11
investment portfolios. Depending upon market conditions, you can make or lose
money in any of these portfolios. If you select the variable annuity portion
of the Contract, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the investment performance
of the investment portfolio(s) you select. The amount of the annuity payments
you receive during the income phase from the variable annuity portion of the
contract also depends upon the investment performance of the investment
portfolios you select for the income phase.
The contract also contains a fixed account. The fixed account offers an
interest rate that is guaranteed by Cova. This interest rate is set once each
year. Cova guarantees that the interest 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 rights under the contract. You can
change the owner at any time by notifying Cova in writing. You and your spouse
can be named joint owners. We have described more information on this in
Section 10 - Other Information.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
Under the contract you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the annuity
date. Your annuity date must be the first day of a calendar month. You can
also choose among income plans. We call those annuity options.
We ask you to choose your annuity date and annuity option when you purchase
the contract. You can change either at any time before the annuity date with
30 days notice to us. Your annuity date cannot be any earlier than one month
after you buy the contract. Annuity payments must begin by the annuitant's
85th birthday or 10 years from the date the contract was issued, whichever is
later. The annuitant is the person whose life we look to when we make annuity
payments.
If you do not choose an annuity option at the time you purchase the contract,
we will assume that you selected Option 2 which provides a life annuity with
10 years of guaranteed payments.
During the income phase, you have the same investment choices you had just
before the start of the income phase. At the annuity date, you can choose
whether payments will come from the fixed account, the investment portfolio(s)
or a combination of both. If you don't tell us otherwise, your annuity
payments will be based on the investment allocations that were in place on
the annuity date.
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things: 1) the value of your contract in the investment portfolio(s) on the
annuity date, 2) the 3% assumed investment rate used in the annuity table for
the contract, and 3) the performance of the investment portfolios you
selected. If the actual performance exceeds the 3% assumed rate, your annuity
payments will increase. Similarly, if the actual rate is less than 3%, your
annuity payments will decrease.
You can choose one of the following annuity options. After annuity payments
begin, you cannot change the annuity option.
OPTION 1. LIFE ANNUITY. Under this option, we will make an annuity
payment each month so long as the annuitant is alive. After the annuitant
dies, we stop making annuity payments.
OPTION 2. LIFE ANNUITY WITH 5, 10 OR 20 YEARS GUARANTEED. Under this
option, we will make an annuity payment each month so long as the annuitant is
alive. However, if, when the annuitant dies, we have made annuity payments for
less than the selected guaranteed period, we will then continue to make
annuity payments for the rest of the guaranteed period to the beneficiary. If
the beneficiary does not want to receive annuity payments, he or she can ask
us for a single lump sum.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. Under this option, we will
make annuity payments each month so long as the annuitant and a second person
are both alive. When either of these people dies, we will continue to make
annuity payments, so long as the survivor continues to live. The amount of the
annuity payments we will make to the survivor can be equal to 100%, 66 2/3% or
50% of the amount that we would have paid if both were alive.
Annuity payments are made monthly unless you have less than $5,000 to apply
toward a payment. In that case, Cova may provide your annuity payment in a
single lump sum. Likewise, if your annuity payments would be less than $100 a
month, Cova has the right to change the frequency of payments so that your
annuity payments are at least $100.
3. PURCHASE
PURCHASE PAYMENTS
A purchase payment is the money you give us to buy the contract. The minimum
we will accept is $5,000 when the contract is bought as a non-qualified
contract. If you are buying the contract as part of an IRA (Individual
Retirement Annuity), 401(k) or other qualified plan, the minimum we will
accept is $2,000. The maximum we accept is $1 million without our prior
approval. You can make additional purchase payments of $2,000 or more to
either type of contract.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your purchase payment to the
fixed account and/or one or more of the investment portfolios you have
selected. If you make additional purchase payments, we will allocate them in
the same way as your first purchase payment unless you tell us otherwise.
There is a $500 minimum balance requirement for the fixed account and for each
investment portfolio.
If you change your mind about owning this contract, you can cancel it within
10 days after receiving it (or within 30 days if you are 60 years or older
when we issue the contract). 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. If you
have purchased the contract as an IRA, we are 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). If that is the case, we will
put your purchase payment in the Money Market Portfolio of the Cova Series
Trust for 15 days after we allocate your first purchase payment. At the end of
that period, we will re-allocate those funds as you selected.
Once we receive your purchase payment and the necessary information, we will
issue your contract and allocate your first purchase payment within 2 business
days. If you do not give us all of the information we need, we will contact
you to get it. If for some reason we are unable to complete this process
within 5 business days, we will either send back your money or get your
permission to keep it until we get all of the necessary information. If you
add more money to your contract by making additional purchase payments, we
will credit these amounts to your contract within one business day. Our
business day closes when the New York Stock Exchange closes, usually 4:00 P.M.
Eastern time.
ACCUMULATION UNITS
The value of the variable annuity portion of your contract will go up or down
depending upon the investment performance of the investment portfolio(s) you
choose. In order to keep track of the value of your contract, we use a unit of
measure we call an accumulation unit. (An accumulation unit works like a share
of a mutual fund.) During the income phase of the contract we call the unit an
annuity unit.
