File Nos. 333-34817
811-07060
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 7 [X]
(Check appropriate box or boxes.)
COVA VARIABLE ANNUITY ACCOUNT FIVE
___________________________________
(Exact Name of Registrant)
COVA FINANCIAL LIFE INSURANCE COMPANY
______________________________________
(Name of Depositor)
4100 Newport Place Drive, Suite 840, Newport Beach, CA 92600
______________________________________________________ ______
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (800) 831-5433
______________
Name and Address of Agent for Service
Lorry J. Stensrud, President
Cova Financial Life Insurance Company
One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644
(800) 831-5433
Copies to:
Judith A. Hasenauer and Frances S. Cook
Blazzard, Grodd & Hasenauer, P.C. First Vice President and
943 Post Road East Associate Counsel
P.O. Box 5108 Cova Financial Life Insurance
Westport, CT 06881 Company
(203) 226-7866 One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Title of Securities Being Registered:
Individual Deferred Variable Annuity Contracts.
==============================================================================
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
EXPLANATORY NOTE
==============================================================================
This Registration Statement contains two prospectuses (Version A and Version B).
The two versions are identical except for the funding options. These
Prospectuses will be filed with the Commission pursuant to Rule 497 under the
Securities Act of 1933. The Registrant undertakes to update this Explanatory
Note, as needed, each time a Post-Effective Amendment is filed.
==============================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
- -------- --------
PART A
Item 1. Cover Page . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . Index of Special Terms
Item 3. Synopsis . . . . . . . . . . . . . . . Profile
Item 4. Condensed Financial Information . . . Not Applicable
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies . . Other Information - Cova; The
Separate Account; Investment
Options
Item 6. Deductions and Expenses. . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts. . . . . . . . . . . The Fixed and Variable Annuity
Item 8. Annuity Period . . . . . . . . . . . . Income Phase
Item 9. Death Benefit. . . . . . . . . . . . . Death Benefit
Item 10. Purchases and Contract Value . . . . . Purchase
Item 11. Redemptions. . . . . . . . . . . . . . Access to Your Money
Item 12. Taxes. . . . . . . . . . . . . . . . . Taxes
Item 13. Legal Proceedings. . . . . . . . . . . None
Item 14. Table of Contents of the Statement of
Additional Information . . . . . . . . Table of Contents of the
Statement of Additional
Information
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
- -------- --------
PART B
Item 15. Cover Page . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . Company
Item 18. Services . . . . . . . . . . . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered . Not Applicable
Item 20. Underwriters . . . . . . . . . . . . . Distribution
Item 21. Calculation of Performance Data. . . . Performance Information
Item 22. Annuity Payments . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements . . . . . . . . . Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered in Part C to this Registration Statement.
PART A - VERSION A
COVA FINANCIAL LIFE INSURANCE COMPANY ____________, 1997
PROFILE of the Fixed and Variable Annuity Contract
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
CONSIDER AND KNOW BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED IN THE PROSPECTUS WHICH ACCOMPANIES THIS PROFILE. PLEASE READ THE
PROSPECTUS CAREFULLY.
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 37 investment portfolios. The Contract is intended for
retirement savings or other long-term investment purposes and provides for a
death benefit and guaranteed income options.
The fixed account offers an interest rate that is guaranteed by the insurance
company, Cova. While your money is in the fixed account, the interest your money
will earn as well as your principal is guaranteed by Cova.
This Contract also offers 37 investment portfolios which are listed in Section
4. These portfolios are designed to offer a potentially better return than the
fixed account. However, this is NOT guaranteed. You can also lose your money.
You can put money in up to 15 of the investment portfolios and the fixed
account. (If you are participating in an asset allocation program, this limit
may not apply). You can transfer between accounts up to 12 times a year without
charge or tax implications. After 12 transfers, the charge is $25 or 2% of the
amount transferred, whichever is less.
The Contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving regular payments
from your Contract.
The amount of money you are able to accumulate in your account during the
accumulation phase will determine the amount of income payments during the
income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE). If you want to receive regular income
from your annuity, you can choose one of three options: (1) monthly payments for
your life (assuming you are the annuitant); (2) monthly payments for your life,
but with payments continuing to the beneficiary for 5, 10 or 20 years (as you
select) if you die before the end of the selected period; and (3) monthly
payments for your life and for the life of another person (usually your spouse)
selected by you. Once you begin receiving regular payments, you cannot change
your payment plan.
During the income phase, you have the same investment choices you had during the
accumulation phase. You can choose to have payments come from the fixed account,
the investment portfolios or both. If you choose to have any part of your
payments come from the investment portfolios, the dollar amount of your payments
may go up or down.
3. PURCHASE. You can buy this Contract with $5,000 or more under most
circumstances. You can add $2,000 or more any time you like during the
accumulation phase. Your registered representative can help you fill out the
proper forms.
4. INVESTMENT OPTIONS. You can put your money in any or all of these investment
portfolios which are described in the prospectuses for the funds. Currently, if
you are not participating in an asset allocation program, you can invest in 15
investment portfolios at any one time.
AIM VARIABLE INSURANCE FUNDS, INC.:
MANAGED BY A I M ADVISORS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
Premier Growth Portfolio
Real Estate Investment Portfolio
LIBERTY VARIABLE INVESTMENT TRUST:
MANAGED BY NEWPORT FUND MANAGEMENT INC.
Newport Tiger, Variable Series
GENERAL AMERICAN CAPITAL COMPANY:
MANAGED BY CONNING ASSET MANAGEMENT COMPANY
Money Market Fund
COVA SERIES TRUST:
MANAGED BY J. P. MORGAN INVESTMENT MANAGEMENT INC.
Small Cap Stock Portfolio
Large Cap Stock Portfolio
Select Equity Portfolio
International Equity Portfolio
Quality Bond Portfolio
MANAGED BY LORD, ABBETT & CO.
Bond Debenture Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Mid Cap Value Portfolio
Lord Abbett Growth & Income Portfolio
INVESTORS FUND SERIES:
MANAGED BY ZURICH KEMPER VALUE ADVISORS, INC.
Kemper Small Cap Value Portfolio
MANAGED BY ZURICH KEMPER INVESTMENTS, INC.
Kemper Government Securities Portfolio
Kemper Small Cap Growth Portfolio
LORD ABBETT SERIES FUND, INC.
MANAGED BY LORD, ABBETT & CO.
Growth and Income Portfolio
MFS VARIABLE INSURANCE TRUST:
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS High Income Series
MFS World Governments Series
MFS/Foreign & Colonial Emerging Markets Equity Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
MANAGED BY OPPENHEIMER FUNDS, INC.
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
PUTNAM VARIABLE TRUST:
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam VT Growth and Income Fund
Putnam VT International Growth Fund
Putnam VT International New Opportunities Fund
Putnam VT New Value Fund
Putnam VT Vista Fund
Depending upon market conditions, you can make or lose money in any of these
portfolios.
5. EXPENSES. The Contract has insurance features and investment features, and
there are costs related to each.
Each year Cova deducts a $30 contract maintenance charge from your Contract.
Cova currently waives this charge if the value of your Contract is at least
$50,000. Cova also deducts for its insurance charges which total 1.40% of the
average daily value of your Contract allocated to the investment portfolios.
If you take your money out, Cova may assess a withdrawal charge which is equal
to 5% of the purchase payment you withdraw. When you begin receiving regular
income payments from your annuity, Cova will assess a state premium tax charge,
if applicable, which ranges from 0-4% depending upon the state.
There are also investment charges which currently range from .205% to 1.50% of
the average daily value of the investment portfolio depending upon the
investment portfolio.
The following chart is designed to help you understand the expenses in the
Contract. The column "Total Annual Expenses" shows the total of the $30 contract
maintenance charge (which is represented as .10% below), the 1.40% insurance
charges and the investment expenses for each investment portfolio. The next two
columns show you two examples of the expenses, in dollars, you would pay under a
Contract. The examples assume that you invested $1,000 in a Contract which earns
5% annually and that you withdraw your money: (1) at the end of year 1, and (2)
at the end of year 10. For year 1, the Total Annual Expenses are assessed as
well as the withdrawal charges. For year 10, the example shows the aggregate of
all the annual expenses assessed for the 10 years, but there is no withdrawal
charge.
The premium tax is assumed to be 0% in both examples.
<TABLE>
<CAPTION>
Examples:
Total Annual Expenses
Total Annual at end of:
Total Annual Portfolio Total Annual (1) (2)
Portfolio Insurance Charges Expenses Expenses 1 Year 10 Years
- --------- ----------------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
MANAGED A I M ADVISORS, INC.
AIM V.I. Capital Appreciation 1.50% .73% 2.23% $72.59 $254.10
AIM V.I. International Equity 1.50% .96% 2.46% $74.90 $277.23
AIM V.I. Value 1.50% .73% 2.23% $72.59 $254.10
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
Premier Growth 1.50% .95% 2.45% $74.80 $276.23
Real Estate Investment 1.50% .95% 2.45% $74.80 $276.23
MANAGED BY NEWPORT FUND MANAGEMENT, INC.
Newport Tiger, Variable 1.50% 1.27% 2.77% $78.00 $307.49
MANAGED BY CONNING ASSET MANAGEMENT COMPANY
Money Market 1.50% .205% 1.71% $67.31 $199.08
MANAGED BY J. P. MORGAN INVESTMENT MANAGEMENT INC.
Small Cap Stock 1.50% .95% 2.48% $74.80 $276.23
Large Cap Stock 1.50% .75% 2.25% $72.80 $256.13
Select Equity 1.50% .85% 2.35% $73.80 $266.24
International Equity 1.50% .95% 2.48% $74.80 $276.23
Quality Bond 1.50% .65% 2.15% $71.79 $245.92
MANAGED BY LORD, ABBETT & CO.
Bond Debenture 1.50% .85% 2.35% $73.80 $266.24
Large Cap Research 1.50% 1.10% 2.60% $76.30 $291.02
Developing Growth 1.50% 1.00% 2.50% $75.30 $281.19
Mid Cap Value 1.50% 1.10% 2.60% $76.30 $291.02
Lord Abbett Growth & Income 1.50% .75% 2.25% $72.80 $256.13
MANAGED BY ZURICH KEMPER VALUE ADVISORS, INC.
Kemper Small Cap Value 1.50% .95% 2.45% $74.80 $276.23
MANAGED BY ZURICH KEMPER INVESTMENTS, INC.
Kemper Government Securities 1.50% .66% 2.16% $71.89 $246.95
Kemper Small Cap Growth 1.50% .75% 2.25% $72.80 $256.13
MANAGED BY LORD, ABBETT & CO.
Growth and Income 1.50% .59% 2.09% $71.19 $239.74
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
MFS Emerging Growth 1.50% 1.00% 2.50% $75.30 $281.19
MFS Research 1.50% 1.00% 2.50% $75.30 $281.19
MFS Growth With Income 1.50% 1.00% 2.50% $75.30 $281.19
MFS High Income 1.50% 1.00% 2.50% $75.30 $281.19
MFS World Governments 1.50% 1.00% 2.50% $75.30 $281.19
MFS/Foreign & Colonial Emerging
Markets Equity 1.50% 1.50% 3.00% $80.29 $______
MANAGED BY OPPENHEIMERFUNDS, INC.
Oppenheimer High Income 1.50% .81% 2.31% $73.40 $262.21
Oppenheimer Bond 1.50% .78% 2.28% $73.10 $259.18
Oppenheimer Growth 1.50% .79% 2.29% $73.20 $260.19
Oppenheimer Growth & Income 1.50% 1.00% 2.50% $75.30 $281.19
Oppenheimer Strategic Bond 1.50% .85% 2.35% $73.80 $266.24
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam VT Growth and Income 1.50% .54% 2.04% $70.69 $234.55
Putnam VT International Growth 1.50% .98% 2.48% $75.10 $279.21
Putnam VT International New
Opportunities 1.50% 1.39% 2.89% $79.19 $318.93
Putnam VT New Value 1.50% .83% 2.33% $73.60 $264.23
Putnam VT Vista 1.50% .81% 2.31% $73.40 $262.21
</TABLE>
6. TAXES. Your earnings are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty on the earnings. Payments during the income
phase are considered partly a return of your original investment. That part of
each payment is not taxable as income.
7. ACCESS TO YOUR MONEY. You can take money out at any time during the
accumulation phase. After the first year, you can take up to 10% of your total
purchase payments each year without charge from Cova. Withdrawals in excess of
that will be charged 5% of each payment you take out. Each purchase payment you
add to your Contract has its own 5 year withdrawal charge period. After Cova has
had a payment for 5 years, there is no charge for withdrawing that payment. Of
course, you may also have to pay income tax and a tax penalty on any money you
take out.
8. PERFORMANCE. The value of the Contract will vary up or down depending upon
the investment performance of the Portfolio(s) you choose. Cova may provide
total return figures for each investment portfolio. The total return figures
are based on historical data and are not intended to indicate future
performance. As of the date of this Profile, the sale of the Contracts had
not begun. Therefore, no performance is presented here.
9. DEATH BENEFIT. If you die before moving to the income phase, the person you
have chosen as your beneficiary will receive a death benefit. This death benefit
will be the greater of three amounts: 1) the money you've put in less any money
you've taken out, and the related withdrawal charges, or 2) the value of your
contract at the time the death benefit is to be paid, or 3) the value of your
contract at the most recent 5th-year-anniversary before the date of death plus
any money you've added since that anniversary minus any money you've taken out
since that anniversary, and the related withdrawal charges. If you die after age
80, slightly different rules apply.
10. OTHER INFORMATION.
Free Look. If you cancel the Contract within 10 days after receiving it (or
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 Fund during the
free look period and will refund the greater of your original payment (less any
withdrawals) or the value of your contract.
No Probate. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
Who should purchase the Contract? The contract is designed for people
seeking long-term tax-deferred accumulation of assets, generally for retirement
or other long-term purposes. The tax-deferred feature is most attractive to
people in high federal and state tax brackets. You should not buy this Contract
if you are looking for a short-term investment or if you cannot take the risk of
getting back less money than you put in.
Additional Features. This contract has additional features you might be
interested in. These include:
You can arrange to have money automatically sent to you each month while
your contract is still in the accumulation phase. Of course, you'll have to pay
taxes on money you receive. We call this feature the Systematic Withdrawal
Program.
You can arrange to have a regular amount of money automatically invested in
investment portfolios each month, theoretically giving you a lower average cost
per unit over time than a single one time purchase. We call this feature Dollar
Cost Averaging.
You can arrange to automatically readjust the money between investment
portfolios periodically to keep the blend you select. We call this feature
Automatic Rebalancing.
Under certain circumstances, Cova will give you your money without a
withdrawal charge if you need it while you're in a nursing home. We call this
feature the Nursing Home Waiver.
These features may not be suitable for your particular situation.
11. INQUIRIES. If you need more information, please contact us at:
Cova Life Sales Company
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181
800-523-1661
THE FIXED
AND VARIABLE ANNUITY
ISSUED BY
COVA VARIABLE ANNUITY ACCOUNT FIVE
AND
COVA 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 38 investment choices - a fixed account which offers an
interest rate which is guaranteed by Cova, and 37 investment portfolios listed
below. You can put your money in the fixed account and/or any of these
investment portfolios. CURRENTLY, IF YOU ARE NOT PARTICIPATING IN AN ASSET
ALLOCATION PROGRAM, YOU CAN ONLY INVEST IN 15 INVESTMENT PORTFOLIOS AT ANY ONE
TIME.
AIM VARIABLE INSURANCE FUNDS, INC.:
MANAGED A I M ADVISORS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
Premier Growth Portfolio
Real Estate Investment Portfolio
LIBERTY VARIABLE INVESTMENT TRUST:
MANAGED BY NEWPORT FUND MANAGEMENT INC.
Newport Tiger, Variable Series
GENERAL AMERICAN CAPITAL COMPANY:
MANAGED BY CONNING ASSET MANAGEMENT COMPANY
Money Market Fund
COVA SERIES TRUST:
MANAGED BY J. P. MORGAN INVESTMENT MANAGEMENT INC.
Small Cap Stock Portfolio
Large Cap Stock Portfolio
Select Equity Portfolio
International Equity Portfolio
Quality Bond Portfolio
MANAGED BY LORD, ABBETT & CO.
Bond Debenture Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Mid Cap Value Portfolio
Lord Abbett Growth & Income Portfolio
INVESTORS FUND SERIES:
MANAGED BY ZURICH KEMPER VALUE ADVISORS, INC.
Kemper Small Cap Value Portfolio
MANAGED BY ZURICH KEMPER INVESTMENTS, INC.
Kemper Government Securities Portfolio
Kemper Small Cap Growth Portfolio
LORD ABBETT SERIES FUND, INC.
MANAGED BY LORD, ABBETT & CO.
Growth and Income Portfolio
MFS VARIABLE INSURANCE TRUST:
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS High Income Series
MFS World Governments Series
MFS/Foreign & Colonial Emerging Markets Equity Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
MANAGED BY OPPENHEIMER FUNDS, INC.
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
PUTNAM VARIABLE TRUST:
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam VT Growth and Income Fund
Putnam VT International Growth Fund
Putnam VT International New Opportunities Fund
Putnam VT New Value Fund
Putnam VT Vista Fund
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the Cova Fixed and Variable
Annuity Contract.
To learn more about the Cova Fixed and Variable Annuity Contract, you can obtain
a copy of the Statement of Additional Information (SAI) dated _____, 1997. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
legally a part of the prospectus. The Table of Contents of the SAI is on Page __
of this prospectus. For a free copy of the SAI, call us at (800) 831-5433 or
write us at : One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_____________, 1997.
TABLE OF CONTENTS
Page
INDEX OF SPECIAL TERMS
FEE TABLE
EXAMPLES
1. THE ANNUITY CONTRACT
2. ANNUITY PAYMENTS (THE INCOME PHASE)
3. PURCHASE
Purchase Payments
Allocation of Purchase Payments
Accumulation Units
4. INVESTMENT OPTIONS
AIM Variable Insurance Funds, Inc.
Alliance Variable Products Series Fund, Inc.
Liberty Variable Investment Trust
General American Capital Company
Cova Series Trust
Investors Fund Series
Lord Abbett Series Fund, Inc.
MFS Variable Insurance Trust
Oppenheimer Variable Account Funds
Putnam Variable Trust
Transfers
Dollar Cost Averaging Program
Automatic Rebalancing Program
Approved Asset Allocation Programs
Voting Rights
Substitution
5. EXPENSES
Insurance Charges
Contract Maintenance Charge
Withdrawal Charge
Reduction or Elimination of the
Withdrawal Charge
Premium Taxes
Transfer Fee
Income Taxes
Investment Portfolio Expenses
6. TAXES
Annuity Contracts in General
Qualified and Non-Qualified Contracts
Withdrawals - Non-Qualified Contracts
Withdrawals - Qualified Contracts
Withdrawals - Tax-Sheltered Annuities
Diversification
7. ACCESS TO YOUR MONEY
Systematic Withdrawal Program
8. PERFORMANCE
9. DEATH BENEFIT
Upon Your Death
Death of Annuitant
10. OTHER INFORMATION
Cova
The Separate Account
Distributor
Ownership
Beneficiary
Assignment
Suspension of Payments or Transfers
Financial Statements
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
APPENDIX - PERFORMANCE INFORMATION
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the contract, however, certain technical words
or terms are unavoidable. We have identified the following as some of these
words or terms. They are identified in the text in italic and the page that is
indicated here is where we believe you will find the best explanation for the
word or term.
Page
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Date
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Fixed Account
Income Phase
Investment Portfolios
Joint Owner
Non-Qualified
Owner
Purchase Payment
Qualified
Tax Deferral
COVA VARIABLE ANNUITY ACCOUNT FIVE FEE TABLE
<TABLE>
<CAPTION>
<S> <C>
OWNER TRANSACTION EXPENSES
Withdrawal Charge (see Note 2 below) 5% of purchase payment withdrawn
</TABLE>
Transfer Fee (see Note 3 below)
No charge for first 12 transfers in a contract year; thereafter, the fee
is $25 per transfer or, if less, 2% of the amount transferred.
<TABLE>
<CAPTION>
<S> <C>
Contract Maintenance Charge (see Note 4 below) $30 per contract per year
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<CAPTION>
<S> <C>
Mortality and Expense Risk Premium 1.25%
Administrative Expense Charge .15%
TOTAL SEPARATE ACCOUNT -----
ANNUAL EXPENSES 1.40%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO EXPENSES
(as a percentage of the average daily net assets of an investment portfolio)
AIM VARIABLE INSURANCE FUNDS, INC.
<S> <C> <C> <C>
Management Total Annual
Fees Other Expenses Portfolio Expenses
---- -------------- ------------------
Managed by A I M Advisors, Inc.
AIM V.I. Capital Appreciation Fund .64% .09% .73%
AIM V.I. International Equity Fund .75% .21% .96%
AIM V.I. Value Fund .64% .09% .73%
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
<S> <C> <C> <C>
Total Annual
Other Expenses Portfolio Expenses
Management (after expense (after expense
Fees reimbursement) reimbursement)*
---- -------------- ---------------
Managed by Alliance Capital
Management L.P.
Premier Growth Portfolio .72% .23% .95%
Real Estate Investment Portfolio** 0% .95% .95%
<FN>
*The expenses are net of voluntary reimbursements. Expenses have been capped at
.95% annually for each of the portfolios listed above. The adviser to the Fund
intends to continue such reimbursements for the foreseeable future. Absent such
reimbursement, the management fees would have been 1.00% and the other expenses
would have been .23% for the Premier Growth Portfolio. The estimated expenses
for the Real Estate Investment Portfolio, before reimbursement, are: .90%
management fees and 5.10% for other expenses.
**Annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
LIBERTY VARIABLE INVESTMENT TRUST
<S> <C> <C> <C>
Management Total Annual
Fees Other Expenses Portfolio Expenses
---- -------------- ------------------
Managed by Newport Fund
Management Inc.
Newport Tiger, Variable Series .90% .37% 1.27%
GENERAL AMERICAN CAPITAL COMPANY
Management Total Annual
Fees Other Expenses Portfolio Expenses
---- -------------- ------------------
Managed by Conning Asset
Management Company
Money Market Fund .205% .00% .205%
</TABLE>
<TABLE>
<CAPTION>
COVA SERIES TRUST
<S> <C> <C> <C> <C>
Total Annual
Other Expenses Portfolio
Management (after expense (after expense
Fees reimbursement)(1) reimbursement)(1)
---- ----------------- -----------------
Managed by J.P. Morgan
Investment Management Inc.
Select Equity Portfolio* .75% .10% .85%
Small Cap Stock Portfolio* .85% .10% .95%
International Equity Portfolio* .85% .10% .95%
Quality Bond Portfolio* .55% .10% .65%
Large Cap Stock Portfolio* .65% .10% .75%
Managed by Lord, Abbett & Co.