Every day we determine the value of an accumulation unit for each of the
investment portfolios. We do this by:
1. determining the total amount of money invested in the particular
investment portfolio;
2. subtracting from that amount any insurance charges and any other
charges such as taxes we have deducted; and
3. dividing this amount by the number of outstanding accumulation units.
The value of an accumulation unit may go up or down from day to day.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited is determined by dividing the
amount of the purchase payment allocated to an investment portfolio divided 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 360.23
accumulation units for the Quality Bond Portfolio.
4. INVESTMENT OPTIONS
The Contract offers 11 investment portfolios which are described 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.
COVA SERIES TRUST
Cova Series Trust is managed by Cova Advisory, which is an indirect subsidiary
of Cova. Cova Series Trust is a mutual fund with multiple portfolios. Each
investment portfolio has a different investment objective. Cova Advisory has
engaged sub-advisers to provide investment advice for the individual
investment portfolios. The following investment portfolios are available under
the contract:
J.P. MORGAN INVESTMENT MANAGEMENT INC. IS THE SUB-ADVISER TO THE
FOLLOWING PORTFOLIOS:
Select Equity Portfolio
Large Cap Stock Portfolio
Small Cap Stock Portfolio
International Equity Portfolio
Quality Bond Portfolio
LORD, ABBETT & CO. IS THE SUB-ADVISER TO THE FOLLOWING PORTFOLIO:
Bond Debenture Portfolio (a "high yield" portfolio under California
insurance regulations)
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP. IS THE SUB-ADVISER
TO THE FOLLOWING PORTFOLIOS:
Money Market Portfolio
Stock Index Portfolio
Quality Income Portfolio
Growth and Income Portfolio
LORD ABBETT SERIES FUND, INC.
Lord Abbett Series Fund, Inc. is a mutual fund with multiple portfolios. Each
portfolio is managed by Lord, Abbett & Co. The following portfolio is
available under the contract:
Growth and Income Portfolio
TRANSFERS
You can transfer money among the fixed account and the 11 investment
portfolios.
TRANSFERS DURING THE ACCUMULATION PHASE. You can make 12 transfers every
year during the accumulation phase without charge. We measure a year from the
anniversary of the day we issued your Contract. You can make a transfer to or
from the fixed account and to or from any investment portfolio. If you make
more than 12 transfers in a year, there is a transfer fee deducted. The fee is
$25 per transfer or, if less, 2% of the amount transferred. The following
apply to any transfer during the accumulation phase:
1. 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. If you make more
than 12 transfers in a year, a transfer fee will be charged.
Cova has reserved the right during the year to terminate or modify the
transfer provisions described above.
You can make transfers by telephone. If you own the contract with a joint
owner, unless Cova is instructed otherwise, Cova will accept instructions from
either you or the other owner. Cova will use reasonable procedures to confirm
that instructions given us by telephone are genuine. If Cova fails to use such
procedures, we may be liable for any losses due to unauthorized or fraudulent
instructions. Cova tape records all telephone instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount each month from the Money Market Portfolio or the fixed account to any
of the other investment portfolio(s). By allocating amounts on a regular
schedule as opposed to allocating the total amount at one particular time, you
may be less susceptible to the impact of market fluctuations.
The minimum amount which can be transferred each month is $500. You must have
at least $6,000 in the Money Market Portfolio or the fixed account, (or the
amount required to complete your program, if less) in order to participate in
the Dollar Cost Averaging Program.
All Dollar Cost Averaging transfers will be made on the 15th day of the month
unless that day is not a business day. If it is not, then the transfer will be
made the next business day.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
AUTOMATIC REBALANCING PROGRAM
Once your money has been allocated among the investment portfolios, the
performance of each portfolio may cause your allocation to shift. You can
direct us to automatically rebalance your contract to return to your original
percentage allocations by selecting our Automatic Rebalancing Program. You can
tell us whether to rebalance quarterly, semi-annually or annually. We will
measure these periods from the anniversary of the date we issued your
contract. The transfer date will be the 1st day after the end of the period
you selected. 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 21 2 months the bond market does
very well while the stock market performs poorly. At the end of the first
quarter, the Quality Bond Portfolio now represents 50% of your holdings
because of its increase in value. If you had chosen to have your holdings
rebalanced quarterly, on the first day of the next quarter, Cova would sell
some of your units in the Quality Bond Portfolio to bring its value back to
40% and use the money to buy more units in the Select Equity Portfolio to
increase those holdings to 60%.
APPROVED ASSET ALLOCATION PROGRAMS
Cova recognizes the value to certain owners of having available, on a
continuous basis, advice for the allocation of your money among the investment
options available under the contracts. Certain providers of these types of
services have agreed to provide such services to owners in accordance with
Cova's administrative rules regarding such programs.
Cova has made no independent investigation of these programs. Cova has only
established that these programs are compatible with our administrative systems
and rules. Approved asset allocation programs are only available during the
accumulation phase.
Even though Cova permits the use of approved asset allocation programs, the
contract was not designed for professional market timing organizations.
Repeated patterns of frequent transfers are disruptive to the operations of
the investment portfolios, and should Cova become aware of such disruptive
practices, we may modify the transfer provisions of the contract.
If you participate in an Approved Asset Allocation Program, the transfers made
under the program are not taken into account in determining any transfer fee.
VOTING RIGHTS
Cova is the legal owner of the investment portfolio shares. However, Cova
believes that when an investment portfolio solicits proxies in conjunction
with a vote of shareholders, it is required to obtain from you and other
owners instructions as to how to vote those shares. When we receive those
instructions, we will vote all of the shares we own in proportion to those
instructions. This will also include any shares that Cova owns on its own
behalf. Should Cova determine that it is no longer required to comply with the
above, we will vote the shares in our own right.
SUBSTITUTION
Cova may be required to substitute one of the investment portfolios you have
selected with another portfolio. We would not do this without the prior
approval of the Securities and Exchange Commission. We will give you notice of
our intent to do this.
5. EXPENSES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses are:
INSURANCE CHARGES
Each day, Cova makes a deduction for its insurance charges. Cova does this as
part of its calculation of the value of the accumulation units and the annuity
units. The insurance charge has two parts: 1) the mortality and expense risk
premium and 2) the administrative expense charge.
MORTALITY AND EXPENSE RISK PREMIUM. This charge is equal, on an annual
basis, to 1.25% of the daily value of the contracts invested in an investment
portfolio, after expenses have been deducted. This charge is for all the
insurance benefits e.g., guarantee of annuity rates, the death benefits, for
certain expenses of the contract, and for assuming the risk (expense risk)
that the current charges will be sufficient 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 we make from this charge to pay for the costs of
distributing the contract.
ADMINISTRATIVE EXPENSE CHARGE. This charge is equal, on an annual basis,
to .15% of the daily value of the contracts invested in an investment
portfolio, after expenses have been deducted. This charge, together with the
contract maintenance charge (see below), is for all the expenses associated
with the administration of the contract. Some of these expenses are:
preparation of the contract, confirmations, annual reports and statements,
maintenance of contract records, personnel costs, legal and accounting fees,
filing fees, and computer and systems costs. Because this charge is taken out
of every unit value, you may pay more in administrative costs than those that
are associated solely with your contract. Cova does not intend to profit from
this charge. However, if this charge and the contract maintenance charge are
not enough to cover the costs of the contracts in the future, Cova will bear
the loss.
CONTRACT MAINTENANCE CHARGE
During the accumulation phase, every year on the anniversary of the date when
your contract was issued, Cova deducts $30 from your contract as a contract
maintenance charge. This charge is for administrative expenses (see above).
This charge can not be increased.
Cova will not deduct this charge, if when the deduction is to be made, the
value of your contract is $50,000 or more. Cova may some time in the future
discontinue this practice and deduct the charge.
If you make a complete withdrawal from your contract, the contract maintenance
charge will also be deducted. A pro rata portion of the charge will be
deducted if the annuity date is other than an anniversary. After the annuity
date, the charge will be collected monthly out of the annuity payment.
WITHDRAWAL CHARGE
During the accumulation phase, you can make withdrawals from your contract.
Cova keeps track of each purchase payment. Once a year after the first year,
you can withdraw up to 10% of your total purchase payments and no withdrawal
charge will be assessed on the 10%, if on the day you make your withdrawal the
value of your contract is $5,000 or more. Otherwise, the charge is 5% of each
purchase payment you take out. However, after Cova has had a purchase payment
for 5 years, there is no charge when you withdraw that purchase payment. For
purposes of the withdrawal charge, Cova treats withdrawals as coming from the
oldest purchase payment first. When the withdrawal is for only part of the
value of your contract, the withdrawal charge is deducted from the remaining
value in your contract.
NOTE: For tax purposes, withdrawals are considered to have come from the last
money into the contract. Thus, for tax purposes, earnings are considered to
come out first.
Cova does not assess the withdrawal charge on any payments paid out as annuity
payments or as death benefits.
After you have owned the contract for one year, if you, or your joint owner,
has been confined to a nursing home or hospital for at least 90 consecutive
days under a doctor's care and you need part or all of the money from your
contract, Cova will not impose a withdrawal charge. You or your joint owner
cannot have been so confined when you purchased your contract if you want to
take advantage of this provision. This is called the Nursing Home Waiver.
REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE
Cova will reduce or eliminate the amount of the withdrawal charge when the
contract is sold under circumstances which reduce its sales expense. Some
examples are: if there is a large group of individuals that will be purchasing
the contract or a prospective purchaser already had a relationship with Cova.
Cova will not deduct a withdrawal charge under a contract issued to an
officer, director or employee of Cova or any of its affiliates.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. Cova is responsible for the payment of these
taxes and will make a deduction from the value of the contract for them. Some
of these taxes are due when the contract is issued, others are due when
annuity payments begin. It is Cova's current practice to not charge anyone for
these taxes until annuity payments begin or a complete withdrawal is made.