Bond Debenture Portfolio* .75% .10% .85%
Mid-Cap Value Portfolio** 1.00% .10% 1.10%
Large Cap Research Portfolio** 1.00% .10% 1.10%
Developing Growth Portfolio** .90% .10% 1.00%
Lord Abbett Growth and Income
Portfolio** .65% .10% .75%
<FN>
(1) Since August 20, 1990, Cova has been reimbursing the investment portfolios
of Cova Series Trust for all operating expenses (exclusive of the management
fees) in excess of approximately .10%. Absent the expense reimbursement, the
percentages shown for total annual portfolio expenses (on an annualized basis)
for the year or period ended December 31, 1996 would have been 1.70% for the
Select Equity Portfolio, 2.68% for the Small Cap Stock Portfolio, 3.80% for the
International Equity Portfolio, 1.52% for the Quality Bond Portfolio, 1.23% for
the Large Cap Stock Portfolio and 2.05% for the Bond Debenture Portfolio.
*Annualized. The Portfolio commenced regular investment operations on April 2,
1996.
**Estimated. The Portfolio commenced regular investment operations on
August 19, 1997.
</FN>
</TABLE>
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
Management Total Annual
Fees Other Expenses Portfolio Expenses
---- -------------- ------------------
<S> <C> <C> <C>
Managed by Zurich Kemper Value
Advisors, Inc.
Kemper Small Cap Value Portfolio .75% .20%(*) .95%
Managed by Zurich Kemper
Investments, Inc.
Kemper Government Securities Portfolio .55% .11% .66%
Kemper Small Cap Growth Portfolio .65% .10% .75%
</TABLE>
*Estimated first year expenses
<TABLE>
<CAPTION>
LORD ABBETT SERIES FUND, INC.
Management 12b-1 Total Annual
Fees Fees Other Expenses Portfolio Expenses
---- ---- -------------- ------------------
<S> <C> <C> <C> <C>
Managed by Lord, Abbett & Co.
Growth and Income Portfolio* .50% .07% .02% .59%
</TABLE>
*The Growth and Income Portfolio of Lord Abbett Series Fund, Inc. has a 12b-1
plan which provides for payments to Lord, Abbett & Co. for remittance to a life
insurance company for certain distribution expenses (see the Fund Prospectus).
The 12b-1 plan provides that such remittances, in the aggregate, will not exceed
.15%, on an annual basis, of the daily net asset value of shares of the Growth
and Income Portfolio. As of May 1, 1997, no payments had been made under the
12b-1 plan. For the year ending December 31, 1997, the 12b-1 fees are estimated
to be .07%. The examples below for this Portfolio reflect the estimated 12b-1
fees.
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST
Total Annual
Other Expenses Portfolio Expenses
Management (after expense (after expense
Fees reimbursement)* reimbursement)*
---- --------------- ---------------
<S> <C> <C> <C>
Managed by Massachusetts Financial
Services Company
MFS Emerging Growth Series .75% .25% 1.00%
MFS Research Series .75% .25% 1.00%
MFS Growth With Income Series .75% .25% 1.00%
MFS High Income Series .75% .25% 1.00%
MFS World Governments Series .75% .25% 1.00%
MFS/Foreign & Colonial Emerging
Markets Equity Series 1.25% .25% 1.50%
<FN>
*The adviser has agreed to bear expenses for each Series, subject to
reimbursement by each Series, so that each Series' "Other Expenses" do not
exceed .25% annually for each Series listed above. Absent such reimbursement,
"Total Annual Portfolio Expenses" would be: 1.16% for the MFS Emerging Growth
Series; 1.48% for the MFS Research Series; 2.07% for the MFS Growth With Income
Series; 1.62% for the MFS High Income Series; 2.03% for the MFS World
Governments Series; and are estimated to be 1.73% for the MFS/Foreign & Colonial
Emerging Markets Equity Series.
</FN>
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Total Annual
Other Expenses Portfolio Expenses
Management (after expense (after expense
Fees reimbursement) reimbursement)
---- -------------- --------------
<S> <C> <C> <C>
Managed by Oppenheimer Funds, Inc.
Oppenheimer High Income Fund .75% .06% .81%
Oppenheimer Bond Fund .74% .04% .78%
Oppenheimer Growth Fund* .75% .04% .79%
Oppenheimer Growth & Income Fund .75% .25% 1.00%
Oppenheimer Strategic Bond Fund .75% .10% .85%
<FN>
*Total Annual Portfolio Expenses would have been .81% in the absence of a
voluntary one-time fee reimbursement.
</FN>
</TABLE>
<TABLE>
<CAPTION>
PUTNAM VARIABLE TRUST
Management Total Annual
Fees Other Expenses Portfolio Expenses
---- -------------- ------------------
<S> <C> <C> <C>
Managed by Putnam Investment
Management, Inc.
Putnam VT Growth and Income Fund .49% .05% .54%
Putnam VT International Growth Fund .80% .18% .98%*
Putnam VT International New
Opportunities Fund 1.20% .19% 1.39%*
Putnam VT New Value Fund .70% .13% .83%*
Putnam VT Vista Fund .65% .16% .81%*
</TABLE>
*Estimated expenses for first full fiscal year.
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
(a) upon surrender at the end of each time period;
(b) if the contract is not surrendered or is annuitized.
Time Periods
1 year 3 years
--------- ----------
AIM VARIABLE INSURANCE FUNDS, INC.
Managed by A I M Advisors, Inc.
AIM V.I. Capital Appreciation Fund (a)$72.59 (a)$114.54
(b)$22.59 (b)$ 69.54
AIM V.I. International Equity Fund (a)$74.90 (a)$121.47
(b)$24.90 (b)$ 76.47
AIM V.I. Value Fund (a)$72.59 (a)$114.54
(b)$22.59 (b)$ 69.54
ALLIANCE VARIABLE PRODUCTS SERIES FUND,
INC.
Managed by Alliance Capital
Management L.P.
Premier Growth Portfolio (a)$74.80 (a)$121.17
(b)$24.80 (b)$ 76.17
Real Estate Investment Portfolio (a)$74.80 (a)$121.17
(b)$24.80 (b)$ 76.17
LIBERTY VARIABLE INVESTMENT TRUST
Managed by Newport Fund Management Inc.
Newport Tiger, Variable Series (a)$78.00 (a)$130.73
(b)$28.00 (b)$ 85.73
GENERAL AMERICAN CAPITAL COMPANY
Managed by Conning Asset Management
Company
Money Market Fund (a)$67.31 (a)$ 98.54
(b)$17.31 (b)$ 53.54
COVA SERIES TRUST
Managed by J.P. Morgan Investment
Management Inc.
Small Cap Stock Portfolio (a)$74.80 (a)$121.17
(b)$24.80 (b)$ 76.17
Large Cap Stock Portfolio (a)$72.80 (a)$115.15
(b)$22.80 (b)$ 70.15
Select Equity Portfolio (a)$73.80 (a)$118.16
(b)$23.80 (b)$ 73.16
International Equity Portfolio (a)$74.80 (a)$121.17
(b)$24.80 (b)$ 76.17
Quality Bond Portfolio (a)$71.79 (a)$112.12
(b)$21.79 (b)$ 67.12
Managed by Lord, Abbett & Co.
Bond Debenture Portfolio (a)$73.80 (a)$118.16
(b)$23.80 (b)$ 73.16
Large Cap Research Portfolio (a)$76.30 (a)$125.66
(b)$26.30 (b)$ 80.66
Developing Growth Portfolio (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
Mid Cap Value Portfolio (a)$76.30 (b)$125.66
(b)$26.30 (b)$ 80.66
Lord Abbett Growth & Income Portfolio (a)$72.80 (a)$115.15
(b)$22.80 (b)$ 70.15
INVESTORS FUND SERIES
Managed by Zurich Kemper Value Advisors, Inc.
Kemper Small Cap Value Portfolio (a)$74.80 (a)$121.17
(b)$24.80 (b)$ 76.17
Managed by Zurich Kemper Investments,
Inc.
Kemper Government Securities Portfolio (a)$71.89 (a)$112.42
(b)$21.89 (b)$ 67.42
Kemper Small Cap Growth Portfolio (a)$72.80 (a)$115.15
(b)$22.80 (b)$ 70.15
LORD ABBETT SERIES FUND, INC.
Managed by Lord, Abbett & Co.
Growth and Income Portfolio (a)$71.19 (a)$110.30
(b)$21.19 (b)$ 65.30
GENERAL AMERICAN CAPITAL COMPANY
Managed by Conning Asset Management
Company
Money Market Fund (a)$67.31 (a)$ 98.54
(b)$17.31 (b)$ 53.54
MFS VARIABLE INSURANCE TRUST
Managed by Massachusetts Financial
Services Company
MFS Emerging Growth Series (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
MFS Research Series (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
MFS Growth With Income Series (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
MFS High Income Series (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
MFS World Governments Series (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
MFS/Foreign & Colonial Emerging
Markets Equity Series (a)$80.29 (a)$137.54
(b)$30.29 (b)$ 92.54
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Managed by Oppenheimer Funds, Inc.
Oppenheimer High Income Fund (a)$73.40 (a)$116.96
(b)$23.40 (b)$ 71.96
Oppenheimer Bond Fund (a)$73.10 (a)$116.05
(b)$23.10 (b)$ 71.05
Oppenheimer Growth Fund (a)$73.20 (a)$116.35
(b)$23.20 (b)$ 71.35
Oppenheimer Growth & Income Fund (a)$75.30 (a)$122.67
(b)$25.30 (b)$ 77.67
Oppenheimer Strategic Bond Fund (a)$73.80 (a)$118.16
(b)$23.80 (b)$ 73.16
PUTNAM VARIABLE TRUST
Managed by Putnam Investment Management, Inc.
Putnam VT Growth and Income Fund (a)$70.69 (a)$108.78
(b)$20.69 (b)$ 63.78
Putnam VT International Growth Fund (a)$75.10 (a)$122.07
(b)$25.10 (b)$ 77.07
Putnam VT International New
Opportunities Fund (a)$79.19 (a)$134.29
(b)$29.19 (b)$ 89.29
Putnam VT New Value Fund (a)$73.60 (a)$117.56
(b)$23.60 (b)$ 72.56
Putnam VT Vista Fund (a)$73.40 (a)$116.96
(b)$23.40 (b)$ 71.96
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the Fee Table is to show you the various expenses you will
incur directly or indirectly with the contract. The Fee Table reflects
expenses of the Separate Account as well as of the investment portfolios.
2. The withdrawal charge is 5% of the purchase payments you withdraw. After
Cova has had a purchase payment for 5 years, there is no charge by Cova for
a withdrawal of that purchase payment. You may also have to pay income tax
and a tax penalty on any money you take out. After the first year, you can
take up to 10% of your total purchase payments each year without a charge
from Cova.
3. Cova will not charge you the transfer fee even if there are more than 12
transfers in a year if the transfer is for the Dollar Cost Averaging,
Automatic Rebalancing or approved Asset Allocation Programs.
4. Cova will not charge the contract maintenance charge if the value of your
contract is $50,000 or more, although, if you make a complete withdrawal,
Cova will charge the contract maintenance charge.
5. Premium taxes are not reflected. Premium taxes may apply depending on the
state where you live.
6. The assumed average contract size is $30,000.
7. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1. THE ANNUITY CONTRACT
This Prospectus describes the Fixed and Variable Annuity Contract offered by
Cova.
An annuity is a contract between you, the owner, and an insurance company (in
this case Cova), where the insurance company promises to pay you an income, in
the form of annuity payments, beginning on a designated date that's at least 30
days in the future. Until you decide to begin receiving annuity payments, your
annuity is in the accumulation phase. Once you begin receiving annuity payments,
your contract switches to the income phase. The contract benefits from tax
deferral.
Tax deferral means that you are not taxed on earnings or appreciation on the
assets in your contract until you take money out of your contract.
The contract is called a variable annuity because you can choose among 37
investment portfolios, and, depending upon market conditions, you can make or
lose money in any of these portfolios. If you select the variable annuity
portion of the contract, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the investment performance
of the investment portfolio(s) you select. The amount of the annuity payments
you receive during the income phase from the variable annuity portion of the
contract also depends upon the investment performance of the investment
portfolios you select for the income phase.
The contract also contains a fixed account. The fixed account offers an interest
rate that is guaranteed by Cova. Cova guarantees that the interest credited to
the fixed account will not be less than 3% per year. If you select the fixed
account, your money will be placed with the other general assets of Cova. If you
select the fixed account, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the total interest credited
to your contract. The amount of the annuity payments you receive during the
income phase from the fixed account portion of the contract will remain level
for the entire income phase.
As owner of the contract, you exercise all rights under the contract. You can
change the owner at any time by notifying Cova in writing. You and your spouse
can be named joint owners. We have described more information on this in Section
10 - Other Information.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
Under the contract you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the annuity
date. Your annuity date must be the first day of a calendar month. You can also
choose among income plans. We call those annuity options.
We ask you to choose your annuity date and annuity option when you purchase the
contract. You can change either at any time before the annuity date with 30 days
notice to us. Your annuity date cannot be any earlier than one month after you
buy the contract. Annuity payments must begin by the annuitant's 85th birthday
or 10 years from the date the contract was issued, whichever is later. The
annuitant is the person whose life we look to when we make annuity payments.
If you do not choose an annuity option at the time you purchase the contract, we
will assume that you selected Option 2 which provides a life annuity with 10
years of guaranteed payments.
During the income phase, you have the same investment choices you had just
before the start of the income phase. At the annuity date, you can choose
whether payments will come from the fixed account, the investment portfolio(s)
or a combination of both. If you don't tell us otherwise, your annuity payments
will be based on the investment allocations that were in place on the annuity
date.
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things: 1) the value of your contract in the investment portfolio(s) on the
annuity date, 2) the 3% assumed investment rate used in the annuity table for
the contract, and 3) the performance of the investment portfolios you selected.
If the actual performance exceeds the 3% assumed rate, your annuity payments
will increase. Similarly, if the actual rate is less than 3%, your annuity
payments will decrease.
You can choose one of the following annuity options. After annuity payments
begin, you cannot change the annuity option.
Option 1. Life Annuity. Under this option, we will make an annuity payment each
month so long as the annuitant is alive. After the annuitant dies, we stop
making annuity payments.
Option 2. Life Annuity with 5, 10 or 20 Years Guaranteed. Under this option, we
will make an annuity payment each month so long as the annuitant is alive.
However, if, when the annuitant dies, we have made annuity payments for less
than the selected guaranteed period, we will then continue to make annuity
payments for the rest of the guaranteed period to the beneficiary. If the
beneficiary does not want to receive annuity payments, he or she can ask us for
a single lump sum.
Option 3. Joint and Last Survivor Annuity. Under this option, we will make
annuity payments each month so long as the annuitant and a second person are
both alive. When either of these people dies, we will continue to make annuity
payments, so long as the survivor continues to live. The amount of the annuity
payments we will make to the survivor can be equal to 100%, 66 2/3% or 50% of
the amount that we would have paid if both were alive.
Annuity payments are made monthly unless you have less than $5,000 to apply
toward a payment. 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.
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 Fund of General American Capital Company 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 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 37 investment portfolios which are described below.
Currently, if you are not participating in an asset allocation program, you can
invest in 15 investment portfolios at any one time. Additional investment
portfolios may be available in the future.
YOU SHOULD READ THE PROSPECTUSES FOR THESE FUNDS CAREFULLY BEFORE INVESTING.
COPIES OF THESE PROSPECTUSES ARE ATTACHED TO THIS PROSPECTUS.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM Variable Insurance Funds, Inc. is a mutual fund with multiple portfolios. A
I M Advisors, Inc. is the investment adviser to each portfolio. The following
portfolios are available under the contract:
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Alliance Variable Products Series Fund, Inc. is a mutual fund with multiple
portfolios. Alliance Capital Management L.P. is the investment adviser to each
portfolio. The following portfolios are available under the contract:
Premier Growth Portfolio
Real Estate Investment Portfolio
LIBERTY VARIABLE INVESTMENT TRUST
Liberty Variable Investment Trust is a mutual fund with multiple portfolios.
Keyport Advisory Services Corp. (KASC) is the investment manager to the Trust.
KASC has engaged Newport Fund Management, Inc. as sub-adviser to provide
investment advice for the Newport Tiger, Variable Series. The following
portfolio is available under the contract:
Newport Tiger, Variable Series (a portfolio investing in equity securities of
companies located in certain countries of Asia).
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
COVA SERIES TRUST
Cova Series Trust is managed by Cova Investment Advisory Corporation (Cova
Advisory), which is an affiliate of Cova. Cova Series Trust is a mutual fund
with multiple portfolios. Cova Advisory has engaged sub-advisers to provide
investment advice for the individual investment portfolios. The following
portfolios are available under the contract:
J.P. Morgan Investment Management Inc. is the sub-adviser to the following
portfolios:
Small Cap Stock Portfolio
Large Cap Stock Portfolio
Select Equity Portfolio
International Equity Portfolio
Quality Bond Portfolio
Lord, Abbett & Co. is the sub-adviser to the following portfolios:
Bond Debenture Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Mid Cap Value Portfolio
Lord Abbett Growth & Income Portfolio
INVESTORS FUND SERIES
Investors Fund Series is a mutual fund with multiple portfolios. Zurich Kemper
Investments, Inc. (ZKI) is the investment adviser for the Kemper Government
Securities Portfolio and the Kemper Small Cap Growth Portfolio. Zurich Kemper
Value Advisors, Inc., a wholly owned subsidiary of ZKI, is the investment
adviser for the Kemper Small Cap Value Portfolio. The following portfolios are
available under the contract:
Kemper Small Cap Value Portfolio
Kemper Government Securities Portfolio
Kemper Small Cap Growth Portfolio
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
MFS VARIABLE INSURANCE TRUST
MFS Variable Insurance Trust is a mutual fund with multiple portfolios.
Massachusetts Financial Services Company is the investment adviser to each
portfolio. The following portfolios are available under the contract:
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS High Income Series
MFS World Governments Series
MFS/Foreign & Colonial Emerging Markets Equity Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Variable Account Funds is a mutual fund with multiple portfolios.
OppenheimerFunds, Inc. is the investment adviser to each portfolio. The
following portfolios are available under the contract:
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
PUTNAM VARIABLE TRUST
Putnam Variable Trust is a mutual fund with multiple portfolios. Putnam
Investment Management, Inc. is the investment adviser to each portfolio. The
following portfolios are available under the contract:
Putnam VT Growth and Income Fund
Putnam VT International Growth Fund
Putnam VT International New Opportunities Fund
Putnam VT New Value Fund
Putnam VT Vista Fund (a stock portfolio)
TRANSFERS
You can transfer money among the fixed account and the 37 investment portfolios.
TRANSFERS DURING THE ACCUMULATION PHASE. You can make 12 transfers every year
during the accumulation phase without charge. We measure a year from the
anniversary of the day we issued your Contract. You can make a transfer to or
from the fixed account and to or from any investment portfolio. If you make more
than 12 transfers in a year, there is a transfer fee deducted. The fee is $25
per transfer or, if less, 2% of the amount transferred. The following apply to
any transfer during the accumulation phase:
1. Your request for transfer must clearly state which investment portfolio(s)
or the fixed account are involved in the transfer.
2. Your request for transfer must clearly state how much the transfer is for.
3. You cannot make any transfers within 7 calendar days of the annuity date.
TRANSFERS DURING THE INCOME PHASE. You can only make transfers between the
investment portfolios once each year. We measure a year from the anniversary of
the day we issued your contract. You cannot transfer from the fixed account to
an investment portfolio, but you can transfer from one or more investment
portfolios to the fixed account at any time. If you make more than 12 transfers
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 Fund or the fixed account to any of the
other investment portfolio(s). By allocating amounts on a regular schedule as
opposed to allocating the total amount at one particular time, you may be less
susceptible to the impact of market fluctuations.
The minimum amount which can be transferred each month is $500. You must have at
least $6,000 in the Money Market Fund or the fixed account, (or the amount
required to complete your program, if less) in order to participate in the
Dollar Cost Averaging Program. There is no additional charge for participating
in the Dollar Cost Averaging Program.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
AUTOMATIC REBALANCING PROGRAM
Once your money has been allocated among the investment portfolios, the
performance of each portfolio may cause your allocation to shift. You can direct
us to automatically rebalance your contract to return to your original
percentage allocations by selecting our Automatic Rebalancing Program. You can
tell us whether to rebalance quarterly, semi-annually or annually. We will
measure these periods from the anniversary of the date we issued your contract.
The transfer date will be the 1st day after the end of the period you selected.
There is no additional charge for participating in the Automatic Rebalancing
Program. If you participate in the Automatic Rebalancing Program, the transfers
made under the program are not taken into account in determining any transfer
fee.
EXAMPLE:
Assume that you want your initial purchase payment split between 2 investment
portfolios. You want 40% to be in the Quality Bond Portfolio and 60% to be in
the Select Equity Portfolio. Over the next 2 1/2 months the bond market does
very well while the stock market performs poorly. At the end of the first
quarter, the Quality Bond Portfolio now represents 50% of your holdings because
of its increase in value. If you had chosen to have your holdings rebalanced
quarterly, on the first day of the next quarter, Cova would sell some of your
units in the Quality Bond Portfolio to bring its value back to 40% and use the
money to buy more units in the Select Equity Portfolio to increase those
holdings to 60%.
APPROVED ASSET ALLOCATION PROGRAMS
Cova recognizes the value to certain owners of having available, on a continuous
basis, advice for the allocation of your money among the investment options
available under the contracts. Certain providers of these types of services have
agreed to provide such services to owners in accordance with Cova's
administrative rules regarding such programs.
Cova has made no independent investigation of these programs. Cova has only
established that these programs are compatible with our administrative systems
and rules. Approved asset allocation programs are only available during the
accumulation phase.
Even though Cova permits the use of approved asset allocation programs, the
contract was not designed for professional market timing organizations. Repeated
patterns of frequent transfers are disruptive to the operations of the
investment portfolios, and when Cova becomes aware of such disruptive practices,
we may modify the transfer provisions of the contract.
If you participate in an Approved Asset Allocation Program, the transfers made
under the program are not taken into account in determining any transfer fee.
VOTING RIGHTS
Cova is the legal owner of the investment portfolio shares. However, Cova
believes that when an investment portfolio solicits proxies in conjunction with
a vote of shareholders, it is required to obtain from you and other owners
instructions as to how to vote those shares. When we receive those instructions,
we will vote all of the shares we own in proportion to those instructions. This
will also include any shares that Cova owns on its own behalf. Should Cova
determine that it is no longer required to comply with the above, we will vote
the shares in our own right.
SUBSTITUTION
Cova may be required to substitute one of the investment portfolios you have
selected with another portfolio. We would not do this without the prior approval
of the Securities and Exchange Commission. We will give you notice of our intent
to do this.
5. EXPENSES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses are:
INSURANCE CHARGES
Each day, Cova makes a deduction for its insurance charges. Cova does this as
part of its calculation of the value of the accumulation units and the annuity
units. The insurance charge has two parts: 1) the mortality and expense risk
premium and 2) the administrative expense charge.