Cova may some time in the future discontinue this practice and assess the
charge when the tax is due. Premium taxes generally range from 0% to 4%,
depending on the state.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 12 transfers a year, we will deduct
a transfer fee of $25 or 2% of the amount that is transferred whichever is
less.
If the transfer is part of the Dollar Cost Averaging Program, the Automatic
Rebalancing Program or an Approved Asset Allocation Program, it will not count
in determining the transfer fee.
INCOME TAXES
Cova will deduct from the contract for any income taxes which it incurs
because of the contract. At the present time, we are not making any such
deductions.
INVESTMENT PORTFOLIO EXPENSES
There are deductions from and expenses paid out of the assets of the various
investment portfolios, which are described in the attached fund prospectuses.
6. TAXES
NOTE: Cova has prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. Cova has
included in the Statement of Additional Information an additional discussion
regarding taxes.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs -
usually retirement. Congress recognized how important saving for retirement
was and provided special rules in the Internal Revenue Code (Code) for
annuities.
Simply stated these rules provide that you will not be taxed on the earnings
on the money held in your annuity contract until you take the money out. This
is referred to as tax deferral. There are different rules as to how you will
be taxed depending on how you take the money out and the type of contract -
qualified or non-qualified (see following sections).
You, as the owner, will not be taxed on increases in the value of your
contract until a distribution occurs - either as a withdrawal or as annuity
payments. When you make a withdrawal you are taxed on the amount of the
withdrawal that is earnings. For annuity payments, different rules apply. A
portion of each annuity payment is treated as a partial return of your
purchase payments and will not be taxed. The remaining portion of the annuity
payment will be treated as ordinary income. How the annuity payment is divided
between taxable and non-taxable portions depends upon the period over which
the annuity payments are expected to be made. Annuity payments received after
you have received all of your purchase payments are fully includible in
income.
When a non-qualified contract is owned by a non-natural person
(e.g.,corporation or certain other entities other than tax-qualified trusts),
the contract will generally not be treated as an annuity for tax purposes.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the contract as an individual and not under any pension plan,
specially sponsored program or an individual retirement annuity, your contract
is referred to as a non-qualified contract.
If you purchase the contract under a pension plan, specially sponsored
program, or an individual retirement annuity, your contract is referred to as
a qualified contract. Examples of qualified plans are: Individual Retirement
Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b)
contracts), H.R. 10 Plans (sometimes referred to as Keogh Plans), and pension
and profit plans, which include 401(k) plans.
WITHDRAWALS - NON-QUALIFIED CONTRACTS
If you make a withdrawal from your contract, the Code treats such a withdrawal
as first coming from earnings and then from your purchase payments. Such
withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract
which is included in income may be subject to a penalty. The amount of the
penalty is equal to 10% of the amount that is includible in income. Some
withdrawals will be exempt from the penalty. They include any amounts: (1)
paid on or after the taxpayer reaches age 59-1/2; (2) paid after you die; (3)
paid if the taxpayer becomes totally disabled (as that term is defined in the
Code); (4) paid in a series of substantially equal payments made annually (or
more frequently) under a lifetime annuity; (5) paid under an immediate
annuity; or (6) which come from purchase payments made prior to August 14,
1982.
WITHDRAWALS - QUALIFIED CONTRACTS
The above information describing the taxation of non-qualified contracts does
not apply to qualified contracts. There are special rules that govern with
respect to qualified contracts. We have provided a more complete discussion in
the Statement of Additional Information.
WITHDRAWALS - TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of purchase payments made by owners from
certain Tax-Sheltered Annuities. Withdrawals can only be made when an owner:
(1) reaches age 59-1/2; (2) leaves his/her job; (3) dies; (4) becomes disabled
(as that term is defined in the Code); or (5) in the case of hardship.
However, in the case of hardship, the owner can only withdraw the purchase
payments and not any earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Cova believes that the investment portfolios are being
managed so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the
degree of control you exercise over the underlying investments, and not Cova
would be considered the owner of the shares of the investment portfolios. If
this occurs, it will result in the loss of the favorable tax treatment for the
contract. It is unknown to what extent owners are permitted to select
investment portfolios, to make transfers among the investment portfolios or
the number and type of investment portfolios owners may select from. If any
guidance is provided which is considered a new position, then the guidance
would generally be applied prospectively. However, if such guidance is
considered not to be a new position, it may be applied retroactively. This
would mean that you, as the owner of the contract, could be treated as the
owner of the investment portfolios.
Due to the uncertainty in this area, Cova reserves the right to modify the
contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
You can have access to the money in your contract: (1) by making a withdrawal
(either a partial or a complete withdrawal); (2) by electing to receive
annuity payments; or (3) when a death benefit is paid to your beneficiary.
Under most circumstances, withdrawals can only be made during the
accumulation phase.
When you make a complete withdrawal you will receive the value of the contract
on the day you made the withdrawal less any applicable withdrawal charge, less
any premium tax and less any contract maintenance charge. (See Section 5.
Expenses for a discussion of the charges.)
Unless you instruct Cova otherwise, any partial withdrawal will be made pro
rata from all the investment portfolios and the fixed account you selected.
Under most circumstances the amount of any partial withdrawal must be for at
least $500. Cova requires that after a partial withdrawal is made you keep at
least $500 in any selected investment portfolio.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
WITHDRAWAL YOU MAKE.
There are limits to the amount you can withdraw from a qualified plan referred
to as a 403(b) plan. For a more complete explanation see Section 6. Taxes and
the discussion in the Statement of Additional Information.
SYSTEMATIC WITHDRAWAL PROGRAM
If you are 59 1/2 or older, you may use the Systematic Withdrawal Program.
This program provides an automatic monthly payment to you of up to 10% of your
total purchase payments each year. No withdrawal charge will be made for these
payments. Cova does not have any charge for this program, but reserves the
right to charge in the future. If you use this program, you may not also make
a single 10% free withdrawal. For a discussion of the withdrawal charge and
the 10% free withdrawal, see Section 5. Expenses.
All Systematic Withdrawals will be paid on the 15th day of the month unless
that day is not a business day. If it is not, then the payment will be the
next business day.
INCOME TAXES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
8. PERFORMANCE
Cova periodically advertises performance of the various investment portfolios.
Cova will calculate performance by determining the percentage change in the
value of an accumulation unit by dividing the increase (decrease) for that
unit by the value of the accumulation unit at the beginning of the period.
This performance number reflects the deduction of the insurance charges. 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 charges, and withdrawal charges.
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.
PART 1. This section shows actual investment performance of the investment
portfolios that were operating under the contract before May 1, 1996. Chart 1
contained in Appendix B sets out the actual performance at both the underlying
investment portfolio level and at the accumulation unit level. The performance
figures for the investment portfolios reflect the deduction of the actual fees
and expenses paid by the Portfolio. There are performance figures for the
accumulation units which reflect the insurance charges as well as the fees and
expenses of the investment portfolio. There are also 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.
PART 2. The Bond Debenture investment portfolio (a "high yield" portfolio
under California insurance regulations) is newly created and therefore does
not yet have its own performance record. However, it has the same investment
objectives and follows substantially the same investment strategies as a
mutual fund advised by the same sub-adviser. This fund is sold to the public
(Public Fund) and has an investment performance record. In order to
demonstrate how the performance of the Public Fund affects accumulation unit
values, hypothetical performance information was developed.
Chart 2 contained in Appendix B shows the historical performance of the Public
Fund. These performance figures reflect the deduction of the historical fees
and expenses paid by the Public Fund and not those paid by the investment
portfolio. The hypothetical figures for the accumulation units assume the
deduction of the fees and expenses anticipated to actually be paid by the
investment portfolio, but use the actual performance results of the Public
Fund. There are hypothetical performance figures for the accumulation units
which reflect the insurance charges as well as the portfolio expenses. There
are also hypothetical performance figures for the accumulation units which
reflect the insurance charges, the contract maintenance charge, the portfolio
expenses, and assume that you make a withdrawal at the end of the period and
therefore the withdrawal charge is reflected.
PART 3. J.P. Morgan Investment Management Inc. is the sub-adviser for
five investment portfolios. The portfolios are newly formed and have no
performance history. However, all of these investment portfolios (except the
International Equity Portfolio) have investment objectives, policies and
strategies substantially similar to those employed by the sub-adviser with
respect to certain private accounts (Private Accounts). Thus the performance
information derived from these Private Accounts is deemed relevant to the
investor. In order to demonstrate how the actual investment experience of
these Private Accounts affects accumulation unit values, hypothetical
performance information was developed.
Chart 3 contained in Appendix B shows hypothetical performance information
derived from the historical performance of composites of the comparable
Private Accounts with respect to the Select Equity, Large Cap Stock, Small Cap
Stock and Quality Bond investment portfolios. The hypothetical performance
figures for the investment portfolios represent the actual performance results
of the composites of comparable Private Accounts, adjusted to reflect the
deduction of the fees and expenses anticipated to be paid by the investment
portfolio. The actual composite performance figures of the Private Accounts
are time-weighted rates of return which include all income and accrued income
and realized and unrealized gains or losses, but do not reflect the deduction
of investment advisory fees actually charged to the Private Accounts. There
are hypothetical performance figures for the accumulation units which reflect
the actual performance results of the composites of comparable Private
Accounts, adjusted to reflect the deduction of the fees and expenses
anticipated to be paid by the investment portfolio and the insurance charges.
There are also hypothetical performance figures for the accumulation units
which reflect the actual performance results of the composites of comparable
Private Accounts, adjusted to reflect the deduction of the fees and expenses
anticipated to be paid by the investment portfolio plus the insurance charges,
the contract maintenance charge, and also assume that you make a withdrawal at
the end of the period and therefore the withdrawal charge is reflected.
Please note that Appendix B does not contain performance information for the
International Equity Portfolio.
9. DEATH BENEFIT
UPON YOUR DEATH
If you die before annuity payments begin, Cova will pay a death benefit to
your beneficiary (see below). If you have a joint owner, the death benefit
will be paid when the first of you dies. Joint owners must be spouses. The
surviving joint owner will be treated as the beneficiary.