MORTALITY AND EXPENSE RISK PREMIUM. This charge is equal, on an annual basis, to
1.25% of the daily value of the contracts invested in an investment portfolio,
after expenses have been deducted. This charge is for all the insurance benefits
e.g., guarantee of annuity rates, the death benefits, for certain expenses of
the contract, and for assuming the risk (expense risk) that the current charges
will be 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. 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.
INCOME TAXES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
8. PERFORMANCE
Cova periodically advertises performance of the various investment portfolios.
Cova will calculate performance by determining the percentage change in the
value of an accumulation unit by dividing the increase (decrease) for that unit
by the value of the accumulation unit at the beginning of the period. This
performance number reflects the deduction of the insurance charges and the
investment portfolio expenses. It does not reflect the deduction of any
applicable contract maintenance charge and withdrawal charge. The deduction of
any applicable contract maintenance charge and withdrawal charges would reduce
the percentage increase or make greater any percentage decrease. Any
advertisement will also include total return figures which reflect the deduction
of the insurance charges, contract maintenance charges, withdrawal charges and
the investment portfolio expenses.
For periods starting prior to the date the contracts were first offered, the
performance will be based on the historical performance of the corresponding
portfolios or the Separate Account, modified to reflect the charges and expenses
of the contract as if the contracts had been in existence during the period
stated in the advertisement. These figures should not be interpreted to reflect
actual historic performance.
Cova may, from time to time, include in its advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
The Appendix contains performance information that you may find informative.
Future performance will vary and 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.
The amount of the death benefit depends on how old you or your joint owner is.
Prior to you, or your joint owner, reaching age 80, the death benefit will be
the greater of:
1. Total purchase payments, less withdrawals (and any withdrawal charges paid
on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent five year anniversary before
the date of death, plus any subsequent purchase payments, less any
withdrawals (and any withdrawal charges paid on the withdrawals).
After you, or your joint owner, reaches age 80, the death benefit will be the
greater of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent five year anniversary on or
before you or your joint owner reaches age 80, plus any subsequent purchase
payments, less any withdrawals (and any withdrawal charges paid on the
withdrawals).
The entire death benefit must be paid within 5 years of the date of death unless
the beneficiary elects to have the death benefit payable under an annuity
option. The death benefit payable under an annuity option must be paid over the
beneficiary's lifetime or for a period not extending beyond the beneficiary's
life expectancy. Payment must begin within one year of the date of death. If the
beneficiary is the spouse of the owner, he/she can continue the contract in
his/her own name at the then current value. If a lump sum payment is elected and
all the necessary requirements are met, the payment will be made within 7 days.
DEATH OF ANNUITANT
If the annuitant, not an owner or joint owner, dies before annuity payments
begin, you can name a new annuitant. If no annuitant is named within 30 days of
the death of the annuitant, you will become the annuitant. However, if the owner
is a non-natural person (for example, a corporation), then the death or change
of annuitant will be treated as the death of the owner, and a new annuitant may
not be named.
Upon the death of the annuitant after annuity payments begin, the death benefit,
if any, will be as provided for in the annuity option selected.
10. OTHER INFORMATION
COVA
Cova Financial 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 5.75% 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 financial statements of Cova and the Separate Account have been included in
the Statement of Additional Information.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Company
Experts
Legal Opinions
Distribution
Performance Information
Tax Status
Annuity Provisions
Financial Statements
APPENDIX
PERFORMANCE INFORMATION
FUTURE PERFORMANCE WILL VARY AND THE RESULTS SHOWN ARE NOT NECESSARILY
REPRESENTATIVE OF FUTURE RESULTS.
PART 1 - EXISTING PORTFOLIOS IN EXISTING SEPARATE ACCOUNT
The contracts are new and therefore have no performance history. However, the
Separate Account has invested in certain portfolios for some time and has an
investment performance history. In order to show how the historical performance
of the Separate Account affects the contract's accumulation unit values, the
following performance was developed. The information is based upon the
historical experience of the Separate Account and portfolios and is for the
periods shown. The chart below shows the investment performance of the Separate
Account and portfolios and the accumulation unit performance calculated by
assuming that the contracts were invested in the Separate Account for the same
periods.
The performance figures in Column A reflect the fees and expenses paid by each
portfolio. Column B presents performance figures for the accumulation units
which reflect the insurance charges and fees and expenses of each portfolio.
Column C presents performance figures for the accumulation units which reflect
the insurance charges, the contract maintenance charge, the fees and expenses of
each portfolio, and assumes that you make a withdrawal at the end of the period
and therefore the withdrawal charge is reflected.
TOTAL RETURN FOR THE PERIODS ENDED SEPTEMBER 30, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Column A Column B Column C
Portfolio Performance Accumulation Unit Performance
---------------------- ------------ ----------------
Separate Account
Inception Date 1 Since 1 Since 1 Since
Portfolio in Portfolio Year Inception Year Inception Year Inception
- --------- ----------------- ---------------- ----------------- ------------------
COVA SERIES TRUST
Small Cap Stock 5/15/96 31.34% 19.87% 29.94% 18.47% 24.75% 15.45%
Large Cap Stock 5/16/96 41.52% 31.75% 40.12% 30.35% 34.92% 27.43%
Select Equity 5/15/96 42.02% 28.97% 40.62% 27.57% 35.42% 24.64%
International Equity 5/14/96 18.21% 15.40% 16.81% 14.00% 11.64% 10.93%
Quality Bond 5/20/96 9.02% 8.14% 7.62% 6.74% 2.47% 3.55%
Bond Debenture 5/20/96 18.18% 18.99% 16.78% 17.59% 11.60% 14.52%
Mid-Cap Value 8/19/97 -- 37.91% -- 36.51% -- 31.41%
Large Cap Research 8/19/97 -- 3.59% -- 2.19% -- (2.91)%
Developing Growth 8/19/97 -- 103.61% -- 102.21% -- 97.11%
GENERAL AMERICAN
CAPITAL COMPANY
Money Market 6/3/96 5.56% 5.54% 4.16% 4.14% (0.98%) 0.57%
LORD ABBETT SERIES
FUND, INC.
Growth and Income 7/20/95 33.52% 24.64% 32.12% 23.24% 26.69% 22.13%
</TABLE>
PART 2 - NEW PORTFOLIOS IN EXISTING SEPARATE ACCOUNT
The contracts are new and therefore have no performance history. However,
certain portfolios have been in existence for some time and have an investment
performance history. In order to show how the historical performance of the
portfolios affects the contract's accumulation unit values, the following
performance was developed. The information is based upon the historical
experience of the portfolios and is for the periods shown. The chart below
shows the investment performance of the portfolios and the accumulation unit
performance calculated by assuming that the contracts were invested in the
portfolios for the same periods.
The performance figures in Column A reflect the fees and expenses paid by each
portfolio. Column B presents performance figures for the accumulation units
which reflect the insurance charges and the fees and expenses of each portfolio.
Column C presents performance figures for the accumulation units which reflect
the insurance charges, the contract maintenance charge, the fees and expenses
of each portfolio, and assumes that you make a withdrawal at the end of the
period and therefore the withdrawal charge is reflected.
<TABLE>
<CAPTION>
TOTAL RETURN FOR THE PERIODS ENDED SEPTEMBER 30, 1997:
<S> <C> <C> <C>
Column A Column B Column C
Portfolio Performance Accumulation Unit Performance
---------------------- ---------------------- ----------------------
Portfolio 10 yrs or 10 yrs or 10 yrs or
Inception since since since
Portfolio Date 1 yr 5 yrs inception 1 yr 5 yrs inception 1 yr 5 yrs inception
- ----------------- ------------ ---------------------- ---------------------- ----------------------
AIM VARIABLE INSURANCE
FUNDS, INC.
AIM V.I. Capital 5/5/93 25.01% -- 22.19% 23.61% -- 20.79% 18.51% -- 16.19%
Appreciation
AIM V.I. International 5/5/93 22.53% -- 15.73% 21.13% -- 14.33% 16.03% -- 9.73%
Equity
AIM V.I. Value 5/5/93 34.08% -- 21.43% 32.68% -- 20.03% 27.58% -- 15.43%
ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.
Premier Growth 6/26/92 49.83% 23.61% 23.06% 48.43% 22.21% 21.66% 43.33% 17.61% 21.56%
Real Estate Investment 1/9/97 -- -- 31.75% -- -- 30.35% -- -- 25.75%
LIBERTY VARIABLE INVESTMENT
TRUST
Newport Tiger, Variable
Series 5/1/95 (5.11)% -- 6.62% (6.51)% -- 5.22% (11.61)% -- 0.62%
INVESTORS FUND SERIES
Kemper Small Cap Value 5/1/96 35.63% -- 19.88% 34.23% -- 18.48% 29.13% -- 13.88%
Kemper Government
Securities 9/3/87 9.33% 6.16% 7.77% 7.93% 4.76% 6.37% 2.83% 0.16% 6.27%
Kemper Small Cap Growth 5/2/94 37.10% -- 28.28% 35.70% -- 26.88% 30.60% -- 22.28%
MFS VARIABLE INSURANCE TRUST
MFS Emerging Growth 7/24/95 23.87% -- 28.49% 22.47% -- 27.09% 17.37% -- 22.49%
MFS Research 7/26/95 28.99% -- 26.18% 27.59% -- 24.78% 22.49% -- 20.18%
MFS Growth with Income 10/9/95 33.88% -- 29.23% 32.48% -- 27.83% 27.38% -- 23.23%
MFS High Income 7/26/95 14.74% -- 13.24% 13.34% -- 11.84% 8.24% -- 7.24%
MFS World Governments 6/14/94 2.06% -- 5.58% 0.66% -- 4.18% (4.44)% -- (0.42)%
OPPENHEIMER VARIABLE ACCOUNT
FUNDS
Oppenheimer High Income 4/30/86 14.94% 13.60% 13.84% 13.54% 12.20% 12.44% 8.44% 7.60% 12.34%
Oppenheimer Bond 4/3/85 9.43% 7.66% 9.60% 8.03% 6.26% 8.20% 2.93% 1.66% 8.10%
Oppenheimer Growth 4/3/85 36.89% 22.27% 13.85% 35.49% 20.87% 12.45% 30.39% 16.27% 12.35%
Oppenheimer Growth & Income 7/5/95 38.08% -- 40.56% 36.68% -- 39.16% 31.58% -- 34.56%
Oppenheimer Strategic Bond 5/3/93 11.32% -- 7.81% 9.92% -- 6.41% 4.82% -- 1.81%
PUTNAM VARIABLE TRUST
Putnam VT Growth and Income 2/1/88 33.94% 19.07% 17.06% 32.54% 17.67% 15.66% 27.44% 13.07% 15.56%
Putnam VT New Value 1/2/97 -- -- 29.63% -- -- 28.23% -- -- 23.63%
Putnam VT Vista 1/2/97 -- -- 31.52% -- -- 30.12% -- -- 25.52%
Putnam VT International
Growth 1/2/97 -- -- 29.90% -- -- 28.50% -- -- 23.90%
Putnam VT International New
Opportunities 1/2/97 -- -- 13.06% -- -- 11.66% -- -- 7.06%
</TABLE>
- ---------------------------
- --------------------------- STAMP
- ---------------------------
Cova Financial 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 ______________, 1997 for The Annuity Contract issued by Cova.
(Please print or type and fill in all information)
---------------------------------------------------------------------------
Name
---------------------------------------------------------------------------
Address
---------------------------------------------------------------------------
City State Zip Code
CC-___(_/97) COVA VA
PART A - VERSION B
Cova Financial Life Insurance Company _____, 1997
PROFILE of the Fixed and Variable Annuity Contract
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
CONSIDER AND KNOW BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED IN THE PROSPECTUS WHICH ACCOMPANIES THIS PROFILE. PLEASE READ THE
PROSPECTUS CAREFULLY.
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 5 investment portfolios. The Contract is intended for
retirement savings or other long-term investment purposes and provides for a
death benefit and guaranteed income options.
The fixed account offers an interest rate that is guaranteed by the insurance
company, Cova. While your money is in the fixed account, the interest your money
will earn as well as your principal is guaranteed by Cova.
This Contract also offers 5 investment portfolios which are listed in Section 4.
These portfolios are designed to offer a potentially better return than the
fixed account. However, this is NOT guaranteed. You can also lose your money.
You can put money into any or all of the investment portfolios 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:
<TABLE>
<CAPTION>
<S> <C>
Managed by Frank Russell Managed by Conning Asset
Investment Management Company Management Company
Multi-Style Equity Money Market
Aggressive Equity
Non-U.S.
Core Bond
</TABLE>
Depending upon market conditions, you can make or lose money in any of these
portfolios.
5. EXPENSES. The Contract has insurance features and investment features, and
there are costs related to each.
Each year Cova deducts a $30 contract maintenance charge from your Contract.
Cova currently waives this charge if the value of your Contract is at least
$50,000. Cova also deducts for its insurance charges which total 1.40% of the
average daily value of your Contract allocated to the investment portfolios.
If you take your money out, Cova may assess a withdrawal charge which is equal
to 5% of the purchase payment you withdraw. When you begin receiving regular
income payments from your annuity, Cova will assess a state premium tax charge,
if applicable, which ranges from 0%-4% depending upon the state.
There are also investment charges which currently range from .205% to 1.30% of
the average daily value of the investment portfolio depending upon the
investment portfolio.
The following chart is designed to help you understand the expenses in the
Contract. The column "Total Annual Expenses" shows the total of the $30 contract
maintenance charge (which is represented as .10% below), the 1.40% insurance
charges and the investment expenses for each investment portfolio. The next two
columns show you two examples of the expenses, in dollars, you would pay under a
Contract. The examples assume that you invested $1,000 in a Contract which earns
5% annually and that you withdraw your money: (1) at the end of year 1, and (2)
at the end of year 10. For year 1, the Total Annual Expenses are assessed as
well as the withdrawal charges. For year 10, the example shows the aggregate of
all the annual expenses assessed for the 10 years, but there is no withdrawal
charge.
The premium tax is assumed to be 0% in both examples.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Examples:
Total Annual
Total Annual Total Annual Total Expenses At End of:
Insurance Portfolio Annual (1) (2)
Portfolio Charges Expenses Expenses 1 Year 10 Years
- --------------------- ------------- ------------- ------------- ------ --------
Managed by Frank Russell Investment
Management Company
Multi-Style Equity 1.50% 0.92% 2.42% $74.50 $273.25
Aggressive Equity 1.50% 1.25% 2.75% $77.80 $305.57
Non-U.S. 1.50% 1.30% 2.80% $78.30 $310.37
Core Bond 1.50% 0.80% 2.30% $73.30 $261.20
Managed by Conning Asset
Management Company
Money Market 1.50% 0.205% 1.71% $67.31 $199.08
</TABLE>
The expenses reflect any expense reimbursement or fee waiver. For more detailed
information, see the Fee Table in the Prospectus for the Contract.
6. TAXES. Your earnings are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty on the earnings. Payments during the income
phase are considered partly a return of your original investment. That part of
each payment is not taxable as income.
7. ACCESS TO YOUR MONEY. You can take money out at any time during the
accumulation phase. After the first year, you can take up to 10% of your total
purchase payments each year without charge from Cova. Withdrawals in excess of
that will be charged 5% of each payment you take out. Each purchase payment you
add to your Contract has its own 5 year withdrawal charge period. After Cova has
had a payment for 5 years, there is no charge for withdrawing that payment. Of
course, you may also have to pay income tax and a tax penalty on any money you
take out.
8. PERFORMANCE. The value of the Contract will vary up or down depending upon
the investment performance of the Portfolio(s) you choose. Cova may provide
total return figures for each investment portfolio. The total return figures are
based on historical data and are not intended to indicate future performance. As
of the date of this Profile, the sale of the Contracts had not begun. Therefore,
no performance is presented here.
9. DEATH BENEFIT. If you die before moving to the income phase, the person you
have chosen as your beneficiary will receive a death benefit. This death benefit
will be the greater of three amounts: 1) the money you've put in less any money
you've taken out, and the related withdrawal charges, or 2) the value of your
Contract at the time the death benefit is to be paid, or 3) the value of your
Contract at the most recent 5th-year-anniversary before the date of death plus
any money you've added since that anniversary minus any money you've taken out
since that anniversary, and the related withdrawal charges. If you die after age
80, slightly different rules apply.
10. OTHER INFORMATION.
Free Look. If you cancel the Contract within 10 days after receiving it (or
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 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 tax brackets. You should not buy this Contract
if you are looking for a short-term investment or if you cannot take the risk of
getting back less money than you put in.
Additional Features. This Contract has additional features you might be
interested in. These include:
You can arrange to have money automatically sent to you each month while
your Contract is still in the accumulation phase. Of course, you'll have to pay
taxes on money you receive. We call this feature the Systematic Withdrawal
Program.
You can arrange to have a regular amount of money automatically invested in
investment portfolios each month, theoretically giving you a lower average cost
per unit over time than a single one time purchase. We call this feature Dollar
Cost Averaging.
You can arrange to automatically readjust the money between investment
portfolios periodically to keep the blend you select. We call this feature
Automatic Rebalancing.
Under certain circumstances, Cova will give you your money without a
withdrawal charge if you need it while you're in a nursing home. We call this
feature the Nursing Home Waiver.
These features may not be suitable for your particular situation.
11. INQUIRIES. If you need more information, please contact us at:
Cova Life Sales Company
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181
800-523-1661
THE FIXED
AND VARIABLE ANNUITY
ISSUED BY
COVA VARIABLE ANNUITY ACCOUNT FIVE
AND
COVA 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 6 investment choices - a fixed account which offers an
interest rate which is guaranteed by Cova, and 5 investment portfolios listed
below. The 5 investment portfolios are part of Russell Insurance Funds or
General American Capital Company. You can put your money in the fixed account
and/or any of these investment portfolios.
RUSSELL INSURANCE FUNDS
Managed by Frank Russell Investment Management Company
Multi-Style Equity
Aggressive Equity
Non-U.S.
Core Bond
GENERAL AMERICAN CAPITAL COMPANY
Managed by Conning Asset Management Company
Money Market
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 _____, 1997. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
legally a part of the prospectus. The Table of Contents of the SAI is on Page __
of this prospectus. For a free copy of the SAI, call us at (800) 831-5433 or
write us at : One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______, 1997.
TABLE OF CONTENTS
Page
INDEX OF SPECIAL TERMS
FEE TABLE
EXAMPLES
1. THE ANNUITY CONTRACT
2. ANNUITY PAYMENTS (THE INCOME PHASE)
3. PURCHASE
Purchase Payments
Allocation of Purchase Payments
Accumulation Units
4. INVESTMENT OPTIONS
Russell Insurance Funds
General American Capital Company
Transfers
Dollar Cost Averaging Program
Automatic Rebalancing Program
Approved Asset Allocation Programs
Voting Rights
Substitution
5. EXPENSES
Insurance Charges
Contract Maintenance Charge
Withdrawal Charge
Reduction or Elimination of the
Withdrawal Charge
Premium Taxes
Transfer Fee
Income Taxes
Investment Portfolio Expenses
6. TAXES
Annuity Contracts in General
Qualified and Non-Qualified Contracts
Withdrawals - Non-Qualified Contracts
Withdrawals - Qualified Contracts
Withdrawals - Tax-Sheltered Annuities
Diversification
7. ACCESS TO YOUR MONEY
Systematic Withdrawal Program
8. PERFORMANCE
9. DEATH BENEFIT
Upon Your Death
Death of Annuitant
10. OTHER INFORMATION
Cova
The Separate Account
Distributor
Ownership
Beneficiary
Assignment
Suspension of Payments or Transfers
Financial Statements
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
APPENDIX - PERFORMANCE INFORMATION
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the contract, however, certain technical words
or terms are unavoidable. We have identified the following as some of these
words or terms. They are identified in the text in italic and the page that is
indicated here is where we believe you will find the best explanation for the
word or term.
Page
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Date
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Fixed Account
Income Phase
Investment Portfolios
Joint Owner
Non-Qualified
Owner
Purchase Payment
Qualified
Tax Deferral
COVA VARIABLE ANNUITY ACCOUNT FIVE FEE TABLE
<TABLE>
<CAPTION>
<S> <C>
OWNER TRANSACTION EXPENSES
Withdrawal Charge (see Note 2 below) 5% of purchase payment withdrawn
</TABLE>
TRANSFER FEE (see Note 3 below)
No charge for first 12 transfers in a contract year; thereafter, the fee
is $25 per transfer or, if less, 2% of the amount transferred.
<TABLE>
<CAPTION>
<S> <C>
CONTRACT MAINTENANCE CHARGE (see Note 4 below) $30 per contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Premium 1.25%
Administrative Expense Charge .15%
-----
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES 1.40%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO EXPENSES
(as a percentage of the average daily net assets of an investment portfolio)
<S> <C> <C> <C>
Management Fees Other Expenses (after Total Annual
(after fee waiver)* expense reimbursement)* Portfolio Expenses
------------------- ---------------------- ---------------
RUSSELL INSURANCE FUNDS
Managed by Frank Russell
Investment Management Company
Multi-Style Equity .22% .70% .92%
Aggressive Equity .26% .99% 1.25%
Non-U.S. 0% 1.30% 1.30%
Core Bond 0% .80% .80%
<FN>
*The manager has voluntarily agreed to waive a portion of the management fee, up
to the full amount of the fee, equal to the amount by which the Fund's total
operating expenses exceed the amounts set forth above under "Total Portfolio
annual Expenses." Additionally, the manager has voluntarily agreed to reimburse
the Fund for all remaining expenses after fee waivers which exceed the amount
set forth above for each Fund under "Total Annual Portfolio Expenses". Absent
such waiver and reimbursement, the management fees and total operating expenses
would be .78% and 1.68% for the Multi-Style Equity Fund; .95% and 2.31% for the
Aggressive Equity Fund; .95% and 5.31% for the Non-U.S. Fund; and .60% and 2.36%
for the Core Bond Fund.
</FN>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
General American Capital Company
Managed by Conning Asset
Management Company
Money Market .205% 0% .205%
</TABLE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
(a) upon surrender at the end of each time period;
(b) if the contract is not surrendered or is annuitized.
<TABLE>
<CAPTION>
Time Periods
<S> <C> <C>
1 year 3 years
--------- ----------
RUSSELL INSURANCE FUNDS
Managed by Frank Russell
Investment Management Company
Multi-Style Equity (a)$74.50 (a)$120.27
(b)$24.50 (b)$ 75.27
Aggressive Equity (a)$77.80 (b)$130.14
(b)$27.80 (b)$ 85.14
Non-U.S. (a)$78.30 (a)$131.62
(b)$28.30 (b)$ 86.62
Core Bond (a)$73.30 (a)$116.65
(b)$23.30 (b)$ 71.65
GENERAL AMERICAN CAPITAL COMPANY
Managed by Conning Asset
Management Company
Money Market (a)$67.31 (a)$98.54
(b)$17.31 (b)$53.54
</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. The Fee Table reflects
expenses of the Separate Account as well as of the investment portfolios.
2. The withdrawal charge is 5% of the purchase payments you withdraw. After
Cova has had a purchase payment for 5 years, there is no charge by Cova for
a withdrawal of that purchase payment. You may also have to pay income tax
and a tax penalty on any money you take out. After the first year, you can
take up to 10% of your total purchase payments each year without a charge
from Cova.
3. Cova will not charge you the transfer fee even if there are more than 12
transfers in a year if the transfer is for the Dollar Cost Averaging,
Automatic Rebalancing or approved Asset Allocation Programs.
4. Cova will not charge the contract maintenance charge if the value of your
contract is $50,000 or more, although, if you make a complete withdrawal,
Cova will charge the contract maintenance charge.
5. Premium taxes are not reflected. Premium taxes may apply depending on the
state where you live.
6. The assumed average contract size is $30,000.
7. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1. THE ANNUITY CONTRACT
This Prospectus describes the Fixed and Variable Annuity Contract offered by
Cova.
An annuity is a contract between you, the owner, and an insurance company (in
this case Cova), where the insurance company promises to pay you an income, in
the form of annuity payments, beginning on a designated date that's at least 30
days in the future. Until you decide to begin receiving annuity payments, your
annuity is in the accumulation phase. Once you begin receiving annuity payments,
your contract switches to the income phase. The contract benefits from tax
deferral.
Tax deferral means that you are not taxed on earnings or appreciation on the
assets in your contract until you take money out of your contract.
The contract is called a variable annuity because you can choose among 5
investment portfolios, and, depending upon market conditions, you can make or
lose money in any of these portfolios. If you select the variable annuity
portion of the contract, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the investment performance
of the investment portfolio(s) you select. The amount of the annuity payments
you receive during the income phase from the variable annuity portion of the
contract also depends upon the investment performance of the investment
portfolios you select for the income phase.
The contract also contains a fixed account. The fixed account offers an interest
rate that is guaranteed by Cova. Cova guarantees that the interest credited to
the fixed account will not be less than 3% per year. If you select the fixed
account, your money will be placed with the other general assets of Cova. If you
select the fixed account, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the total interest credited
to your contract. The amount of the annuity payments you receive during the
income phase from the fixed account portion of the contract will remain level
for the entire income phase.
As owner of the contract, you exercise all rights under the contract. You can
change the owner at any time by notifying Cova in writing. You and your spouse
can be named joint owners. We have described more information on this in Section
10 - Other Information.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
Under the contract you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the annuity
date. Your annuity date must be the first day of a calendar month. You can also
choose among income plans. We call those annuity options.
We ask you to choose your annuity date and annuity option when you purchase the
contract. You can change either at any time before the annuity date with 30 days
notice to us. Your annuity date cannot be any earlier than one month after you
buy the contract. Annuity payments must begin by the annuitant's 85th birthday
or 10 years from the date the contract was issued, whichever is later. The
annuitant is the person whose life we look to when we make annuity payments.
If you do not choose an annuity option at the time you purchase the contract, we
will assume that you selected Option 2 which provides a life annuity with 10
years of guaranteed payments.
During the income phase, you have the same investment choices you had just
before the start of the income phase. At the annuity date, you can choose
whether payments will come from the fixed account, the investment portfolio(s)
or a combination of both. If you don't tell us otherwise, your annuity payments
will be based on the investment allocations that were in place on the annuity
date.
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things: 1) the value of your contract in the investment portfolio(s) on the
annuity date, 2) the 3% assumed investment rate used in the annuity table for
the contract, and 3) the performance of the investment portfolios you selected.
If the actual performance exceeds the 3% assumed rate, your annuity payments
will increase. Similarly, if the actual rate is less than 3%, your annuity
payments will decrease.
You can choose one of the following annuity options. After annuity payments
begin, you cannot change the annuity option.
Option 1. Life Annuity. Under this option, we will make an annuity payment each
month so long as the annuitant is alive. After the annuitant dies, we stop
making annuity payments.
Option 2. Life Annuity with 5, 10 or 20 Years Guaranteed. Under this option, we
will make an annuity payment each month so long as the annuitant is alive.
However, if, when the annuitant dies, we have made annuity payments for less
than the selected guaranteed period, we will then continue to make annuity
payments for the rest of the guaranteed period to the beneficiary. If the
beneficiary does not want to receive annuity payments, he or she can ask us for
a single lump sum.
Option 3. Joint and Last Survivor Annuity. Under this option, we will make
annuity payments each month so long as the annuitant and a second person are
both alive. When either of these people dies, we will continue to make annuity
payments, so long as the survivor continues to live. The amount of the annuity
payments we will make to the survivor can be equal to 100%, 66 -2/3% or 50% of
the amount that we would have paid if both were alive.
Annuity payments are made monthly unless you have less than $5,000 to apply
toward a payment. 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.
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 Fund of General American Capital Company 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 Multi-Style Equity Fund. When the New York
Stock Exchange closes on that Monday, we determine that the value of an
accumulation unit for the Multi-Style Equity Fund 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 Multi-Style Equity Fund.
4. INVESTMENT OPTIONS
The Contract offers 5 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.
Russell Insurance Funds is managed by Frank Russell Investment Management
Company. Russell Insurance Funds is a mutual fund with four portfolios, each its
own investment objective. The following portfolios are available under the
contract:
Multi-Style Equity Fund
Aggressive Equity Fund
Non-U.S. Fund
Core Bond Fund
GENERAL AMERICAN CAPITAL COMPANY
General American Capital Company is a mutual fund with multiple portfolios. Each
portfolio is managed by Conning Asset Management Company. The following
portfolio is available under the contract:
Money Market Fund
TRANSFERS
You can transfer money among the fixed account and the 5 investment portfolios.
TRANSFERS DURING THE ACCUMULATION PHASE. You can make 12 transfers every year
during the accumulation phase without charge. We measure a year from the
anniversary of the day we issued your Contract. You can make a transfer to or
from the fixed account and to or from any investment portfolio. If you make more
than 12 transfers in a year, there is a transfer fee deducted. The fee is $25
per transfer or, if less, 2% of the amount transferred. The following apply to
any transfer during the accumulation phase:
1. Your request for transfer must clearly state which investment portfolio(s)
or the fixed account are involved in the transfer.
2. Your request for transfer must clearly state how much the transfer is for.
3. You cannot make any transfers within 7 calendar days of the annuity date.
TRANSFERS DURING THE INCOME PHASE. You can only make transfers between the
investment portfolios once each year. We measure a year from the anniversary of
the day we issued your contract. You cannot transfer from the fixed account to
an investment portfolio, but you can transfer from one or more investment
portfolios to the fixed account at any time. If you make more than 12 transfers
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 Fund or the fixed account to any of the
other investment portfolio(s). By allocating amounts on a regular schedule as
opposed to allocating the total amount at one particular time, you may be less
susceptible to the impact of market fluctuations.
The minimum amount which can be transferred each month is $500. You must have at
least $6,000 in the Money Market Fund or the fixed account, (or the amount
required to complete your program, if less) in order to participate in the
Dollar Cost Averaging Program. There is no additional charge for participating
in the Dollar Cost Averaging Program.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
AUTOMATIC REBALANCING PROGRAM
Once your money has been allocated among the investment portfolios, the
performance of each portfolio may cause your allocation to shift. You can direct
us to automatically rebalance your contract to return to your original
percentage allocations by selecting our Automatic Rebalancing Program. You can
tell us whether to rebalance quarterly, semi-annually or annually. We will
measure these periods from the anniversary of the date we issued your contract.
The transfer date will be the 1st day after the end of the period you selected.
There is no additional charge for participating in the Automatic Rebalancing
Program. If you participate in the Automatic Rebalancing Program, the transfers
made under the program are not taken into account in determining any transfer
fee.
EXAMPLE:
Assume that you want your initial purchase payment split between 2 investment
portfolios. You want 40% to be in the Core Bond Fund and 60% to be in the
Multi-Style Equity Fund. 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 Core Bond Fund 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 Core
Bond Fund to bring its value back to 40% and use the money to buy more units in
the Multi-Style Equity Fund to increase those holdings to 60%.
APPROVED ASSET ALLOCATION PROGRAMS
Cova recognizes the value to certain owners of having available, on a continuous
basis, advice for the allocation of your money among the investment options
available under the contracts. Certain providers of these types of services have
agreed to provide such services to owners in accordance with Cova's
administrative rules regarding such programs.
Cova has made no independent investigation of these programs. Cova has only
established that these programs are compatible with our administrative systems
and rules. Approved asset allocation programs are only available during the
accumulation phase.
Even though Cova permits the use of approved asset allocation programs, the
contract was not designed for professional market timing organizations. Repeated
patterns of frequent transfers are disruptive to the operations of the
investment portfolios, and when Cova becomes aware of such disruptive
practices, we may modify the transfer provisions of the contract.
If you participate in an Approved Asset Allocation Program, the transfers made
under the program are not taken into account in determining any transfer fee.
VOTING RIGHTS
Cova is the legal owner of the investment portfolio shares. However, Cova
believes that when an investment portfolio solicits proxies in conjunction with
a vote of shareholders, it is required to obtain from you and other owners
instructions as to how to vote those shares. When we receive those instructions,
we will vote all of the shares we own in proportion to those instructions. This
will also include any shares that Cova owns on its own behalf. Should Cova
determine that it is no longer required to comply with the above, we will vote
the shares in our own right.
SUBSTITUTION
Cova may be required to substitute one of the investment portfolios you have
selected with another portfolio. We would not do this without the prior approval
of the Securities and Exchange Commission. We will give you notice of our intent
to do this.
5. EXPENSES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses are:
INSURANCE CHARGES
Each day, Cova makes a deduction for its insurance charges. Cova does this as
part of its calculation of the value of the accumulation units and the annuity
units. The insurance charge has two parts: 1) the mortality and expense risk
premium and 2) the administrative expense charge.
MORTALITY AND EXPENSE RISK PREMIUM. This charge is equal, on an annual basis, to
1.25% of the daily value of the contracts invested in an investment portfolio,
after expenses have been deducted. This charge is for all the insurance benefits
e.g., guarantee of annuity rates, the death benefits, for certain expenses of
the contract, and for assuming the risk (expense risk) that the current charges
will be 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. 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.
INCOME TAXES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
8. PERFORMANCE
Cova periodically advertises performance of the various investment portfolios.
Cova will calculate performance by determining the percentage change in the
value of an accumulation unit by dividing the increase (decrease) for that unit
by the value of the accumulation unit at the beginning of the period. This
performance number reflects the deduction of the insurance charges and the
expenses of the investment portfolio. It does not reflect the deduction of any
applicable contract maintenance charge and withdrawal charge. The deduction of
any applicable contract maintenance charge and withdrawal charges would reduce
the percentage increase or make greater any percentage decrease. Any
advertisement will also include total return figures which reflect the deduction
of the insurance charges, contract maintenance charge, withdrawal charges and
the expenses of the investment portfolio.
For periods starting prior to the date the contracts were first offered, the
performance will be based on the historical performance of the corresponding
portfolios or the Separate Account, modified to reflect the charges and expenses
of the contract as if the contracts had been in existence during the period
stated in the advertisement. These figures should not be interpreted to reflect
actual historical performance.
Cova may, from time to time, include in its advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
The Appendix contains performance information that you may find informative.
Future performance will vary and 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.
The amount of the death benefit depends on how old you or your joint owner is.
Prior to you, or your joint owner, reaching age 80, the death benefit will be
the greater of:
1. Total purchase payments, less withdrawals (and any withdrawal charges paid
on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent five year anniversary before
the date of death, plus any subsequent purchase payments, less any
withdrawals (and any withdrawal charges paid on the withdrawals).
After you, or your joint owner, reaches age 80, the death benefit will be the
greater of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent five year anniversary on or
before you or your joint owner reaches age 80, plus any subsequent purchase
payments, less any withdrawals (and any withdrawal charges paid on the
withdrawals).
The entire death benefit must be paid within 5 years of the date of death unless
the beneficiary elects to have the death benefit payable under an annuity
option. The death benefit payable under an annuity option must be paid over the
beneficiary's lifetime or for a period not extending beyond the beneficiary's
life expectancy. Payment must begin within one year of the date of death. If the
beneficiary is the spouse of the owner, he/she can continue the contract in
his/her own name at the then current value. If a lump sum payment is elected and
all the necessary requirements are met, the payment will be made within 7 days.
DEATH OF ANNUITANT
If the annuitant, not an owner or joint owner, dies before annuity payments
begin, you can name a new annuitant. If no annuitant is named within 30 days of
the death of the annuitant, you will become the annuitant. However, if the owner
is a non-natural person (for example, a corporation), then the death or change
of annuitant will be treated as the death of the owner, and a new annuitant may
not be named.
Upon the death of the annuitant after annuity payments begin, the death benefit,
if any, will be as provided for in the annuity option selected.
10. OTHER INFORMATION
COVA
Cova Financial 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 5.75% 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 financial statements of Cova and the Separate Account have been included in
the Statement of Additional Information.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Company
Experts
Legal Opinions
Distribution
Performance Information
Tax Status
Annuity Provisions
Financial Statements
APPENDIX
PERFORMANCE INFORMATION
FUTURE PERFORMANCE WILL VARY AND THE RESULTS SHOWN ARE NOT NECESSARILY
REPRESENTATIVE OF FUTURE RESULTS.
PART 1 - EXISTING PORTFOLIO IN EXISTING SEPARATE ACCOUNT
The contracts are new and therefore have no performance history. However, the
Separate Account has invested in the Money Market Fund of General American
Capital Company for some time as has an investment performance history. In
order to show how the historical performance of the Separate Account affects
the contract's accumulation unit values, the following performance was
developed. The information is based upon the historical experience of the
Separate Account and the Money Market Fund and is for the periods shown. The
chart below shows the investment performance of the Separate Account and the
Money Market Fund and the accumulation unit performance calculated by assuming
that the contracts were invested in the Separate Account for the same periods.
The performance figures in Column A reflect the fees and expenses paid by the
portfolio. Column B presents performance figures for the accumulation units
which reflect the insurance charges and the fees and expenses of the 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 portfolio, and assumes that you make a withdrawal at the end of the
period and therefore the withdrawal charge is reflected.
TOTAL RETURN FOR THE PERIODS ENDED SEPTEMBER 30, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Column A Column B Column C
Portfolio Performance Accumulation Unit Performance
--------------------- ------------ ----------------
Separate Account
Inception Date 1 Since 1 Since 1 Since
Portfolio in Portfolio Year Inception Year Inception Year Inception
- --------- ----------------- ---------------- ----------------- ----------------
GENERAL AMERICAN
CAPITAL COMPANY
Money Market 6/3/96 5.56% 5.54% 4.16% 4.14% (0.98)% 0.57%
</TABLE>
PART 2 - NEW PORTFOLIOS IN EXISTING SEPARATE ACCOUNT
The contracts are new and therefore have no performance history. However, the
portfolios of Russell Insurance Funds have been existence for some time and
have an investment performance history. In order to show how the historical
performance of the portfolios affects the contract's accumulation unit values,
the following performance was developed. The information is based upon the
historical experience of the portfolios and is for the periods shown. The
chart below shows the investment performance of the portfolio and the
accumulation units performance calculated by assuming that the contracts were
invested in the portfolios for the same periods.
The performance figures in Column A reflect the fees and expenses paid by each
portfolio. Column B presents performance figures for the accumulation units
which reflect the insurance charges and the fees and expenses of each
portfolio. Column C presents performance figures for the accumulation units
which reflect the insurance charges, the contract maintenance charge, the fees
and expenses of each portfolio, and assumes that you make a withdrawal at the
end of the period and therefore the withdrawal charge is reflected.
TOTAL RETURN FOR PERIODS ENDED SEPTEMBER 30, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Column A Column B Column C
Portfolio Performance Accumulation Unit Performance
---------------------- ---------------------- ----------------------
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
- ----------------- ------------ ---------------------- ---------------------- ----------------------
RUSSELL INSURANCE FUNDS
Multi-Style Equity 1/2/97 -- -- 37.36% -- -- 35.96% -- -- 31.36%
Aggressive Equity 1/2/97 -- -- 47.64% -- -- 46.24% -- -- 41.64%
Non-U.S. 1/2/97 -- -- 11.58% -- -- 10.18% -- -- 5.58%
Core Bond 1/2/97 -- -- 8.94% -- -- 7.54% -- -- 2.94%
</TABLE>
- ---------------------------
- --------------------------- STAMP
- ---------------------------
Cova Financial 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 _____, 1997 for The Annuity Contract issued by Cova.
(Please print or type and fill in all information)
---------------------------------------------------------------------------
Name
---------------------------------------------------------------------------
Address
---------------------------------------------------------------------------
City State Zip Code
CC-___(_/97) COVA VA
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT
issued by
COVA VARIABLE ANNUITY ACCOUNT FIVE
AND
COVA FINANCIAL LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED ______, 1997, FOR THE INDIVIDUAL
FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT WHICH IS DESCRIBED HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE THE
COMPANY AT: One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644,
(800) 831-5433.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED _____________, 1997.
TABLE OF CONTENTS
Page
COMPANY
EXPERTS
LEGAL OPINIONS
DISTRIBUTION
Reduction or Elimination of the Withdrawal Charge
PERFORMANCE INFORMATION
Total Return
Historical Unit Values
Reporting Agencies
TAX STATUS
General
Diversification
Multiple Contracts
Contracts Owned by Other than Natural Persons
Tax Treatment of Assignments
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
Tax-Sheltered Annuities - Withdrawal Limitations
ANNUITY PROVISIONS
Variable Annuity
Fixed Annuity
Annuity Unit
Net Investment Factor
Mortality and Expense Guarantee
FINANCIAL STATEMENTS
COMPANY
Cova Financial Life Insurance Company (the "Company") was originally
incorporated on September 6, 1972 as Industrial Indemnity Life Insurance
Company, a California corporation and changed its name on January 1, 1986 to
Xerox Financial Life Insurance Company. The Company presently is licensed to do
business in the state of California. On June 1, 1995 a wholly-owned subsidiary
of General American Life Insurance Company ("General American") purchased Xerox
Financial Services Life Insurance Company ("Xerox Life"), an affiliate of the
Company, from Xerox Financial Services, Inc. The acquisition of Xerox Life
included related companies, including the Company. On June 1, 1995 the Company
changed its name to Cova Financial Life Insurance Company.
General American is a St. Louis-based mutual company with more than $275 billion
of life insurance in force and approximately $19 billion in assets. It provides
life and health insurance, retirement plans, and related financial services to
individuals and groups.
EXPERTS
The Balance Sheet of the Company as of December 31, 1996 and 1995 and the
related Statements of Income, Shareholder's Equity and Cash Flows for the year
ended December 31, 1996 and the periods from June 1, 1995 through December 31,
1995 and January 1, 1995 through May 31, 1995 and for the year ended December
31, 1994 and the Statements of Assets and Liabilities and Contract Owners'
Equity of the Separate Account as of December 31, 1996 and the related Statement
of Operations for the year then ended and the Statement of Change in Contract
Owners' Equity for the year ended December 31, 1996 and the period from June 19,
1995 through December 31, 1995, have been included herein in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
LEGAL OPINIONS
Legal matters in connection with the Contracts described herein are being passed
upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
DISTRIBUTION
Cova Life Sales Company ("Life Sales") acts as the distributor. Prior to June 1,
1995, Cova Life Sales Company was known as Xerox Life Sales Company. Life Sales
is an affiliate of the Company. The offering is on a continuous basis.
REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE
The amount of the Withdrawal Charge on the Contracts may be reduced or
eliminated when sales of the Contracts are made to individuals or to a group of
individuals in a manner that results in savings of sales expenses. The
entitlement to reduction of the Withdrawal Charge will be determined by the
Company after examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made will be
considered. Generally, the sales expenses for a larger group are less than for a
smaller group because of the ability to implement large numbers of Contracts
with fewer sales contacts.
2. The total amount of purchase payments to be received will be considered.
Per Contract sales expenses are likely to be less on larger purchase payments
than on smaller ones.
3. Any prior or existing relationship with the Company will be considered.
Per Contract sales expenses are likely to be less when there is a prior existing
relationship because of the likelihood of implementing the Contract with fewer
sales contacts.
4. There may be other circumstances, of which the Company is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines that
there will be a reduction in sales expenses, the Company may provide for a
reduction or elimination of the Withdrawal Charge.
The Withdrawal Charge may be eliminated when the Contracts are issued to an
officer, director or employee of the Company or any of its affiliates. In no
event will any reduction or elimination of the Withdrawal Charge be permitted
where the reduction or elimination will be unfairly discriminatory to any
person.
PERFORMANCE INFORMATION
Total Return
From time to time, the Company may advertise performance data. Such data will
show the percentage change in the value of an Accumulation Unit based on the
performance of an investment portfolio over a period of time, usually a calendar
year, determined by dividing the increase (decrease) in value for that unit by
the Accumulation Unit value at the beginning of the period.
Any such advertisement will include total return figures for the time periods
indicated in the advertisement. Such total return figures will reflect the
deduction of a 1.25% Mortality and Expense Risk Premium, a .15% Administrative
Expense Charge, the expenses for the underlying investment portfolio being
advertised and any applicable Contract Maintenance Charges and Withdrawal
Charges.
The hypothetical value of a Contract purchased for the time periods described in
the advertisement will be determined by using the actual Accumulation Unit
values for an initial $1,000 purchase payment, and deducting any applicable
Contract Maintenance Charges and any applicable Withdrawal Charges to arrive at
the ending hypothetical value. The average annual total return is then
determined by computing the fixed interest rate that a $1,000 purchase payment
would have to earn annually, compounded annually, to grow to the hypothetical
value at the end of the time periods described. The formula used in these
calculations is: n P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods
used (or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the time
periods used.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of any
contract maintenance charge and withdrawal charge. The deduction of any contract
maintenance charge and withdrawal charge would reduce any percentage increase or
make greater any percentage decrease.
Owners should note that the investment results of each investment portfolio will
fluctuate over time, and any presentation of the investment portfolio's total
return for any period should not be considered as a representation of what an
investment may earn or what an Owner's total return may be in any future period.
The contracts are new and therefore have no performance history. However, the
Separate Account and the corresponding Portfolios have been in existence for
sometime and consequently have an investment performance history. In order to
show how the historical investment performance of the Separate Account and the
Portfolios affect accumulation unit values, performance information was
developed. The information is based upon the historical experience of the
Separate Account and the Portfolios and is for the periods shown. The prospectus
contains a chart of performance information.
Future performance of the Portfolios will vary and the results shown are not
necessarily representative of future results. Performance for periods ending
after those shown may vary substantially from the examples shown. The
performance for a Portfolio is calculated for a specified period of time by
assuming an initial Purchase Payment of $1,000 allocated to the Portfolio. There
are performance figures for the Accumulation Units which reflect the insurance
charges as well as the Portfolio expenses. There are also performance figures
for the Accumulation Units which reflect the insurance charges, the contract
maintenance charge, the Portfolio expenses, and assume that you make a
withdrawal at the end of the period and therefore the withdrawal charge is
reflected. The percentage increases (decreases) are determined by subtracting
the initial Purchase Payment from the ending value and dividing the remainder by
the beginning value. The performance may also show figures when no withdrawal is
assumed.