The amount of the death benefit depends on how old you or your joint owner is.
Prior to you, or your joint owner, reaching age 80, the death benefit will be
the greater of:
1. Total purchase payments, less withdrawals (and any withdrawal charges
paid on the withdrawal) accumulated at 4% from the date your contract was
issued 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 value of your contract on the most recent five year anniversary,
plus any subsequent purchase payments, less any withdrawals (and any
withdrawal charges paid on the withdrawals).
After you, or your joint owner, reaches age 80, the death benefit will be the
greater of:
1. Total purchase payments made before you, or your joint owner, reaches
80, less withdrawals (and any withdrawal charges paid on the withdrawals)
accumulated at 4% from the date your contract was issued until you or your
joint owner reaches age 80, plus any subsequent purchase payments, less any
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 value of your contract on the most recent five year anniversary
before the date of death on or before you or your joint owner reaches age 80,
plus any subsequent purchase payments, less any withdrawals (and any
withdrawal charges paid on the withdrawals).
The entire death benefit must be paid within 5 years of the date of death
unless the beneficiary elects to have the death benefit payable under an
annuity option. The death benefit payable under an annuity option must be paid
over the beneficiary's lifetime or for a period not extending beyond the
beneficiary's life expectancy. Payment must begin within one year of the date
of death. If the beneficiary is the spouse of the owner, he/she can continue
the contract in his/her own name at the then current value. If a lump sum
payment is elected and all the necessary requirements are met, the payment
will be made within 7 days.
DEATH OF ANNUITANT
If the annuitant, not an owner or joint owner, dies before annuity payments
begin, you can name a new annuitant. If no annuitant is named within 30 days
of the death of the annuitant, you will become the annuitant. However, if the
owner is a non-natural person (for example, a corporation), then the death or
change of annuitant will be treated as the death of the owner, and a new
annuitant may not be named.
Upon the death of the annuitant after annuity payments begin, the death
benefit, if any, will be as provided for in the annuity option selected.
10. OTHER INFORMATION
COVA
Cova Financial Life Insurance Company ("Cova") was originally incorporated on
September 6, 1972 as Industrial Indemnity Life Insurance Company, a California
corporation and changed its name to Xerox Financial Life Insurance Company in
1986. 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 Life Insurance Company.
Cova is presently licensed to do business in the state of California.
THE SEPARATE ACCOUNT
Cova has established a separate account, Cova Variable Annuity Account Five
(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 California insurance law on March 24, 1992. We have registered the
Separate Account with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940.
The assets of the Separate Account are held in Cova's name on behalf of the
Separate Account and legally belong to Cova. However, those assets that
underlie the contracts, are not chargeable with liabilities arising out of any
other business Cova may conduct. All the income, gains and losses (realized or
unrealized) resulting from these assets are credited to or charged against the
contracts and not against any other contracts Cova may issue.
DISTRIBUTOR
Cova Life Sales Company (Life Sales), One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644, acts as the distributor of the contracts. Life
Sales is an affiliate of Cova.
Commissions will be paid to broker-dealers who sell the contracts.
Broker-dealers will be paid commissions up to 5.5% of purchase payments.
During the initial period in which the Contracts are offered, Cova may pay an
additional .5% commission. Sometimes, Cova enters into an agreement with the
broker-dealer to pay the broker-dealer persistency bonuses, in addition to the
standard commissions. To the extent that the withdrawal charge is insufficient
to cover the actual cost of distribution, Cova may use any of its corporate
assets, including any profit from the mortality and expense risk premium, to
make up any difference.
OWNERSHIP
OWNER. You, as the owner of the contract, have all the rights under the
contract. Prior to the annuity date, the owner is as designated at the time
the contract is issued, unless changed. On and after the annuity date, the
annuitant is the owner. The beneficiary becomes the owner when a death benefit
is payable.
JOINT OWNER. The contract can be owned by joint owners. Any joint owner
must be the spouse of the other owner. Upon the death of either joint owner,
the surviving spouse will be the designated beneficiary. Any other beneficiary
designation at the time the contract was issued or as may have been later
changed will be treated as a contingent beneficiary unless otherwise
indicated.
BENEFICIARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued unless
changed at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before you die.
ASSIGNMENT
You can assign the contract at any time during your lifetime. Cova will not be
bound by the assignment until it receives the written notice of the
assignment. Cova will not be liable for any payment or other action we take in
accordance with the contract before we receive notice of the assignment. AN
ASSIGNMENT MAY BE A TAXABLE EVENT.
If the contract is issued pursuant to a qualified plan, there may be
limitations on your ability to assign the contract.
SUSPENSION OF PAYMENTS OR TRANSFERS
Cova may be required to suspend or postpone payments for withdrawals or
transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the
investment portfolios is not reasonably practicable or Cova cannot reasonably
value the shares of the investment portfolios;
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of owners.
Cova has reserved the right to defer payment for a withdrawal or transfer from
the fixed account for the period permitted by law but not for more than six
months.