Historical Unit Values
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the investment
portfolios against established market indices such as the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average or other
management investment companies which have investment objectives similar to the
investment portfolio being compared. The Standard & Poor's 500 Composite Stock
Price Index is an unmanaged, unweighted average of 500 stocks, the majority of
which are listed on the New York Stock Exchange. The Dow Jones Industrial
Average is an unmanaged, weighted average of thirty blue chip industrial
corporations listed on the New York Stock Exchange. Both the Standard & Poor's
500 Composite Stock Price Index and the Dow Jones Industrial Average assume
quarterly reinvestment of dividends.
Reporting Agencies
The Company may also distribute sales literature which compares the performance
of the Accumulation Unit values of the Contracts with the unit values of
variable annuities issued by other insurance companies. Such information will be
derived from the Lipper Variable Insurance Products Performance Analysis
Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is published
by Lipper Analytical Services, Inc., a publisher of statistical data which
currently tracks the performance of almost 4,000 investment companies. The
rankings compiled by Lipper may or may not reflect the deduction of asset-based
insurance charges. The Company's sales literature utilizing these rankings will
indicate whether or not such charges have been deducted. Where the charges have
not been deducted, the sales literature will indicate that if the charges had
been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect the
deduction of asset-based insurance charges. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparison, such as
CDA/Weisenberger.
Morningstar rates a variable annuity against its peers with similar investment
objectives. Morningstar does not rate any variable annuity that has less than
three years of performance data.
TAX STATUS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY
OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS. MOREOVER, NO
ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. An Owner is not
taxed on increases in the value of a Contract until distribution occurs, either
in the form of a lump sum payment or as annuity payments under the Annuity
Option selected. For a lump sum payment received as a total withdrawal (total
surrender), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the Contract. For Non-Qualified Contracts, this cost basis is
generally the purchase payments, while for Qualified Contracts there may be no
cost basis. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period or refund feature) bears
to the expected return under the Contract. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the Contract has been recovered (i.e. when the total of the
excludible amount equals the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Owners, Annuitants and Beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in the imposition of federal income
tax to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contract meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas.
Reg.1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contract. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all investment portfolios underlying the Contracts will
be managed in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owners being
retroactively determined to be the owners of the assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation or certain other entities. Such Contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to a Contract held by a trust or other entity as an
agent for a natural person nor to Contracts held by Qualified Plans. Purchasers
should consult their own tax counsel or other tax adviser before purchasing a
Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Owner are subject to federal income tax withholding. Generally, amounts
are withheld from periodic payments at the same rate as wages and at the rate of
10% from non-periodic payments. However, the Owner, in most cases, may elect not
to have taxes withheld or to have withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or for a specified period of 10
years or more; or b) distributions which are required minimum distributions; or
c) the portion of the distributions not includible in gross income (i.e. returns
of after-tax contributions). Participants should consult their own tax counsel
or other tax adviser regarding withholding requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of the
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his or her Beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
QUALIFIED PLANS
The Contracts offered herein are designed to be suitable for use under various
types of Qualified Plans. Taxation of participants in each Qualified Plan varies
with the type of plan and terms and conditions of each specific plan. Owners,
Annuitants and Beneficiaries are cautioned that benefits under a Qualified Plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Contracts issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. Owners, participants
and Beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts comply with
applicable law. Following are general descriptions of the types of Qualified
Plans with which the Contracts may be used. Such descriptions are not exhaustive
and are for general informational purposes only. The tax rules regarding
Qualified Plans are very complex and will have differing applications depending
on individual facts and circumstances. Each purchaser should obtain competent
tax advice prior to purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
a. H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to establish Qualified
Plans for themselves and their employees, commonly referred to as "H.R. 10" or
"Keogh" plans. Contributions made to the Plan for the benefit of the employees
will not be included in the gross income of the employees until distributed from
the Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions on
all Plans including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Purchasers of Contracts for use with an H.R. 10 Plan should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
b. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employees until the
employees receive distributions from the Contracts. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations" below.) Employee loans are not allowable under the
Contracts. Any employee should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
c. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's gross income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as Individual Retirement Annuities should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
d. Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate employers to establish
various types of retirement plans for employees. These retirement plans may
permit the purchase of the Contracts to provide benefits under the Plan.
Contributions to the Plan for the benefit of employees will not be includible in
the gross income of the employees until distributed from the Plan. The tax
consequences to participants may vary depending upon the particular plan design.
However, the Code places limitations and restrictions on all Plans including on
such items as: amount of allowable contributions; form, manner and timing of
distributions; transferability of benefits; vesting and nonforfeitability of
interests; nondiscrimination in eligibility and participation; and the tax
treatment of distributions, withdrawals and surrenders. (See "Tax Treatment of
Withdrawals - Qualified Contracts" below.) Purchasers of Contracts for use with
Corporate Pension or Profit Sharing Plans should obtain competent tax advice as
to the tax treatment and suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (H.R. 10 and Corporate Pension and
Profit-Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b) (Individual
Retirement Annuities). To the extent amounts are not includible in gross income
because they have been rolled over to an IRA or to another eligible Qualified
Plan, no tax penalty will be imposed. The tax penalty will not apply to the
following distributions: (a) if distribution is made on or after the date on
which the Owner or Annuitant (as applicable) reaches age 59 1/2; (b)
distributions following the death or disability of the Owner or Annuitant (as
applicable) (for this purpose disability is as defined in Section 72(m)(7) of
the Code); (c) after separation from service, distributions that are part of
substantially equal periodic payments made not less frequently than annually for
the life (or life expectancy) of the Owner or Annuitant (as applicable) or the
joint lives (or joint life expectancies) of such Owner or Annuitant (as
applicable) and his or her designated Beneficiary; (d) distributions to an Owner
or Annuitant (as applicable) who separated from service after he has attained
age 55; (e) distributions made to the Owner or Annuitant (as applicable) to the
extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Owner or Annuitant (as applicable) for amounts
paid during the taxable year for medical care; (f) distributions made to an
alternate payee pursuant to a qualified domestic relations order; (g)
distributions from an Individual Retirement Annuity for the purchase of medical
insurance (as described in Section 213(d)(1)(D) of the Code) for the Owner or
Annuitant (as applicable) and his or her spouse and dependents if the Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks. This exception will no longer apply after the Owner or Annuitant (as
applicable) has been re-employed for at least 60 days; (h) distributions from
an Individual Retirement Annuity made to the Owner to the extent such
distributions do not exceed the qualified higher education expenses (as defined
in Section 72(t)(7) of the Code) of the Owner for the taxable year; and (i)
distributions from an Individual Retirement Annuity made to the Owner which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8)
of the Code). The exceptions stated in (d) and (f) above do not apply in the
case of an Individual Retirement Annuity. The exception stated in (c) above
applies to an Individual Retirement Annuity without the requirement that
there be a separation from service.
Generally, distributions from a qualified plan must commence no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
TAX-SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers and transfers between certain Qualified Plans. Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
ANNUITY PROVISIONS
VARIABLE ANNUITY
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable investment portfolio(s) of the Separate Account. At the
Annuity Date, the Contract Value in each investment portfolio will be applied to
the applicable Annuity Tables. The Annuity Table used will depend upon the
Annuity Option chosen. If, as of the Annuity Date, the then current Annuity
Option rates applicable to this class of Contracts provide a first Annuity
Payment greater than guaranteed under the same Annuity Option under this
Contract, the greater payment will be made. The dollar amount of Annuity
Payments after the first is determined as follows:
<TABLE>
<CAPTION>
<S> <C>
(1) the dollar amount of the first Annuity Payment is divided by the value of
an Annuity Unit as of the Annuity Date. This establishes the number of
Annuity Units for each monthly payment. The number of Annuity Units remains
fixed during the Annuity Payment period.
(2) the fixed number of Annuity Units is multiplied by the Annuity Unit value
for the last Valuation Period of the month preceding the month for which
the payment is due. This result is the dollar amount of the payment.
</TABLE>
The total dollar amount of each Variable Annuity Payment is the sum of all
investment portfolios' Variable Annuity Payments reduced by the applicable
Contract Maintenance Charge.
FIXED ANNUITY
A fixed annuity is a series of payments made during the Annuity Period which are
guaranteed as to dollar amount by the Company and do not vary with the
investment experience of the Separate Account. The General Account Value on the
day immediately preceding the Annuity Date will be used to determine the Fixed
Annuity monthly payment. The first monthly Annuity Payment will be based upon
the Annuity Option elected and the appropriate Annuity Option Table.
ANNUITY UNIT
The value of an Annuity Unit for each investment portfolio was arbitrarily set
initially at $10. This was done when the first investment portfolio shares were
purchased. The investment portfolio Annuity Unit value at the end of any
subsequent Valuation Period is determined by multiplying the investment
portfolio Annuity Unit value for the immediately preceding Valuation Period by
the product of (a) the Net Investment Factor for the day for which the Annuity
Unit value is being calculated, and (b) 0.999919.
NET INVESTMENT FACTOR
The Net Investment Factor for any investment portfolio for any Valuation Period
is determined by dividing:
<TABLE>
<CAPTION>
<S> <C>
(a) the Accumulation Unit value as of the close of the current Valuation
Period, by
(b) the Accumulation Unit value as of the close of the immediately preceding
Valuation Period.
</TABLE>
The Net Investment Factor may be greater or less than one, as the Annuity Unit
value may increase or decrease.
MORTALITY AND EXPENSE GUARANTEE
The Company guarantees that the dollar amount of each Annuity Payment after the
first Annuity Payment will not be affected by variations in mortality or expense
experience.
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts.
COVA VARIABLE ANNUITY ACCOUNT FIVE
Financial Statements
(UNAUDITED)
September 30, 1997
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997 (Unaudited)
ASSETS
INVESTMENTS:
<TABLE>
<CAPTION>
<S> <C>
VAN KAMPEN MERRIT SERIES TRUST:
Quality Income Portfolio - 58,973 shares at a net asset value of $10.73 per share (cost $628,539) $ 632,757
Growth and Income Portfolio - 87,613 shares at a net asset value of $17.24 per share (cost $1,240,861) 1,510,813
Money Market Portfolio - 734,959 shares at a net asset value of $1.00 per share (cost $734,959) 734,959
Stock Index Portfolio - 74,778 shares at a net asset value of $20.60 per share (cost $1,175,774 ) 1,540,139
Bond Debenture Portfolio - 262,799 shares at a net asset value of $12.15 per share (cost $3,003,949) 3,193,707
Quality Bond Portfolio - 195,355 shares at a net asset value of $10.38 per share (cost $1,983,754) 2,027,003
Small Cap Stock Portfolio - 407,913 shares at a net asset value of $13.36 per share (cost $4,568,661) 5,448,908
Large Cap Stock Portfolio -550,119 shares at a net asset value of $14.34 per share (cost $6,894,860) 7,890,678
Select Equity Portfolio - 552,622 shares at a net asset value of $14.11 per share (cost $6,431,548) 7,795,957
International Equity Portfolio - 433,807 shares at a net asset value of $12.11 per share (cost $4,878,908) 5,252,163
LORD ABBETT SERIES FUND, INC:
Growth and Income Portfolio - 950,414 shares at a net asset value of $21.22 per share (cost $16,725,762) 20,163,736
Total Assets $56,190,820
</TABLE>
See accompanying notes to unaudited financial statements
COVA VARIABLE ANNUITY ACCOUNT FIVE
STATEMENT OF ASSETS AND LIABILITIES (Continued)
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND CONTRACT OWNERS EQUITY
Contract Owners' Equity:
Accumulation Phase:
Trust Quality Income - 38,842 accumulation units at $16.290627 per unit 632,757
Trust Growth and Income - 71,378 accumulation units at $21.166489 per unit 1,510,813
Trust Money Market - 60,026 accumulation units at $12.244080 per unit 734,959
Trust Stock Index - 63,270 accumulation units at $24.342237 per unit 1,540,139
Trust Bond Debenture - 252,345 accumulation units at $12.656093 per unit 3,193,707
Trust Quality Bond - 186,347 accumulation units at $10.877568 per unit 2,027,003
Trust Small Cap Stock - 395,558 accumulation units at $13.775253 per unit 5,448,908
Trust Large Cap Stock - 539,661 accumulation units at $14.621557 per unit 7,890,678
Trust Select Equity - 549,003 accumulation units at $14.200214 per unit 7,795,957
Trust International Equity - 434,016 accumulation units at $12.101317 per unit 5,252,163
Fund Growth and Income - 651,703 accumulation units at $30.940092 per unit 20,163,736
-----------
Total Contract Owners' Equity 56,190,820
Total Liabilities and Contract Owners' Equity $56,190,820
</TABLE>
See accompanying notes to unaudited financial statements
COVA VARIABLE ANNUITY ACCOUNT FIVE
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1997 (Unaudited)
COVA LORD ABBETT
SERIES TRUST
SERIES FUND, INC.
<TABLE>
<CAPTION>
QUALITY GROWTH & MONEY STOCK BOND QUALITY SMALL CAP LARGE CAP SELECT
INCOME INCOME MARKET INDEX DEBENTURE BOND STOCK STOCK EQUITY
-------- -------- ------ ------- --------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends and Capital Gains 17,814 23,391 35,417 14,932 43,514 42,357 18,606 43,632 42,910
Distributions
Total Income 17,814 23,391 35,417 14,932 43,514 42,357 18,606 43,632 42,910
EXPENSES:
Mortality and Expense
Risk Fee 3,580 10,392 8,052 11,506 15,296 12,032 26,373 37,484 41,925
Other Operating Expenses 430 1,247 966 1,381 1,835 1,444 3,165 4,498 5,031
Total Expenses 4,010 11,639 9,018 12,887 17,131 13,476 29,538 41,982 46,956
Net Investment Income 13,804 11,752 26,399 2,045 26,383 28,881 (10,932) 1,650 (4,046)
NET REALIZED GAIN/(LOSS)
ON INVESTMENTS (319) 1,605 -- 10,809 1,413 1,226 405 8,346 8,091
NET CHANGE IN UNREALIZED
GAIN ON INVESTMENTS 3,771 232,208 -- 282,181 181,366 40,936 846,226 938,963 1,263,016
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 3,452 233,813 -- 292,990 182,779 42,162 846,631 947,309 1,271,107
NET INCREASE IN CONTRACT
OWNERS' EQUITY RESULTING
FROM OPERATIONS 17,256 245,565 26,399 295,035 209,162 71,043 835,699 948,959 1,267,061
INTL GROWTH & TOTAL
----------
EQUITY INCOME
------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends and Capital Gains 32,807 0 315,380
Distributions
Total Income 32,807 0 315,380
EXPENSES:
Mortality and Expense
Risk Fee 27,512 131,533 325,685
Other Operating Expenses 3,301 15,784 39,082
Total Expenses 30,813 147,317 364,767
Net Investment Income 1,994 (147,317) (49,387)
NET REALIZED GAIN/(LOSS)
ON INVESTMENTS 1,703 39,221 72,500
NET CHANGE IN UNREALIZED
GAIN ON INVESTMENTS 306,572 3,063,205 7,158,444
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 308,275 3,102,426 7,230,944
NET INCREASE IN CONTRACT
OWNERS' EQUITY RESULTING
FROM OPERATIONS 310,269 2,955,109 7,181,557
</TABLE>
See accompanying notes to unaudited financial statements
COVA VARIABLE ANNUITY ACCOUNT FIVE
STATEMENT OF CHANGES IN CONTRACT OWNERS EQUITY
For the Nine Months Ended September 30, 1997 (Unaudited)
COVA LORD ABBETT
SERIES TRUST SERIES FUND, INC.
_____________________________________________________________________________
____________________________________ ___________
<TABLE>
<CAPTION>
QUALITY GROWTH & MONEY STOCK BOND QUALITY SMALL CAP LARGE CAP
INCOME INCOME MARKET INDEX DEBENTURE BOND STOCK STOCK
-------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income 13,804 11,752 26,399 2,045 26,383 28,881 (10,932) 1,650
Net Realized Gain/(Loss)
on Investments (319) 1,605 -- 10,809 1,413 1,226 405 8,346
Net Unrealized Gain
on Investments 3,771 232,208 -- 282,181 181,366 40,936 846,226 938,963
Net Increase in Contract
Owners' Equity Resulting
from Operations 17,256 245,565 26,399 295,035 209,162 71,043 835,699 948,959
From Account Unit
Transactions:
Proceeds from Units of
the Account Sold -- 139,177 4,851,768 12,900 710,842 250,715 675,061 1,363,875
Payments for Units of the
Account Redeemed (45,371) (7,325) (73,013) (18,980) (25,252) (17,418) (35,775) (42,476)
Account Transfers 361,928 447,120 (4,392,069) 291,222 1,852,296 1,053,527 2,694,738 4,189,497
Net Increase in Contract
Owners' Equity From
Account Unit Transactions 316,557 578,972 386,686 285,142 2,537,886 1,286,824 3,334,024 5,510,896
Net Increase in Contract
Owners' Equity 333,813 824,537 413,085 580,177 2,747,048 1,357,867 4,169,723 6,459,855
Contract Owners' Equity:
Beginning of Period 298,944 686,276 321,874 959,962 446,659 669,136 1,279,185 1,430,823
End of Period 632,757 1,510,813 734,959 1,540,139 3,193,707 2,027,003 5,448,908 7,890,678
SELECT INTL GROWTH & TOTAL
-----------
EQUITY EQUITY INCOME
---------- ---------- -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income (4,046) 1,994 (147,317) (49,387)
Net Realized Gain/(Loss)
on Investments 8,091 1,703 39,221 72,500
Net Unrealized Gain
on Investments 1,263,016 306,572 3,063,205 7,158,444
Net Increase in Contract
Owners' Equity Resulting
from Operations 1,267,061 310,269 2,955,109 7,181,557
From Account Unit
Transactions:
Proceeds from Units of
the Account Sold 1,225,811 875,940 1,277,499 11,383,588
Payments for Units of the
Account Redeemed (42,730) (22,216) (351,326) (681,882)
Account Transfers 3,335,262 2,727,911 6,866,248 19,427,680
Net Increase in Contract
Owners' Equity From
Account Unit Transactions 4,518,343 3,581,635 7,792,421 30,129,386
Net Increase in Contract
Owners' Equity 5,785,404 3,891,904 10,747,530 37,310,943
Contract Owners' Equity:
Beginning of Period 2,010,553 1,360,259 9,416,206 18,879,877
End of Period 7,795,957 5,252,163 20,163,736 56,190,820
</TABLE>
See accompanying notes to unaudited financial statements
COVA VARIABLE ANNUITY ACCOUNT FIVE
STATEMENT OF CHANGES IN CONTRACT OWNERS' EQUITY
For the Year Ended December 31, 1996
<TABLE>
COVA LORD ABBETT
SERIES TRUST SERIES FUND, INC.
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Quality Growth & Money Stock Bond Quality Small
INCOME INCOME MARKET INDEX Debenture Bond Cap. Stock
--------- ---------- ------------ ---------
From Operations:
Net Investment Income $ 7,224 $ 28,906 $ 21,633 $ 34,743 $ 12,071 $ 13,991 $ 47,627
Net Realized Gain on
Investments (682) 518 -- 1,342 1,375 65 334
Net Unrealized Gain/(Loss)
on Investments (1,359) 41,537 -- 80,860 8,392 2,313 34,020
--------- ---------- ---------
NET INCREASE IN CONTRACT
OWNERS' EQUITY RESULTING
FROM OPERATIONS 5,183 70,961 21,633 116,945 21,838 16,369 81,981
--------- ---------- ------------ ---------
From Account Unit Transactions:
Proceeds from Units of
the Account Sold 57,261 32,625 5,011,759 152,928 115,745 100,194 461,912
Payments for Units of the
Account Redeemed (22,762) (7,535) (170) (13,935) -- (1,570) (3,036)
Account Transfers 125,849 485,085 (5,037,068) 492,907 309,076 554,143 738,328
--------- ---------- ------------ ---------
Net Increase/(Decrease) in
Contact Owners' Equity
From Account Unit
Transactions 160,348 510,175 (25,479) 631,900 424,821 652,767 1,197,204
--------- ---------- ------------ ---------
Net Increase/(Decrease) in Contract
Owners' Equity 165,531 581,136 (3,846) 748,845 446,659 669,136 1,279,185
--------- ---------- ------------ ---------
Contract Owners' Equity:
Beginning of Period $133,413 $ 105,140 $ 325,720 $211,117 -- -- --
--------- ---------- ------------
End of Period $298,944 $ 686,276 $ 321,874 $959,962 $ 446,659 $669,136 $ 1,279,185
<S> <C> <C> <C> <C> <C>
Large Select Intl Growth &
Cap. Stock Equity Equity INCOME TOTAL
----------- ------------
From Operations:
Net Investment Income $ 29,893 $ 21,801 $ 2,480 $ 534,226 $ 754,595
Net Realized Gain on
Investments 3,085 465 132 2,820 9,454
Net Unrealized Gain/(Loss)
on Investments 56,856 101,392 66,683 471,675 862,369
----------- ------------
NET INCREASE IN CONTRACT
OWNERS' EQUITY RESULTING
FROM OPERATIONS 89,834 123,658 69,295 1,008,721 1,626,418
----------- ------------
From Account Unit Transactions:
Proceeds from Units of
the Account Sold 542,124 755,570 576,132 1,438,328 9,244,578
Payments for Units of the
Account Redeemed (7,336) (8,859) (4,725) (131,847) (201,775)
Account Transfers 806,201 1,140,184 719,557 4,425,896 4,760,158
----------- ------------
Net Increase/(Decrease) in
Contact Owners' Equity
From Account Unit
Transactions 1,340,989 1,886,895 1,290,964 5,732,377 13,802,961
----------- ------------
Net Increase/(Decrease) in Contract
Owners' Equity 1,430,823 2,010,553 1,360,259 6,741,098 15,429,379
----------- ------------
Contract Owners' Equity:
Beginning of Period -- -- -- $2,675,108 $ 3,450,498
----------- ------------
End of Period $ 1,430,823 $2,010,553 $1,360,259 $9,416,206 $18,879,877
</TABLE>
See accompanying notes to unaudited statements.
COVA VARIABLE ANNUITY ACCOUNT FIVE
NOTES TO UNAUDITED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1997
1. ORGANIZATION:
Cova Variable Annuity Account Five (the "Separate Account") is a separate
investment account established by a resolution of the Board of Directors of
Cova Financial Life Insurance Company ("Cova"). The Separate Account operates
as a Unit Investment Trust under the Investment Company Act of 1940.