FINANCIAL STATEMENTS
The consolidated financial statements of Cova and the Separate Account have
been included in the Statement of Additional Information.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Company
Experts
Legal Opinions
Distribution
Performance Information
Tax Status
Annuity Provisions
Financial Statements
APPENDIX 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. The Separate Account's Financial Statements have been audited by
KPMG Peat Marwick LLP, independent certified public accountants, whose report
is included in the Statement of Additional Information. 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.
<TABLE>
<CAPTION>
Period from Commencement
of Operations
through 12/31/95
<S> <C>
COVA SERIES TRUST
QUALITY INCOME SUB-ACCOUNT
Beginning of Period (8/16/95) $ 14.42
End of Period 15.33
Number of Accum. Units Outstanding 8,702
MONEY MARKET SUB-ACCOUNT
Beginning of Period (6/19/95) $ 11.13
End of Period 11.42
Number of Accum. Units Outstanding 28,509
GROWTH AND INCOME SUB-ACCOUNT
Beginning of Period (7/19/95) $ 13.05
End of Period 14.61
Number of Accum. Units Outstanding 7,197
STOCK INDEX SUB-ACCOUNT
Beginning of Period (7/20/95) $ 14.13
End of Period 15.77
Number of Accum. Units Outstanding 13,384
LORD ABBETT SERIES FUND, INC.
GROWTH AND INCOME SUB-ACCOUNT
Beginning of Period (7/20/95) $ 19.54
End of Period 21.31
Number of Accum. Units Outstanding 125,555
</TABLE>
The following Portfolios managed by J.P. Morgan Investment Management Inc.
started regular operations on April 1, 1996: Select Equity, Large Cap Stock,
Small Cap Stock, International Equity and Quality Bond. The Bond Debenture
Portfolio managed by Lord, Abbett & Co. also started regular investment
operations on April 1, 1996.
APPENDIX B
PERFORMANCE INFORMATION
Future performance will vary and the results shown are not necessarily
representative of future results.
PART 1
COVA SERIES TRUST AND LORD ABBETT SERIES FUND, INC., EXISTING PORTFOLIOS
Van Kampen American Capital Investment Advisory Corp. is the sub-adviser for
the following portfolios of Cova Series Trust which are currently available
under the Contract: Money Market, Stock Index, Quality Income and Growth and
Income. Lord, Abbett & Co. is the investment adviser for Lord Abbett Series
Fund, Inc. for the Growth and Income Portfolio. All of these portfolios began
operations before May 1, 1996. As a result, performance information is
available for these portfolios as well as for the accumulation unit values.
The performance figures shown for the portfolios in Column A in the chart
below reflect the actual fees and expenses paid by the portfolio. 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. Column C 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. For the Cova Series Trust Portfolios, investment operations
commenced on the following dates: December 11, 1989 for the Quality Income
Portfolio; July 1, 1991 for the Money Market Portfolio; November 1, 1991 for
the Stock Index Portfolio; and May 1, 1992 for the Growth and Income
Portfolio. For the Lord Abbett Series Fund, Inc. Growth and Income Portfolio,
investment operations commenced on December 11, 1989. The average annual total
return computations for these Portfolios are calculated from the first day of
the month following the month in which investment operations commenced.
The inception dates for the accumulation units investing in these portfolios
are as follows: June 19, 1995 for the Money Market Portfolio; July 19, 1995
for the Growth and Income Portfolio of Cova Series Trust; July 20, 1995 for
the Stock Index Portfolio; August 16, 1995 for the Quality Income Portfolio
and July 20, 1995 for the Growth and Income Portfolio of Lord Abbett Series
Fund, Inc. Accumulation unit performance prior to these dates, as shown in
Columns A and B below, is therefore hypothetical.
PART 1 COVA SERIES TRUST
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/95
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Column A Column B Column C
Portfolio Performance Accumulation Unit Performance
---------------------- ---------------------- ----------------------
since since since
Portfolio 1 yr 5 yrs inception 1 yr 5 yrs inception 1 yr 5 yrs inception
- ----------------- ---------------------- ---------------------- ----------------------
GROWTH AND INCOME 32.24% - - 12.26% 30.49% - - 10.97% 25.10% - - 9.54%
MONEY MARKET 6.01% - - 4.47% 4.85% - - 3.00% (.45%) - - 1.62%
QUALITY INCOME 17.99% 9.12% 8.93% 16.41% 7.62% 7.31% 11.00% 6.33% 6.29%
STOCK INDEX 36.87% - - 14.59% 35.06% - - 11.57% 29.64% - - 10.25%
</TABLE>
PART 1 LORD ABBETT SERIES FUND, INC.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/95
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Column A Column B Column C
Portfolio Performance Accumulation Unit Performance
---------------------- ---------------------- ----------------------
since since since
Portfolio 1 yr 5 yrs inception 1 yr 5 yrs inception 1 yr 5 yrs inception
- ----------------- ---------------------- ---------------------- ----------------------
GROWTH AND INCOME 29.82% 17.59% 14.86% 28.03% 15.99% 13.31% 22.46% 14.86% 12.38%
</TABLE>
PART 2
PUBLIC FUND
The investment portfolio set out in the chart below is newly created and does
not yet have its own performance record. However, it has the same investment
objectives and follows substantially the same investment strategies as a
mutual fund advised by the same sub-adviser. This fund is sold to the public
and is referred to here as a Public Fund.
The chart below shows the historical performance of the Public Fund. The
performance figures in Column A reflect the deduction of the historical fees
and expenses paid by the Public Fund and not those paid by the investment
portfolio. Column B presents hypothetical performance figures for the
accumulation units which reflect the insurance charges and the deduction of
the fees and expenses anticipated to actually be paid by the investment
portfolio. Column C presents hypothetical performance figures for the
accumulation units which reflect the insurance charges, the contract
maintenance charge, the deduction of the fees and expenses anticipated to
actually be paid by the investment portfolio and assume that you make a
withdrawal at the end of the period and therefore the withdrawal charge is
reflected.
PART 2 PUBLIC FUND
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/95
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Column A Column B Column C
Public Fund Performance Hypothetical Accumulation Unit Performance
------------------------ -------------------------- ---------------------
Portfolio 1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
- ---------------- ------------------------ -------------------------- ---------------------
LORD ABBETT BOND
DEBENTURE FUND 17.50% 16.00% 10.10% 16.10% 14.60% 8.70% 11.00% 10.00% 8.60%
</TABLE>
PART 3
HYPOTHETICAL PERFORMANCE INFORMATION DERIVED FROM PRIVATE ACCOUNTS
The investment portfolios set out in the chart below are newly created and do
not yet have their own performance record. However, they have investment
objectives, policies and strategies substantially similar to those employed by
J.P. Morgan Investment Management Inc. with respect to certain Private
Accounts. Thus, the performance information derived from these Private
Accounts is deemed relevant to the investor. The performance of the investment
portfolios may vary from the Private Account composite information because
each investment portfolio will be actively managed and its investments will
vary from time to time and will not be identical to the past portfolio
investments of the Private Accounts. Moreover, the Private Accounts are not
registered under the 1940 Act and therefore are not subject to certain
investment restrictions that are imposed by the 1940 Act, which, if imposed,
could have adversely affected the Private Accounts' performances.
The chart below shows hypothetical performance information derived from
historical composite performance of the Private Accounts included in the
Active Equity Composite, Structured Stock Selection Composite, Small Cap
Directly Invested Composite and Public Bond Composite. The hypothetical
performance figures for the investment portfolios in Column A represent the
actual performance results of the composites of comparable Private Accounts,
adjusted to reflect the deduction of the fees and expenses anticipated to be
paid by the investment portfolio. The actual Private Account composite
performance figures are time-weighted rates of return which include all income
and accrued income and realized and unrealized gains or losses, but do not
reflect the deduction of investment advisory fees actually charged to the
Private Accounts. Column B presents the hypothetical performance figures for
the accumulation units which reflect the actual performance results of the
composites of comparable Private Accounts, adjusted to reflect the deduction
of the fees and expenses anticipated to be paid by the investment portfolio
and the insurance charges. Column C presents the hypothetical performance
figures for the accumulation units which reflect the insurance charges, the
contract maintenance charge and the actual performance results of the
composites of comparable Private Accounts, adjusted to reflect the deduction
of the fees and expenses anticipated to be paid by the investment portfolio.
Column C also assumes that you make a withdrawal at the end of the period and
therefore the withdrawal charge is reflected. Inception was June 1, 1987 for
the Public Bond Composite and November 1, 1989 for the Structured Stock
Selection Composite.
PART 3 HYPOTHETICAL PERFORMANCE INFORMATION DERIVED FROM PRIVATE ACCOUNT
COMPOSITE PERFORMANCE REDUCED BY ANTICIPATED INVESTMENT PORTFOLIO FEES
AND EXPENSES FOR THE PERIODS ENDED 12/31/95
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Column A Column B Column C
Hypothetical Investment
Portfolio Performance Hypothetical Accumulation Unit Performance
------------------------- ---------------------------- -----------------------
10 yrs 10 yrs 10 yrs
or since or since or since
Portfolio 1 yr 5 yrs inception 1 yr 5 yrs inception 1 yr 5 yrs inception
- -------------------- ------------------------- ---------------------------- -----------------------
ACTIVE EQUITY 32.56% 17.71% 15.51% 31.16% 16.31% 14.11% 26.06% 11.71% 14.01%
COMPOSITE
(SELECT EQUITY
PORTFOLIO)
STRUCTURED 37.47% 17.40% 14.05% 36.07% 16.00% 12.65% 30.97% 11.40% 12.55%
STOCK SELECTION
COMPOSITE
(LARGE CAP STOCK
PORTFOLIO)
SMALL CAP 35.29% 20.75% 12.00% 33.89% 19.35% 10.60% 28.79% 14.75% 10.50%
DIRECTLY
INVESTED COMPOSITE
(SMALL CAP STOCK
PORTFOLIO)
PUBLIC BOND 17.71% 9.46% 9.52% 16.31% 8.06% 8.12% 11.21% 3.46% 8.02%
COMPOSITE
(QUALITY BOND
PORTFOLIO)
</TABLE>