The Separate Account is divided into sub-accounts, with the assets of each
sub-account invested in the Cova Series Trust ("Trust") or the Lord Abbett
Series Fund, Inc. ("Fund"). The Trust consists of ten portfolios of which
four managed by Van Kampen American Capital Investment Advisory Corp., five
managed by J.P. Morgan Investment Management, Inc. and one portfolio managed
by Lord, Abbett and Co. The Trust portfolios available for investment are the
Quality Income, Growth and Income, Money Market, Stock Index, Bond Debenture,
Quality Bond, Small Cap Stock, Large Cap Stock, Select Equity, and
International Equity Portfolios. The Fund has one portfolio available for
investment: the Growth and Income Portfolio. Not all portfolios of the Trust
and the Fund are available for investment depending upon the nature and
specific terms of the different contracts currently being offered for sale.
The Trust and the Fund are all diversified, open-end, management investment
companies which are intended to meet differing investment objectives.
2. SIGNIFICANT ACCOUNTING POLICIES:
A. INVESTMENT VALUATION
Investments in shares of the Trust and Fund are carried in the statement of
assets and liabilities at the underlying net asset value of the Trust and
Fund. The net asset value of the Trust and Fund has been determined on the
market value basis, and is valued daily by the Trust and Fund investment
managers. Realized gains and losses are calculated by the average cost
method.
B. REINVESTMENT OF DIVIDENDS
Dividends received from net investment income and net realized capital gains
are reinvested in additional shares of the portfolio of the Trust or Fund
making the distribution or, at the election of the Separate Account, received
in cash. Dividend income and capital gain distributions are recorded as
income on the ex-dividend date.
C. FEDERAL INCOME TAXES
Operations of the Separate Account form a part of Cova, which is taxed as a
"Life Insurance Company" under the Internal Revenue Code ("Code"). Under
current provisions of the Code, no Federal income taxes are payable by Cova
with respect to earnings of the Separate Account.
Under the principles set forth in Internal Revenue Ruling 81-225 and Section
817(h) of the Code and regulations thereunder, Cova believes that it will be
treated as the owner of the assets invested in the Separate Account for
Federal income tax purposes, with the result that earnings and gains, if any,
derived from those assets will not be included in a contract owners gross
income until amounts are withdrawn or received pursuant to an Optional Payment
Plan.
3. GENERAL:
The accompanying unaudited financial statements include all adjustments,
consisting of normal recurring accruals, that management considers necessary
for fair presentation of the separate accounts financial position and results
of operations as of and for the interim periods presented. Certain footnote
disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, all though the Separate account believes the disclosures
in these financial statements are adequate to present fairly the information
contained herein. The results of operations for the nine months ended
September 30, 1997, are not necessarily indicative of the results to be
expected for the full year.
COVA VARIABLE ANNUITY ACCOUNT FIVE
Financial Statements
December 31, 1996
(With Independent Auditors' Report Thereon)
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
ASSETS
INVESTMENTS:
<TABLE>
<CAPTION>
<S> <C>
COVA SERIES TRUST:
Quality Income Portfolio - 27,535 shares at a net asset value of $10.69 per share (cost $293,906) $ 294,353
Growth and Income Portfolio - 46,829 shares at a net asset value of $13.99 per share (cost $617,232) 654,976
Money Market Portfolio - 321,874 shares at a net asset value of $1.00 per share (cost $321,874) 321,874
Stock Index Portfolio - 57,208 shares at a net asset value of $16.13 per share (cost $840,381) 922,565
Bond Debenture Portfolio - 39,495 shares at a net asset value of $10.97 per share (cost $424,882) 433,274
Quality Bond Portfolio - 64,756 shares at a net asset value of $10.08 per share (cost $650,565) 652,878
Small Capital Stock Portfolio - 112,341 shares at a net asset value of $10.92 per share (cost $1,192,979) 1,227,000
Large Capital Stock Portfolio - 125,692 shares at a net asset value of $11.11 per share (cost $1,339,783) 1,396,638
Select Equity Portfolio - 184,560 shares at a net asset value of $10.74 per share (cost $1,881,173) 1,982,566
International Equity Portfolio - 123,533 shares at a net value of $10.96 per share (cost $1,287,163) 1,353,846
LORD ABBETT SERIES FUND, INC:
Growth and Income Portfolio - 553,055 shares at a net asset value of $17.03 per share (cost $9,041,437) 9,416,206
DIVIDENDS RECEIVABLE:
COVA SERIES TRUST:
Quality Income Portfolio 4,591
Growth and Income Portfolio 31,300
Stock Index Portfolio 37,397
Bond Debenture Portfolio 13,385
Quality Bond Portfolio 16,258
Small Cap Portfolio 52,185
Large Cap Portfolio 34,185
Select Equity Portfolio 27,987
International Equity Portfolio 6,413
-----------
TOTAL DIVIDENDS RECEIVABLE 223,701
-----------
TOTAL ASSETS $18,879,877
===========
LIABILITIES AND CONTRACT OWNERS' EQUITY
CONTRACT OWNERS' EQUITY:
Trust Quality Income - 19,237 accumulation units at $15.540286 per unit $ 298,944
Trust Growth and Income - 40,350 accumulation units at $17.008156 per unit 686,276
Trust Money Market - 27,094 accumulation units at $11.879722 per unit 321,874
Trust Stock Index - 50,426 accumulation units at $19.036955 959,962
per unit
Trust Bond Debenture Portfolio - 39,545 accumulation units at $11.294929 per unit 446,659
Trust Quality Bond Portfolio - 64,534 accumulation units at $10.368767 per unit 669,136
Trust Small Cap Stock Portfolio - 113,118 accumulation units at $11.308427 per unit 1,279,185
Trust Large Cap Stock Portfolio - 126,231 accumulation units at $11.334982 per unit 1,430,823
Trust Select Equity Portfolio - 185,509 accumulation units at $10.838053 per unit 2,010,553
Trust International Equity Portfolio - 124,032 accumulation units at $10.967004 per unit 1,360,259
Fund Growth and Income - 375,304 accumulation units at $25.089540 per unit 9,416,206
-----------
TOTAL CONTRACT OWNERS' EQUITY 18,879,877
-----------
TOTAL LIABILITIES AND CONTRACT OWNERS' EQUITY $18,879,877
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
COVA
LORD ABBETT
SERIES TRUST
SERIES FUND, INC.
_____________________________________________________________________________
_____________________________________ ____________
<TABLE>
<CAPTION>
QUALITY GROWTH & MONEY STOCK BOND QUALITY SMALL LARGE SELECT
INCOME INCOME MARKET INDEX DEBENTURE BOND CAP STOCK CAP STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends and Capital Gains
Distributions $ 10,397 $ 34,666 $29,444 $ 43,128 $ 13,769 $ 16,671 $ 52,946 $ 34,930 $ 29,027
Total Income 10,397 34,666 29,444 43,128 13,769 16,671 52,946 34,930 29,027
EXPENSES:
Mortality and Expense
Risk Fee 2,833 5,143 6,974 7,487 1,516 2,393 4,749 4,497 6,452
Administrative Fee 340 617 837 898 182 287 570 540 774
Total Expenses 3,173 5,760 7,811 8,385 1,698 2,680 5,319 5,037 7,226
NET INVESTMENT INCOME 7,224 28,906 21,633 34,743 12,071 13,991 47,627 29,893 21,801
NET REALIZED GAIN/(LOSS)
ON INVESTMENTS (682) 518 -- 1,342 1,375 65 334 3,085 465
NET CHANGE IN UNREALIZED
GAIN/(LOSS) ON INVESTMENTS (1,359) 41,537 -- 80,860 8,392 2,313 34,020 56,856 101,392
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS (2,041) 42,055 -- 82,202 9,767 2,378 34,354 59,941 101,857
NET INCREASE IN CONTRACT
OWNERS' EQUITY RESULTING
FROM OPERATIONS $ 5,183 $ 70,961 $21,633 $116,945 $ 21,838 $ 16,369 $ 81,981 $ 89,834 $123,658
========= ========= ======= ======== ========== ======== ========== ========== ========
INTL GROWTH &
EQUITY INCOME TOTAL
<S> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends and Capital Gains
Distributions $ 8,149 $ 615,866 $ 888,993
Total Income 8,149 615,866 888,993
EXPENSES:
Mortality and Expense
Risk Fee 5,062 72,893 119,999
Administrative Fee 607 8,747 14,399
Total Expenses 5,669 81,640 134,398
NET INVESTMENT INCOME 2,480 534,226 754,595
NET REALIZED GAIN/(LOSS)
ON INVESTMENTS 132 2,820 9,454
NET CHANGE IN UNREALIZED
GAIN/(LOSS) ON INVESTMENTS 66,683 471,675 862,369
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS 66,815 474,495 871,823
NET INCREASE IN CONTRACT
OWNERS' EQUITY RESULTING
FROM OPERATIONS $69,295 $1,008,721 $1,626,418
======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
COVA VARIABLE ANNUITY ACCOUNT FIVE
STATEMENT OF CHANGES IN CONTRACT OWNERS' EQUITY
For the Year Ended December 31, 1996
COVA
LORD ABBETT
SERIES TRUST
SERIES FUND, INC.
_____________________________________________________________________________
_________ __________
<TABLE>
<CAPTION>
QUALITY GROWTH & MONEY STOCK BOND QUALITY SMALL
INCOME INCOME MARKET INDEX DEBENTURE BOND CAP. STOCK
--------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 7,224 $ 28,906 $ 21,633 $ 34,743 $ 12,071 $ 13,991 $ 47,627
Net Realized Gain/(Loss) on
Investments (682) 518 -- 1,342 1,375 65 334
Net Unrealized Gain/(Loss)
on Investments (1,359) 41,537 -- 80,860 8,392 2,313 34,020
NET INCREASE IN CONTRACT
Net Increase in Contract
Owners' Equity Resulting
Owners Equity Resulting
FROM OPERATIONS 5,183 70,961 21,633 116,945 21,838 16,369 81,981
FROM ACCOUNT UNIT TRANSACTIONS:
Proceeds from Units of
the Account Sold 57,261 32,625 5,011,759 152,928 115,745 100,194 461,912
Payments for Units of the
Account Redeemed (22,762) (7,535) (170) (13,935) -- (1,570) (3,036)
Account Transfers 125,849 485,085 (5,037,068) 492,907 309,076 554,143 738,328
NET INCREASE/(DECREASE) IN
CONTRACT OWNERS' EQUITY
FROM ACCOUNT UNIT 160,348 510,175 (25,479) 631,900 424,821 652,767 1,197,204
TRANSACTIONS
NET INCREASE/(DECREASE) IN CONTRACT
OWNERS' EQUITY 165,531 581,136 (3,846) 748,845 446,659 669,136 1,279,185
CONTRACT OWNERS' EQUITY:
BEGINNING OF PERIOD 133,413 105,140 325,720 211,117 -- -- --
END OF PERIOD $298,944 $ 686,276 $ 321,874 $959,962 $ 446,659 $669,136 $ 1,279,185
LARGE SELECT INTL GROWTH &
CAP. STOCK EQUITY EQUITY INCOME TOTAL
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net Investment Income $ 29,893 $ 21,801 $ 2,480 $ 534,226 $ 754,595
Net Realized Gain/(Loss) on
Investments 3,085 465 132 2,820 9,454
Net Unrealized Gain/(Loss)
on Investments 56,856 101,392 66,683 471,675 862,369
NET INCREASE IN CONTRACT
Net Increase in Contract
Owners' Equity Resulting
Owners Equity Resulting
FROM OPERATIONS 89,834 123,658 69,295 1,008,721 1,626,418
FROM ACCOUNT UNIT TRANSACTIONS:
Proceeds from Units of
the Account Sold 542,124 755,570 576,132 1,438,328 9,244,578
Payments for Units of the
Account Redeemed (7,336) (8,859) (4,725) (131,847) (201,775)
Account Transfers 806,201 1,140,184 719,557 4,425,896 4,760,158
NET INCREASE/(DECREASE) IN
CONTRACT OWNERS' EQUITY
FROM ACCOUNT UNIT 1,340,989 1,886,895 1,290,964 5,732,377 13,802,961
TRANSACTIONS
NET INCREASE/(DECREASE) IN CONTRACT
OWNERS' EQUITY 1,430,823 2,010,553 1,360,259 6,741,098 15,429,379
CONTRACT OWNERS' EQUITY:
BEGINNING OF PERIOD -- -- -- 2,675,108 3,450,498
END OF PERIOD $ 1,430,823 $2,010,553 $1,360,259 $9,416,206 $18,879,877
</TABLE>
See accompanying notes to financial statements.
COVA VARIABLE ANNUITY ACCOUNT FIVE
STATEMENT OF CHANGES IN CONTRACT OWNERS' EQUITY
For the Period from June 19, 1995 (Commencement of Operations)
Through December 31, 1995
<TABLE>
VAN KAMPEN MERRITT LORD ABBETT
SERIES TRUST SERIES FUND, INC.
___________________________________________ ___________________
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Quality Growth & Money Stock Growth &
INCOME INCOME MARKET INDEX INCOME TOTAL
--------- ---------- ------------ --------- ----------- -----------
FROM OPERATIONS:
Net Investment Income $ 1,133 $ 7,080 $ 8,149 $ 7,348 $ 197,406 $ 221,116
Net Realized Gain on
Investments 6 262 -- 1,432 2,243 3,943
Net Unrealized Gain/(Loss)
on Investments 1,806 (3,794) -- 1,325 (96,906) (97,569)
--------- ---------- --------- ----------- -----------
NET INCREASE IN CONTRACT
OWNERS' EQUITY
RESULTING FROM
OPERATIONS 2,945 3,548 8,149 10,105 102,743 127,490
--------- ---------- ------------ --------- ----------- -----------
From Account Unit Transactions:
Proceeds from Units of
the Account Sold 20,000 148 2,128,675 15,778 441,266 2,605,867
Payments for Units of the
Account Redeemed (248) -- -- (2,204) (3,894) (6,346)
Account Transfers 110,716 101,444 (1,811,104) 187,438 2,134,993 723,487
--------- ---------- ------------ --------- ----------- -----------
Net Increase in Contract
Owners' Equity From
Account Unit
Transactions 130,468 101,592 317,571 201,012 2,572,365 3,323,008
--------- ---------- ------------ --------- ----------- -----------
Net Increase in Contract
Owners' Equity 133,413 105,140 325,720 211,117 2,675,108 3,450,498
--------- ---------- ------------ --------- ----------- -----------
Contract Owners' Equity:
Beginning of Period -- -- -- -- -- --
--------- ---------- ------------ --------- ----------- -----------
End of Period $133,413 $ 105,140 $ 325,720 $211,117 $2,675,108 $3,450,498
</TABLE>
See accompanying notes to financial statements.
COVA VARIABLE ANNUITY ACCOUNT FIVE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period
per sub-account are presented below:
<TABLE>
<CAPTION>
COVA SERIES TRUST - QUALITY INCOME PORTFOLIO
(MANAGED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.)
FOR THE PERIOD FROM 8/16/95
FOR THE YEAR (COMMENCEMENT OF OPERATIONS)
ENDED 12/31/96 THROUGH 12/31/95)
---------------- -----------------------------
<S> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 15.33 $ 14.42
---------------- -----------------------------
Net Investment Income .46 .32
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions (.25) .59
---------------- -----------------------------
Total from Investment Operations .21 .91
---------------- -----------------------------
Accumulation Unit Value,
End of Period $ 15.54 $ 15.33
================ =============================
Total Return** 1.36% 17.03%*
Contract Owners Equity,
End of Period (in thousands) $ 299 $ 133
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 3.21% 6.54%*
Number of Units Outstanding
at End of Period 19,237 8,702
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance
fees or account transfer charges), but do reflect mortality and expense
charges, administration expense
charges as well as all expenses of the underlying portfolios (investment
advisory fees and portfolio
operating expenses).
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period
per sub-account are presented below:
<TABLE>
<CAPTION>
COVA SERIES TRUST - GROWTH & INCOME PORTFOLIO
(MANAGED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.)
FOR THE PERIOD FROM 7/19/95
FOR THE YEAR (COMMENCEMENT OF OPERATIONS)
ENDED 12/31/96 THROUGH 12/31/95
-----------------------------
<S> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 14.61 $ 13.05
Net Investment Income .68 .99
Net Realized and Unrealized
Gain from Security
Transactions 1.72 .57
Total from Investment Operations 2.40 1.56
-----------------------------
Accumulation Unit Value,
End of Period $ 17.01 $ 14.61
================ =============================
Total Return** 16.42% 26.71%*
Contract Owners Equity,
End of Period (in thousands) $ 686 $ 105
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 7.08% 49.49%*
Number of Units Outstanding
at End of Period 40,350 7,197
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance fees or
account transfer charges), but do reflect mortality and expense charges,
administration expense charges as well
as all expenses of the underlying portfolios (investment advisory fees and
portfolio operating expenses).
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period
per sub-account are presented below:
<TABLE>
<CAPTION>
COVA SERIES TRUST - MONEY MARKET PORTFOLIO
(MANAGED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.)
For the Period From 6/19/95
FOR THE YEAR (Commencement of Operations)
ENDED 12/31/96 Through 12/31/95
---------------- -----------------------------
<S> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 11.42 $ 11.13
---------------- -----------------------------
Net Investment Income .46 .29
Net Realized and Unrealized
Gain/(Loss) from Security
Transactions -- --
Total from Investment Operations .46 .29
Accumulation Unit Value,
End of Period $ 11.88 $ 11.42
================ =============================
Total Return** 3.98% 4.94%*
Contract Owners Equity,
End of Period (in thousands) $ 322 $ 326
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 3.91% 4.38%*
Number of Units Outstanding
at End of Period 27,094 28,509
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance fees or
account transfer charges), but do reflect mortality and expense charges,
administration expense charges as well
as all expenses of the underlying portfolios(investment advisory fees and
portfolio operating expenses).
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding throughout the
period
per sub-account are presented below:
<TABLE>
<CAPTION>
COVA SERIES TRUST - STOCK INDEX PORTFOLIO
(MANAGED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.)
For the Period From 7/20/95
FOR THE YEAR (Commencement of Operations)
ENDED 12/31/96 Through 12/31/95
---------------- -----------------------------
<S> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 15.77 $ 14.13
---------------- -----------------------------
Net Investment Income .67 .50
Net Realized and Unrealized
Gain from Security
Transactions 2.60 1.14
---------------- -----------------------------
Total from Investment Operations 3.27 1.64
---------------- -----------------------------
Accumulation Unit Value,
End of Period $ 19.04 $ 15.77
================ =============================
Total Return** 20.69% 26.25%*
Contract Owners Equity,
End of Period (in thousands) $ 960 $ 211
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 5.84% 18.57%*
Number of Units Outstanding
at End of Period 50,426 13,384
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance fees
or account transfer charges), but do reflect mortality and expense charges,
administration expense charges as
well as all expenses of the underlying portfolios(investment advisory fees
and portfolio operating expenses).
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding
throughout the period per sub-account are presented below:
<TABLE>
<CAPTION>
COVA SERIES TRUST - BOND DEBENTURE PORTFOLIO (MANAGED BY LORD, ABBETT & CO.)
FOR THE PERIOD FROM 5/20/96
(COMMENCEMENT OF OPERATIONS)
THROUGH 12/31/96
-----------------------------
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 10.15
-----------------------------
Net Investment Income .33
Net Realized and Unrealized
Gain from Security
Transactions .82
-----------------------------
Total from Investment Operations 1.15
-----------------------------
Accumulation Unit Value,
End of Period $ 11.30
=============================
Total Return** 18.73%*
Contract Owners Equity,
End of Period (in thousands) $ 447
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 9.98%*
Number of Units Outstanding
at End of Period 39,545
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance
fees or account transfer charges), but do reflect mortality and expense
charges, administration expense
charges as well as all expenses of the underlying portfolios (investment
advisory fees and portfolio
operating expenses).
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding
throughout the period per sub-account are presented below:
<TABLE>
<CAPTION>
COVA SERIES TRUST - QUALITY BOND PORTFOLIO
(MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT, INC.)
FOR THE PERIOD FROM 5/20/96
(COMMENCEMENT OF OPERATIONS)
THROUGH 12/31/96
-----------------------------
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 9.95
-----------------------------
Net Investment Income .29
Net Realized and Unrealized
Gain from Security
Transactions .13
-----------------------------
Total from Investment Operations .42
-----------------------------
Accumulation Unit Value,
End of Period $ 10.37
=============================
Total Return** 6.80%*
Contract Owners Equity,
End of Period (in thousands) $ 669
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 7.33%*
Number of Units Outstanding
at End of Period 64,534
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance
fees or account transfer charges), but do reflect mortality and expense
charges, administration expense
charges as well as all expenses of the underlying portfolios
(investment advisory fees and portfolio
operating expenses).
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding
throughout the period per sub-account are presented below:
<TABLE>
<CAPTION>
COVA SERIES TRUST - SMALL CAP STOCK PORTFOLIO
(MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT, INC.)
FOR THE PERIOD FROM 5/15/96
(COMMENCEMENT OF OPERATIONS)
THROUGH 12/31/96
-----------------------------
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 10.91
-----------------------------
Net Investment Income .39
Net Realized and Unrealized
Gain from Security
Transactions .01
-----------------------------
Total from Investment Operations .40
-----------------------------
Accumulation Unit Value,
End of Period $ 11.31
=============================
Total Return** 5.90%*
Contract Owners Equity,
End of Period (in thousands) $ 1,279
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 12.57%*
Number of Units Outstanding
at End of Period 113,118
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance
fees or account transfer charges), but do reflect mortality and expense
charges, administration expense
charges as well as all expenses of the underlying portfolios
(investment advisory fees and portfolio
operating expenses).
</TABLE>
See accompanying notes to financial statements.
COVA VARIABLE ANNUITY ACCOUNT FIVE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding
throughout the period per sub-account are presented below:
<TABLE>
<CAPTION>
COVA SERIES TRUST - LARGE CAP STOCK PORTFOLIO
(MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT, INC.)
FOR THE PERIOD FROM 5/16/96
(COMMENCEMENT OF OPERATIONS)
THROUGH 12/31/96
-----------------------------
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 10.16
-----------------------------
Net Investment Income .22
Net Realized and Unrealized
Gain from Security
Transactions .96
-----------------------------
Total from Investment Operations 1.18
-----------------------------
Accumulation Unit Value,
End of Period $ 11.34
=============================
Total Return** 19.05%*
Contract Owners Equity,
End of Period (in thousands) $ 1,431
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 8.33%*
Number of Units Outstanding
at End of Period 126,231
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance
fees or account transfer charges), but do reflect mortality and expense
charges, administration expense
charges as well as all expenses of the underlying portfolios
(investment advisory fees and portfolio
operating expenses).
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding
throughout the period per sub-account are presented below:
<TABLE>
<CAPTION>
COVA SERIES TRUST - SELECT EQUITY PORTFOLIO
(MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT, INC.)
FOR THE PERIOD FROM 5/15/96
(COMMENCEMENT OF OPERATIONS)
THROUGH 12/31/96
-----------------------------
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 10.15
-----------------------------
Net Investment Income .11
Net Realized and Unrealized
Gain from Security
Transactions .58
-----------------------------
Total from Investment Operations .69
-----------------------------
Accumulation Unit Value,
End of Period $ 10.84
=============================
Total Return** 10.89%*
%*
Contract Owners Equity,
End of Period (in thousands) $ 2,011
Ratio of Expenses to Average 1.40%*
Contract Owners' Equity
Ratio of Net Investment Income
to Average Contract
Owners' Equity 4.23%*
Number of Units Outstanding
at End of Period 185,509
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance
fees or account transfer charges), but do reflect mortality and expense
charges, administration expense
charges as well as all expenses of the underlying portfolios
(investment advisory fees and portfolio
operating expenses).
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding
throughout the period per sub-account are presented below:
<TABLE>
<CAPTION>
COVA SERIES TRUST - INTERNATIONAL EQUITY PORTFOLIO
(MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT, INC.)
FOR THE PERIOD FROM 5/14/96
(COMMENCEMENT OF OPERATIONS)
THROUGH 12/31/96
-----------------------------
<S> <C>
Accumulation Unit Value,
Beginning of Period $ 10.10
-----------------------------
Net Investment Income .02
Net Realized and Unrealized
Gain from Security
Transactions .85
-----------------------------
Total from Investment Operations .87
-----------------------------
Accumulation Unit Value,
End of Period $ 10.97
=============================
Total Return** 13.86%*
Contract Owners Equity,
End of Period (in thousands) $ 1,360
Ratio of Expenses to Average
Contract Owners' Equity 1.40%*
Ratio of Net Investment Income
to Average Contract
Owners' Equity 0.61%*
Number of Units Outstanding
at End of Period 124,032
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance
fees or account transfer charges), but do reflect mortality and expense
charges, administration expense
charges as well as all expenses of the underlying portfolios
(investment advisory fees and portfolio
operating expenses).
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
FINANCIAL HIGHLIGHTS
Financial Highlights for each accumulation unit outstanding
throughout the period per sub-account are presented below:
<TABLE>
<CAPTION>
LORD ABBETT SERIES FUND, INC. - GROWTH AND INCOME PORTFOLIO
FOR THE PERIOD FROM7/20/95
FOR THE YEAR (COMMENCEMENT OF OPERATIONS)
ENDED 12/31/96 THROUGH 12/31/95
---------------- -----------------------------
<S> <C> <C>
Accumulation Unit Value,
Beginning of Period $ 21.31 $ 19.54
---------------- -----------------------------
Net Investment Income 1.32 1.50
Net Realized and Unrealized
Gain from Security
Transactions 2.46 .27
---------------- -----------------------------
Total from Investment Operations 3.78 1.77
---------------- -----------------------------
Accumulation Unit Value,
End of Period $ 25.09 $ 21.31
================ =============================
Total Return** 17.76% 20.38%*
Contract Owners Equity,
End of Period (in thousands) $ 9,416 $ 2,675
Ratio of Expenses to Average
Contract Owners' Equity 1.40% 1.40%*
Ratio of Net Investment Income
to Average Contract 9.23%
Owners' Equity 42.60%*
Number of Units Outstanding
at End of Period 375,304 125,555
<FN>
* Annualized
** Investment returns do not reflect any contract based charges (withdrawal
charges, contract maintenance
fees or account transfer charges), but do reflect mortality and expense
charges, administration expense
charges as well as all expenses of the underlying portfolios (investment
advisory fees and portfolio
operating expenses).
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1996 and
For the Period from June 19, 1995 (Commencement of Operations)
Through December 31, 1995
1. ORGANIZATION:
Cova Variable Annuity Account Five (the "Separate Account") is a separate
investment account established by a resolution of the Board of Directors of
Cova Financial Life Insurance Company ("Cova"). The Separate Account operates
as a Unit Investment Trust under the Investment Company Act of 1940.
The Separate Account is divided into sub-accounts, with the assets of each
sub-account invested in the Cova Series Trust ("Trust") or the Lord Abbett
Series Fund, Inc. ("Fund"). The Trust consists of ten portfolios of which
four managed by Van Kampen American Capital Investment Advisory Corp., five
managed by J.P. Morgan Investment Management, Inc. and one portfolio managed
by Lord, Abbett and Co. The Trust portfolios available for investment are the
Quality Income, Growth and Income, Money Market, Stock Index, Bond Debenture,
Quality Bond, Small Cap Stock, Large Cap Stock, Select Equity, and
International Equity Portfolios. The Fund has one portfolio available for
investment: the Growth and Income Portfolio. Not all portfolios of the Trust
and the Fund are available for investment depending upon the nature and
specific terms of the different contracts currently being offered for sale.
The Trust and the Fund are all diversified, open-end, management investment
companies which are intended to meet differing investment objectives.
The Trust Quality Income Portfolio invests in U.S. Government issued debt
obligations and in various investment-grade debt instruments, including
mortgage pass-through certificates and collateralized mortgage obligations.
The Trust Growth and Income Portfolio invests primarily in common stocks and
futures and options contracts. The Trust Money Market Portfolio invests in
short-term money market instruments. The Trust Stock Index Portfolio invests
in common stocks, stock index futures and options, and short-term securities.
The Trust Bond Debenture Portfolio invests primarily in convertible and
discount debt securities. The Trust Quality Bond Portfolio invests primarily
in higher grade debt securities. The Small Cap Stock Portfolio invests
primarily in the common stock of small U.S. companies. The Large Cap Stock
and Select Equity Portfolios invest in stocks of large and medium-sized
companies. The International Equity Portfolio invests primarily in stocks of
established companies based in developed countries. The Fund Growth and
Income Portfolio invests primarily in common stocks.
2. SIGNIFICANT ACCOUNTING POLICIES:
A. INVESTMENT VALUATION
Investments in shares of the Trust and Fund are carried in the statement of
assets and liabilities at the underlying net asset value of the Trust and
Fund. The net asset value of the Trust and Fund has been determined on the
market value basis, and is valued daily by the Trust and Fund investment
managers. Realized gains and losses are calculated by the average cost
method.
B. REINVESTMENT OF DIVIDENDS
Dividends received from net investment income and net realized capital gains
are reinvested in additional shares of the portfolio of the Trust or Fund
making the distribution or, at the election of the Separate Account, received
in cash. Dividend income and capital gain distributions are recorded as
income on the ex-dividend date.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1996 and
For the Period from June 19, 1995 (Commencement of Operations)
Through December 31, 1995
C. FEDERAL INCOME TAXES
Operations of the Separate Account form a part of Cova, which is taxed as a
"Life Insurance Company" under the Internal Revenue Code ("Code"). Under
current provisions of the Code, no Federal income taxes are payable by Cova
with respect to earnings of the Separate Account.
Under the principles set forth in Internal Revenue Ruling 81-225 and Section
817(h) of the Code and regulations thereunder, Cova believes that it will be
treated as the owner of the assets invested in the Separate Account for
Federal income tax purposes, with the result that earnings and gains, if any,
derived from those assets will not be included in a contract owners gross
income until amounts are withdrawn or received pursuant to an Optional Payment
Plan.
3. CONTRACT CHARGES:
There are no deductions made from purchase payments for sales charges at the
time of purchase. However, if all or a portion of the contract value is
withdrawn, a withdrawal charge is calculated and deducted from the contract
value. The withdrawal charge is imposed on withdrawals of contract values
attributable to purchase payments within five years after receipt and is equal
to 5% of the purchase payment withdrawn. After the first contract
anniversary, provided that the contract value prior to withdrawal exceeds
$5,000, an owner may make a withdrawal each contract year of up to 10% of the
aggregate purchase payments free from withdrawal charges.
An annual contract maintenance charge of $30 is imposed on all contracts with
contract values less than $50,000 on their policy anniversary. The charge
covers the cost of contract administration for the previous year and is
prorated between the sub-accounts to which the contract value is allocated.
Subject to certain restrictions, the contract owner may transfer all or a part
of the accumulated value of the contract among other offered and available
account options of the Separate Account and fixed rate annuities of Cova. If
more than 12 transfers have been made in the contract year, a transfer fee of
$25 per transfer or, if less, 2% of the amount transferred will be deducted
from the account value. If the owner is participating in the Dollar Cost
Averaging program, such related transfers are not taken into account in
determining any transfer fee.
For the year ended December 31, 1996, withdrawal and account transfer charges
of $1,050 and contract maintenance charges of $3,324 were deducted from the
contract values in the Separate Account.
Mortality and expense risks assumed by Cova are compensated by a charge
equivalent to an annual rate of 1.25% of the value of net assets. The
mortality risks assumed by Cova arise from its contractual obligation to make
annuity payments after the annuity date for the life of the annuitant, and to
waive the withdrawal charge in the event of the death of the contract owner.
In addition, the Separate Account bears certain administration expenses, which
are equivalent to an annual rate of .15% of net assets. These charges cover
the cost of establishing and maintaining the contracts and Separate Account.
Cova currently advances any premium taxes due at the time purchase payments
are made and then deducts premium taxes from the contract value at the time
annuity payments begin or upon withdrawal if Cova is unable to obtain a
refund. Cova, however, reserves the right to deduct premium taxes when
incurred.
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1996 and
For the Period from June 19, 1995 (Commencement of Operations)
Through December 31, 1995
4. GAIN/(LOSS) ON INVESTMENTS:
The table below summarizes realized and unrealized gains and losses on
investments:
<TABLE>
<CAPTION>
REALIZED GAIN/(LOSS) ON INVESTMENTS:
<S> <C> <C>
For The Period From 6/19/95
For the Year (Commencement of Operations)
Ended 12/31/96 Through 12/31/95
----------------
Trust Quality Income Portfolio:
Aggregate Proceeds From Sales $ 50,860 $ 687
Aggregate Cost 51,542 681
Net Realized Gain/(Loss) on Investments ($682) $ 6
Trust Growth and Income Portfolio:
Aggregate Proceeds From Sales $ 24,274 $ 27,991
Aggregate Cost 23,756 27,729
---------------- -----------------------------
Net Realized Gain on Investments $ 518 $ 262
- ------------------------------------------ ---------------- -----------------------------
Trust Money Market Portfolio:
- ------------------------------------------
Aggregate Proceeds From Sales $ 4,136,159 $ 1,544,456
- ------------------------------------------ ---------------- -----------------------------
Aggregate Cost 4,136,159 1,544,456
- ------------------------------------------ ---------------- -----------------------------
Net Realized Gain/(Loss) on Investments -- --
- ------------------------------------------ ---------------- -----------------------------
Trust Stock Index Portfolio:
- ------------------------------------------
Aggregate Proceeds From Sales $ 23,308 $ 152,510
- ------------------------------------------ ---------------- -----------------------------
Aggregate Cost 21,966 151,078
- ------------------------------------------ ---------------- -----------------------------
Net Realized Gain on Investments $ 1,342 $ 1,432
- ------------------------------------------ ---------------- -----------------------------
Trust Bond Debenture Portfolio:
- ------------------------------------------
Aggregate Proceeds From Sales 64,093
- ------------------------------------------ ----------------
Aggregate Cost 62,718 N/A
- ------------------------------------------ ---------------- -----------------------------
Net Realized Gain on Investments $ 1,375
- ------------------------------------------ ================
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1996 and
For the Period from June 19, 1995 (Commencement of Operations)
Through December 31, 1995
4. GAIN/(LOSS) ON INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
REALIZED GAIN/(LOSS) ON INVESTMENTS
For the Period From 6/19/95
For the Year (Commencement of Operations)
Ended 12/31/96 Through 12/31/95
--------------- -----------------------------
<S> <C> <C>
Trust Quality Bond Portfolio:
Aggregate Proceeds From Sales $ 9,121
Aggregate Cost 9,056 N/A
---------------
Net Realized Gain on Investments $ 65
===============
Trust Small Capital Stock Portfolio:
Aggregate Proceeds From Sales $ 8,158
Aggregate Cost 7,824 N/A
Net Realized Gain on Investments $ 334
===============
Trust Large Capital Stock Portfolio:
Aggregate Proceeds From Sales $ 39,604
Aggregate Cost 36,519 N/A
Net Realized Gain on Investments $ 3,085
===============
Trust Select Equity Portfolio:
Aggregate Proceeds From Sales $ 10,599
Aggregate Cost 10,134 N/A
Net Realized Gain on Investments $ 465
===============
Trust International Equity Portfolio:
Aggregate Proceeds From Sales $ 4,037
Aggregate Cost 3,905 N/A
Net Realized Gain on Investments $ 132
===============
Fund Growth and Income Portfolio:
Aggregate Proceeds From Sales $ 96,408 $ 139,543
Aggregate Cost 93,588 137,300
Net Realized Gain on Investments $ 2,820 $ 2,243
===============
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1996 and
For the Period from June 19, 1995 (Commencement of Operations)
Through December 31, 1995
4. GAIN/(LOSS) ON INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
UNREALIZED GAIN/(LOSS) ON INVESTMENTS
<S> <C> <C>
For the Period From 6/19/95
For the Year (Commencement of Operations)
Ended 12/31/96 Through 12/31/95
---------------- -----------------------------
Trust Quality Income Portfolio:
End of Period $ 447 $ 1,806
Beginning of Period 1,806 --
Net Change in Unrealized Gain/(Loss) on Investments ($1,359) $ 1,806
================ =============================
Trust Growth and Income Portfolio:
End of Period $ 37,743 ($3,794)
Beginning of Period (3,794) --
Net Change in Unrealized Gain/(Loss) on Investments $ 41,537 ($3,794)
================ =============================
Trust Money Market Portfolio:
End of Period -- --
Beginning of Period -- --
Net Change in Unrealized Gain/(Loss) on Investments -- --
Trust Stock Index Portfolio:
End of Period $ 82,185 $ 1,325
Beginning of Period 1,325 --
Net Change in Unrealized Gain on Investments $ 80,860 $ 1,325
================ =============================
Trust Bond Debenture Portfolio:
End of Period $ 8,392
Beginning of Period -- N/A
Net Change in Unrealized Gain on Investments $ 8,392
================
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1996 and
For the Period from June 19, 1995 (Commencement of Operations)
Through December 31, 1995
4. GAIN/(LOSS) ON INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
UNREALIZED GAIN/(LOSS) ON INVESTMENTS
<S> <C> <C>
For the Period From 6/19/95
For the Year (Commencement of Operations)
Ended 12/31/96 Through 12/31/95
---------------- ----------------------------
Trust Quality Bond Portfolio:
- ------------------------------------------------------
End of Period $ 2,313
- ------------------------------------------------------ ----------------
Beginning of Period -- N/A
- ------------------------------------------------------ ---------------- ----------------------------
Net Change in Unrealized Gain on Investments $ 2,313
- ------------------------------------------------------ ================
Trust Small Capital Stock Portfolio:
- ------------------------------------------------------
End of Period $ 34,020
- ------------------------------------------------------ ----------------
Beginning of Period -- N/A
- ------------------------------------------------------ ---------------- ----------------------------
Net Change in Unrealized Gain on Investments $ 34,020
- ------------------------------------------------------ ================
Trust Large Capital Stock Portfolio:
- ------------------------------------------------------
End of Period $ 56,856
- ------------------------------------------------------ ----------------
Beginning of Period -- N/A
- ------------------------------------------------------ ---------------- ----------------------------
Net Change in Unrealized Gain on Investments $ 56,856
- ------------------------------------------------------ ================
Trust Select Equity Portfolio:
- ------------------------------------------------------
End of Period $ 101,392 N/A
- ------------------------------------------------------ ---------------- ----------------------------
Beginning of Period --
- ------------------------------------------------------ ----------------
Net Change in Unrealized Gain on Investments $ 101,392
- ------------------------------------------------------ ================
Trust International Equity Portfolio:
- ------------------------------------------------------
End of Period $ 66,683
- ------------------------------------------------------ ----------------
Beginning of Period -- N/A
- ------------------------------------------------------ ---------------- ----------------------------
Net Change in Unrealized Gain on Investments $ 66,683
- ------------------------------------------------------ ================
Fund Growth and Income Portfolio:
- ------------------------------------------------------
End of Period $ 374,769 ($96,906)
- ------------------------------------------------------ ---------------- ----------------------------
Beginning of Period (96,906) --
- ------------------------------------------------------ ---------------- ----------------------------
Net Change in Unrealized Gain/(Loss) on Investments $ 471,675 ($96,906)
- ------------------------------------------------------ ================ ============================
</TABLE>
<PAGE>
COVA VARIABLE ANNUITY ACCOUNT FIVE
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1996 and
For the Period from June 19, 1995 (Commencement of Operations)
Through December 31, 1995
5. ACCOUNT UNIT TRANSACTIONS:
The change in the number of accumulation units resulting from account unit
transactions is as follows:
COVA
LORD ABBETT
SERIES TRUST
SERIES FUND, INC.
______________________________________________________________________________
_______
<TABLE>
__
<CAPTION>
QUALITY GROWTH & MONEY STOCK BOND QUALITY SMALL LARGE SELECT
-------- --------- --------- ------- ---------- -------- ---------- ---------- --------
INCOME INCOME MARKET INDEX DEBENTURE BOND CAP STOCK CAP STOCK EQUITY
-------- --------- --------- ------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at Commencement
- -----------------------------
of Operations 0 0 0 0 0 0 0 0 0
- ----------------------------- -------- --------- --------- ------- ---------- -------- ---------- ---------- --------
Units Sold 1,387 -- 188,325 1,057 -- -- -- -- --
- ----------------------------- -------- --------- --------- ------- ---------- -------- ---------- ---------- --------
Units Redeemed (16) (1) (28) (114) -- -- -- -- --
- ----------------------------- -------- --------- --------- ------- ---------- -------- ---------- ---------- --------
Units Transferred 7,331 7,198 (159,788) 12,441 -- -- -- -- --
- ----------------------------- -------- --------- --------- ------- ---------- -------- ---------- ---------- --------
Balance at December 31, 1995 8,702 7,197 28,509 13,384 N/A N/A N/A N/A N/A
- ----------------------------- -------- --------- --------- ------- ---------- -------- ---------- ---------- --------
Units Sold 3,762 2,136 429,882 9,129 10,897 9,984 43,638 50,898 74,928
- ----------------------------- -------- --------- --------- ------- ---------- -------- ---------- ---------- --------
Units Redeemed (1,485) (596) (10) (805) (31) (152) (288) (649) (830)
- ----------------------------- -------- --------- --------- ------- ---------- -------- ---------- ---------- --------
Units Transferred 8,258 31,613 (431,287) 28,718 28,679 54,702 69,768 75,982 111,411
- ----------------------------- -------- --------- --------- ------- ---------- -------- ---------- ---------- --------
Balances at December 31, 1996 19,237 40,350 27,094 50,426 39,545 64,534 113,118 126,231 185,509
- ----------------------------- -------- --------- --------- ------- ---------- -------- ---------- ---------- --------
INTL GROWTH &
-------- ---------
EQUITY INCOME TOTAL
-------- --------- ----------
<S> <C> <C> <C>Balances at Commencement
- -----------------------------
of Operations 0 0 0
- ----------------------------- -------- --------- ----------
Units Sold -- 21,839 212,608
- ----------------------------- -------- --------- ----------
Units Redeemed -- (527) (686)
- ----------------------------- -------- --------- ----------
Units Transferred -- 104,243 (28,575)
- ----------------------------- -------- --------- ----------
Balance at December 31, 1995 N/A 125,555 183,347
- ----------------------------- -------- --------- ----------
Units Sold 55,862 61,744 752,860
- ----------------------------- -------- --------- ----------
Units Redeemed (448) (5,839) (11,133)
- ----------------------------- -------- --------- ----------
Units Transferred 68,618 193,844 240,307
- ----------------------------- -------- --------- ----------
Balances at December 31, 1996 124,032 375,304 1,165,381
- ----------------------------- -------- --------- ----------
</TABLE>
COVA FINANCIAL
LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Financial Statements
December 31, 1996, 1995 and 1994
(With Independent Auditors Report Thereon)
<PAGE>
INDEPENDENT AUDITORS REPORT
The Board of Directors and Shareholder
Cova Financial Life Insurance Company:
We have audited the accompanying balance sheets of Cova Financial Life
Insurance Company (a wholly owned subsidiary of Cova Financial Services Life
Insurance Company) as of December 31, 1996 and 1995 and the related statements
of income, shareholders equity and cash flows for the year ended December 31,
1996 and the period from June 1, 1995 to December 31, 1995 (Successor
periods), and from January 1, 1995 to May 31, 1995, and for the year ended
December 31, 1994 (Predecessor periods). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cova Financial Life Insurance
Company as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the Successor periods, in conformity with generally
accepted accounting principles. Also, in our opinion, the aforementioned
Predecessor financial statements present fairly, in all material respects, the
results of its operations and its cash flows for the Predecessor periods, in
conformity with generally accepted accounting principles.
St. Louis, Missouri
March 7, 1997
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Balance Sheets
December 31, 1996 and 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
ASSETS 1996
1995
<S> <C> <C>
Investments:
Debt securities available for sale at market
(cost of $71,257 in 1996 and $37,242 in 1995) $ 71,263 $ 38,092
Policy loans 1,048 1,063
Short-term investments available for sale at market
(cost of $44 in 1996 and $988 in 1995) 44 984
Total investments 72,355 40,139
Cash and cash equivalents - interest bearing 4,150 5,157
Cash - non-interest bearing 2,485 977
Accrued investment income 1,122 566
Deferred policy acquisition costs 3,321 1,164
Present value of future profits 1,178 576
Goodwill 2,034 2,306
Deferred tax asset (net) 1,115 1,007
Receivable from OakRe 92,238 127,335
Reinsurance receivables 51 458
Other assets 44 44
Separate account assets 18,880 3,451
Total Assets $198,973 $183,180
======== ========
</TABLE>
See accompanying notes to financial statements.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Balance Sheets, Continued
December 31, 1996 and 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS EQUITY 1996 1995
<S> <C> <C>
Policyholder deposits $154,566 $154,458
Future policy benefits 4,561 4,369
Accounts payable and other liabilities 1,794 1,116
Future purchase price payable to OakRe 683 1,265
Guaranty assessments 1,585 1,838
Separate account liabilities 18,880 3,451
Total Liabilities 182,069 166,497
Shareholders equity:
Common stock, $233 par value. (Authorized 30,000
shares; issued and outstanding 12,000 shares in
1996 and 1995) 2,800 2,800
Additional paid-in capital 13,523 13,523
Retained earnings 580 168
Net unrealized appreciation on securities, net of tax 1 192
Total Shareholders Equity 16,904 16,683
Total Liabilities and Shareholders Equity $198,973 $183,180
======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Income
Years ended December 31, 1996, 1995, and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95
1994
<S> <C> <C> <C> <C>
Revenues:
Premiums $ 488 $ 142 $ 82 $ 1,335
Net investment income 4,176 1,419 5,271 15,101
Net realized gain (loss) on sale of
investments (28) 118 (272) 318
Separate account charges 134 10 -- --
Other income/(expense) 35 (7) 57 138
Total revenues 4,805 1,682 5,138 16,892
Benefits and expenses:
Interest on policyholder deposits 2,563 788 5,034 13,361
Current and future policy benefits 722 115 178 1,452
Operating and other expenses 570 309 814 1,384
Amortization of purchase intangible assets 66 157 -- --
Amortization of deferred acquisition costs 187 5 522 6,979
Total benefits and expenses 4,108 1,374 6,548 23,176
Income/(loss) before income taxes 697 308 (1,410) (6,284)
Income tax:
Current 351 -- (362) (80)
Deferred (66) 140 (201) (2,050)
Total income tax expense/(benefit) 285 140 (563) (2,130)
Net Income/(Loss) $ 412 $ 168 $ (847) $(4,154)
======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Shareholders Equity
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Common stock ($233 par value in 1996 and
12/31/95, $50 par value for 5 mos. ended
5/31/95, 1994 & 1993; authorized 30,000
shares;issued and outstanding 12,000
shares in 1996, 1995 & 1994)
Balance at beginning of period $ 2,800 $ 2,800 $ 600 $ 600
Par value adjustment -- -- 2,200 __
Balance at end of period 2,800 2,800 2,800 600
Additional paid-in capital:
Balance at beginning of period 13,523 18,093 17,200 8,200
Adjustment to reflect purchase acquisition indicated in note 2
-- (7,570) -- --
Par value adjustment -- (2,200)
Capital contribution -- 3,000 3,093 9,000
Balance at end of period 13,523 13,523 18,093 17,200
Retained earnings:
Balance at beginning of period 168 209 4,045 8,199
Adjustment to reflect purchase acquisition indicated in note 2 --
(209) -- --
Net income/(loss) 412 168 (847) (4,154)
Adjustment due to financial reinsurance
transaction with OakRe - (2,989)
Balance at end of period $ 580 $ 168 $ 209 $ 4,045
</TABLE>
See accompanying notes to financial statements.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Shareholders Equity, Continued
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Net unrealized appreciation/(depreciation) of
securities:
Balance at beginning of period $ 192 $(3,789) ($11,316) --
Adjustment to reflect purchase acquisition indicated in note 2
-- 3,789 -- --
Implementation of change in accounting for
marketable debt and equity securities, net of
effects of deferred taxes of $735 and
deferred acquisition costs of $1,719 -- -- -- $ 1,366
Change in unrealized appreciation/(depreciation)
of debt and equity securities (840) 846 15,151 (29,570)
Change in deferred Federal income taxes 103 (104) (4,053) 6,829
Change in deferred acquisition costs
attributable to unrealized losses/(gains) (69) -- (3,571) 10,059
Change in present value of future profits
attributable to unrealized losses/(gains) 615 (550) -- --
Balance at end of period 1 192 (3,789) (11,316)
Total Shareholders Equity $16,904 $16,683 $ 17,313 $ 10,529
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Interest and dividend receipts $ 3,676 $ 934 $ 7,283 $ 15,690
Premiums received 509 154 90 1,357
Insurance and annuity benefit payments (580) (339) (252) (552)
Operating disbursements (768) (490) (1,038) (1,482)
Taxes on income refunded (paid) (341) -- 1,975 (856)
Commissions and acquisition costs paid (2,413) (1,169) (542) (1,262)
Other (183) 360 6,299 200
Net cash provided by/(used in) operating (100) (550) 13,815 13,095
activities
Cash flows from investing activities:
Cash used for the purchase of investment (42,655) (52,399) (935) (69,199)
securities
Proceeds from investment securities sold 10,635 14,399 151,204 115,994
and matured
Investment expenses (90) (57) (97) (320)
Net cash provided by/(used in) investing
activities $(32,110) $(38,057) $150,172 $ 46,475
---------
</TABLE>
See accompanying notes to financial statements.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Cash Flows, Continued
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95
1994
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Policyholder deposits $ 38,348 $ 12,442 $ 5,614 $ 11,796
Transfers from/(to) OakRe 36,553 33,579 (171,081) --
Transfer to Separate Accounts (13,669) (3,312) -- --
Return of policyholder deposits (28,521) (26,897) (15,531) (43,377)
Capital contributions received -- 3,000 3,093 2,500
Net cash provided by/(used in) financing
activities 32,711 18,812 (177,905) (29,081)
Increase/(decrease) in cash and cash
equivalents 501 (19,795) (13,918) 30,489
Cash and cash equivalents at beginning of 6,134 25,929 39,847 9,358
period
Cash and cash equivalents at end of period $ 6,635 $ 6,134 $ 25,929 $ 39,847
</TABLE>
See accompanying notes to financial statements.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Cash Flows, Continued
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Reconciliation of net income/(loss) to net cash provided by operating activities:
Net income/(loss) $ 412 $ 168 $ (847) $(4,154)
Adjustments to reconcile net income/(loss)
to net cash provided by operating
activities:
Increase/(decrease)in future policy
benefits (net of reinsurance) 192 (201) (52) 911
Increase/(decrease) in payables and
accrued liabilities 95 161 (252) 126
Decrease/(increase) in accrued investment
income (556) (525) 1,766 636
Amortization of intangible assets and 254 162 522 6,979
deferred acquisition costs
Amortization and accretion of securities
premiums and discounts 73 (9) 32 (369)
Net realized (gain)/loss on sale of
investments 28 (118) 272 (318)
Interest accumulated on policyholder
deposits 2,563 788 5,034 13,361
Investment expenses paid 90 57 97 320
Increase/(decrease) in current and deferred
Federal income taxes (66) 140 1,412 (2,986)
Recapture commissions paid to OakRe (273) (223) -- --
Deferral of acquisition costs (2,413) (1,169) (542) (1,262)
Due to/from affiliates 44 27 6,470 --
Other (543) 192 (97) (149)
Net cash provided by operating activities $ (100) $ (550) $13,815 $13,095
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(1) NATURE OF BUSINESS AND ORGANIZATION
NATURE OF THE BUSINESS
Cova Financial Life Insurance Company (the Company), formerly Xerox Financial
Life Insurance Company (the Predecessor), markets and services single premium
deferred annuities, immediate annuities, variable annuities, and single
premium whole-life insurance policies. The Company is licensed to do business
in the state of California. Most of the policies issued present no
significant mortality nor longevity risk to the Company, but rather represent
investment deposits by the policyholders. Life insurance policies provide
policy beneficiaries with mortality benefits amounting to a multiple, which
declines with age, of the original premium.
Under the deferred annuity contracts, interest rates credited to policyholder
deposits are guaranteed by the Company for periods from one to ten years, but
in no case may renewal rates be less than 3%. The Company may assess
surrender fees against amounts withdrawn prior to scheduled rate reset and
adjust account values based on current crediting rates. Policyholders also
may incur certain Federal income tax penalties on withdrawals.
Although the Company markets its products through numerous distributors,
including regional brokerage firms, national brokerage firms and banks,
approximately 81%, 71% and 47% of the Companys sales have been through two
specific brokerage firms, A.G. Edwards & Sons, Incorporated, and Edward Jones
& Company, Incorporated, in 1996, 1995 and 1994, respectively.
ORGANIZATION
The Company is a wholly owned subsidiary of Cova Financial Services Life
Insurance Company (CFSLIC). On December 31, 1996, Cova Corporation, an
insurance holding company wholly owned by General American Life Insurance
Company (GALIC), transferred 100% of the outstanding shares of the Company to
CFSLIC, an affiliated life insurer domiciled in Missouri. The transfer of
direct ownership had no effect on the operations of the Company as both CFSLIC
and the Company had existed under common management and control prior to the
transfer.
Prior to June 1, 1995 Xerox Financial Services , Inc. (XFSI) owned 100% of the
shares of the Predecessor. XFSI is a wholly owned subsidiary of Xerox
Corporation.
On June 1, 1995 XFSI sold 100% of the issued and outstanding shares of the
Predecessor to Cova Corporation in exchange for approximately $13.3 million
in cash and $1.1 million in future payables. In conjunction with this
Agreement, the Predecessor also entered into a financing reinsurance
transaction that caused OakRe Life Insurance Company(OakRe), an affiliate of
the Predecessor, to assume the economic benefits and risks of the single
premium deferred annuity deposits (SPDAs) which had an aggregate carrying
value at June 1, 1995 of $159.0 million. In exchange, the Predecessor
transferred specifically identified assets to OakRe with a market value at
June 1, 1995 of $162.0 million. Ownership of OakRe was retained by XFSI
subsequent to the sale of the Predecessor and other affiliates. The
Receivable from OakRe to the Company that was created by this transaction will
be liquidated over the remaining crediting rate guaranty periods (which will
be substantially expired by the year 2000) by the transfer of cash in the
amount of the then current account value, less a recapture commission fee to
OakRe on policies retained beyond their 30-day no-fee surrender window by the
Company, upon the next crediting rate reset date of each annuity policy. The
Company may then reinvest that cash for those policies that are retained and
thereafter assume the benefits and risks of those deposits.
In the event that both OakRe and XFSI default on the receivable, the Company
may draw funds from a standby bank irrevocable letter of credit established by
XFSI in the amount of $500 million. No funds were drawn on this letter of
credit during the periods ending December 31, 1996 and 1995.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
In substance, terms of the agreement have allowed the seller, XFSI, to retain
substantially all of the existing financial benefits and risks of the existing
business, while the purchaser, GALIC, obtained the corporate operating and
product licenses, marketing and administrative capabilities of the Company,
and access to the retention of the policyholder deposit base that persists
beyond the next crediting rate reset date.
(2) CHANGE IN ACCOUNTING
Upon closing of the sale, the Company restated its financial statements in
accordance with "push down purchase accounting", which allocates the net
purchase price of $13.3 million according to the fair values of the acquired
assets and liabilities, including the estimated present value of future
profits. These allocated values were dependent upon policies in force and
market conditions at the time of closing, however, these allocations were not
finalized until 1996. The table below summarizes the final allocation of
purchase price.
<TABLE>
<CAPTION>
(In Millions)
<S> <C>
Assets acquired:
Policy loans $ 0.9
Cash and cash equivalents 25.9
Short term investment 0.1
Present value of future profits 1.1
Goodwill 2.2
Deferred tax benefit 1.5
Reinsurance receivable 156.3
Other assets 0.1
--------
$ 188.1
Liabilities assumed:
Policyholder deposits $ 168.7
Future policy benefits 4.5
Future purchase price payable 1.1
Deferred income taxes 0.2
Other liabilities 0.3
$ 174.8
--------
Adjusted purchase price $ 13.3
========
</TABLE>
In addition to revaluing all material tangible assets and liabilities to their
respective estimated market values as of the closing date of the sale, the
Company also recorded in its financial statements the excess of cost over fair
value of net assets acquired (goodwill) as well as the present value of future
profits to be derived from the purchased and reinsured business. These amounts
were determined in accordance with the purchase method of accounting. This new
basis of accounting resulted in a reduction in shareholders equity of
approximately $4.0 million in 1995 reflecting the application of push down
purchase accounting. The Companys financial statements subsequent to June 1,
1995 reflect this new basis of accounting.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
All amounts for periods ended before June 1, 1995 are labeled Predecessor and
are based on Predecessor historical costs. The periods ending on or after
such date are labeled The Company and are based on the new cost basis of the
Company or fair values at June 1, 1995 and the subsequent results of
operations.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Investments in all debt securities and short term investments and those equity
securities with readily determinable market values are classified into one of
three categories: held-to-maturity, trading, or available-for-sale.
Classification of investments is based on management's current intent. All
debt securities and short term investments at December 31, 1996 and 1995 were
classified as available-for-sale. Securities available-for-sale are carried at
market value, with unrealized holding gains and losses reported as a separate
component of shareholders equity, net of deferred effects of income tax and
related effects on deferred acquisition costs and present value of future
profits.
Amortization of the discount or premium from the purchase of mortgage-backed
bonds is recognized using a level-yield method which considers the estimated
timing and amount of prepayments of the underlying mortgage loans. Actual
prepayment experience is periodically reviewed and effective yields are
recalculated when differences arise between the prepayments previously
anticipated and the actual prepayments received and currently anticipated.
When such a difference occurs, the net investment in the mortgage-backed bond
is adjusted to the amount that would have existed had the new effective yield
been applied since the acquisition of the bond, with a corresponding charge or
credit to interest income (the "retrospective method").
Investment income is recorded when earned. Realized capital gains and losses
on the sale of investments are determined on the basis of specific costs of
investments and are credited or charged to income.
A realized loss is recognized and charged against income if the Company's
carrying value in a particular investment in the available-for-sale category
has experienced a significant decline in market value that is deemed to be
other than temporary.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include currency and demand deposits in banks, US
Treasury bills, money market accounts, and commercial paper with maturities
under 90 days, which are not otherwise restricted.
SEPARATE ACCOUNT ASSETS
Separate accounts contain segregated assets of the Company that are
specifically assigned to variable annuity policyholders in the separate
accounts and are not available to other creditors of the Company. The
earnings of separate account investments are also assigned to the
policyholders in the separate accounts, and are not guaranteed or supported by
the other general investments of the Company. The Company earns mortality and
expense risk fees from the separate accounts and assesses withdrawal charges
in the event of early withdrawals. Separate accounts assets are valued at
fair market value.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business which vary with and are directly related
to the production of new business, principally commissions, premium taxes,
sales costs, and certain policy issuance and underwriting costs, are deferred.
These deferred costs are amortized in proportion to estimated future gross
profits derived from investment income, realized gains and losses on sales of
securities, unrealized securities gains and losses, interest credited to
accounts, surrender fees, mortality costs, and policy maintenance expenses.
The estimated gross profit streams are periodically reevaluated and the
unamortized balance of deferred acquisition costs is adjusted to the amount
that would have existed had the actual experience and revised estimates been
known and applied from the inception of the policies and contracts. The
amortization and adjustments resulting from unrealized gains and losses is not
recognized currently in income but as an offset to the unrealized gains and
losses reflected as a separate component of equity.
The components of deferred policy acquistion costs are shown below:
<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
(In thousands) 1996 12/31/95 5/31/95
1994
<S> <C> <C> <C> <C>
Deferred policy acquisition costs,
beginning of period $1,164 $ 6,167 $ 9,718 $ 7,095
Effects of push down purchase
accounting -- (6,167) -- --
Commissions and expenses deferred 2,413 1,169 542 1,262
Amortization (187) (5) (522) (6,979)
Deferred policy acquisition costs
attributable to unrealized
gains/(losses) (69) -- (3,571) 8,340
Deferred policy acquistion costs,
end of period $3,321 $ 1,164 $ 6,167 $ 9,718
======= ========
</TABLE>
PURCHASE RELATED INTANGIBLE ASSETS AND LIABILITIES
In accordance with the purchase method of accounting for business
combinations, two intangible assets and a future payable related to accrued
purchase price consideration were established as of the purchase date:
PRESENT VALUE OF FUTURE PROFITS
As of June 1, 1995 the Company established an intangible asset which
represents the present value of future profits to be derived from both the
purchased and transferred blocks of business. Certain estimates were utilized
in the computation of this asset including estimates of future policy
retention, investment income, interest credited to policyholders, surrender
fees, mortality costs, and policy maintenance costs discounted at a pre-tax
rate of 18% (12% net after-tax).
In addition, as the Company has the option of retaining its SPDA policies
after they reach their next interest rate reset date and are recaptured from
OakRe, a component of this asset represents estimates of future profits on
recaptured business. This asset will be amortized in proportion to estimated
future gross profits derived from investment income, realized gains and losses
on sales of securities, unrealized securities gains and losses, interest
credited to accounts, surrender fees, mortality costs, and policy maintenance
(continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
expenses. The estimated gross profit streams are periodically reevaluated and
the unamortized balance of present value of future profits will be adjusted to
the amount that would have existed had the actual experience and revised
estimates been known and applied from the inception. The amortization and
adjustments resulting from unrealized gains and losses is not recognized
currently in income but as an offset to the unrealized gains and losses
reflected as a separate component of equity. The amortization period is the
remaining life of the policies, which is approximately 20 years from the date
of original policy issue.
Based on current assumptions, amortization of the original in-force PVFP
asset, expressed as a percentage of the original in-force asset, is projected
to be 8.4%, 6.2%, 4.8%, 4.0% and 3.4% for the years ended December 31, 1997
through 2001, respectively. Actual amortization incurred during these years
may be more or less as assumptions are modified to incorporate actual results.
During 1996, the Company adjusted its original purchase accounting to include
a revised estimate of the ultimate renewal (recapture) rate. This adjustment
resulted in a re-allocation of the net purchased intangible asset between
present value of future profits, goodwill, future payable and deferred taxes.
This final allocation and the resulting impact on inception to date
amortization was recorded, in its entirety, in 1996. No restatement of the
June 1, 1995 opening Balance Sheet was made.
The components of present value of future profits are shown below:
<TABLE>
<CAPTION>
The Company
7
Months
Ended
(In Thousands) 1996
12/31/95
<S> <C> <C>
Present value of future profits - beginning of period $ 576 $1,233
Interest added 74 56
Gross amortization 4 (163)
Adjustment due to revised push down purchase accounting (91) --
Present value of future profit attributable to
unrealized losses/(gains) 615 (550)
------- -------
Present value of future profits - end of period $1,178 $ 576
</TABLE>
FUTURE PAYABLE
Pursuant to the financial reinsurance agreement, the receivable from OakRe
becomes due in installments when the SPDA policies reach their next crediting
rate reset date. For any recaptured policies that continue in force with
OakRe into the next guarantee period, the Company will pay a commission to
OakRe of 1.75% up to 40% of policy account values originally reinsured and
3.5% thereafter. On policies that are recaptured and subsequently exchanged to
a variable annuity policy, the Company will pay commission to OakRe of 0.50%.
The Company has recorded a future payable that represents the present value of
the anticipated future commission payments payable to OakRe over the remaining
life of the financial reinsurance agreement discounted at an estimated
borrowing rate of 6.5%. This liability represents a contingent purchase price
payable for the policies transferred to OakRe on the purchase date and has
been pushed down to the Company through the financial reinsurance agreement.
The Company expects that this payable will be substantially extinguished by
the year 2000.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
The components of this future payable are shown below:
<TABLE>
<CAPTION>
The Company
7
Months
Ended
(In Thousands) 1996
12/31/95
<S> <C> <C>
Future payable - beginning of period $1,265 $1,438
Interest added 39 50
Payments to OakRe (273) (223)
Adjustment due to revised push down purchase accounting (348) --
Future payable - end of period $ 683 $1,265
======= =======
</TABLE>
GOODWILL
Under the push down method of purchase accounting, the excess of purchase
price over the fair value of tangible and intangible assets and liabilities
acquired is established as an asset and referred to as Goodwill. The Company
has elected to amortize goodwill on the straight line basis over a 20 year
period.
The components of Goodwill are shown below:
<TABLE>
<CAPTION>
<S> <C> <C>
(In Thousands) The Company
--------------------
7 Months Ended
1996 12/31/95
----------------
Goodwill - beginning of period $ 2,306 $ 2,375
Amortization (105) (69)
Adjustment due to revised push down purchase accounting
(167) --
Goodwill - end of period $ 2,034 $ 2,306
</TABLE>
DEFERRED TAX ASSETS AND LIABILITIES
XFSI and GALIC agreed to file an election to treat the acquisition of the
Company as an asset acquisition under the provisions of Internal Revenue Code
Section 338(h)(10). As a result of that election, the tax basis of the
Companys assets as of the date of acquisition were revalued based upon fair
market values as of June 1, 1995. The principal effect of the election was to
establish a tax asset on the tax-basis balance sheet of approximately $2.9
million for the value of the business acquired that is amortizable for tax
purposes over ten to fifteen years.
POLICYHOLDER DEPOSITS
The Company recognizes its liability for policy amounts that are not subject
to policyholder mortality nor longevity risk at the stated contract value,
which is the sum of the original deposit and accumulated interest, less any
withdrawals. The average weighted interest crediting rate on the Companys
policyholder deposits as of December 31, 1996 was 5.77%.
(Continued)
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
FUTURE POLICY BENEFITS
Reserves are held for future annuity benefits that subject the Company to
risks to make payments contingent upon the continued survival of an individual
or couple (longevity risk). These reserves are valued at the present value of
estimated future benefits discounted for interest, expenses, and mortality.
The assumed mortality is the 1983 Individual Annuity Mortality Tables
discounted at 5.50% to 8.50%, depending upon year of issue.
Current mortality benefits payable are recorded for reported claims and
estimates of amounts incurred but not reported.
PREMIUM REVENUE
The Company recognizes premium revenue at the time of issue on annuity
policies that subject it to longevity risks.
The Company currently assesses no explicit life insurance premium for its
commitment to make payments in excess of its recorded liability that are
contingent upon policyholder mortality. Benefits paid in excess of the
recorded liability are recognized when incurred as the amounts are not
material to the financial statements.
Amounts collected on policies not subject to any mortality or longevity risk
are recorded as increases in the policyholder deposits liability.
FEDERAL INCOME TAXES
Prior to June 1,1995 the revenues and expenses of the Predecessor were
included in a consolidated Federal income tax return with its parent company
and other affiliates. Allocations of Federal income taxes were based upon
separate return calculations.
Subsequent to June 1, 1995 the Company files its own separate income tax
return, independent from its ultimate parent, GALIC.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income to the period that includes
the enactment date.
RISKS AND UNCERTAINTIES
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
The following elements of the financial statements are most affected by the
use of estimates and assumptions:
- Investment market valuation
- Amortization of deferred policy acquisition costs
- Amortization of present value of future profits
- Recoverability of Goodwill
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
The market value of the Company's investments is subject to the risk that
interest rates will change and cause a temporary increase or decrease in the
liquidation value of debt securities. To the extent that fluctuations in
interest rates cause the cash flows of assets and liabilities to change, the
Company might have to liquidate assets prior to their maturity and recognize a
gain or loss. Interest rate exposure for the investment portfolio is managed
through asset/liability management techniques which attempt to control the
risks presented by differences in the probable cash flows and reinvestment of
assets with the timing of crediting rate changes in the Company's policies and
contracts. Changes in the estimated prepayments of mortgage-backed securities
also may cause retrospective changes in the amortization period of securities
and the related recognition of income.
The amortization of deferred acquisition costs is based on estimates of
long-term future gross profits from existing policies. These gross profits
are dependent upon policy retention and lapses, the spread between investment
earnings and crediting rates, and the level of maintenance expenses. Changes
in circumstances or estimates may cause retrospective adjustment to the
periodic amortization expense and the carrying value of the deferred expense.
In a similar manner, the amortization of present value of future profits is
based on estimates of long-term future profits from existing and recaptured
policies. These gross profits are dependent upon policy retention and lapses,
the spread between investment earnings and crediting rates, and the level of
maintenance expenses. Changes in circumstances or estimates may cause
retrospective adjustment to the periodic amortization expense and the carrying
value of the asset.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long Lived Assets and for Long Lived Assets
to be Disposed of (SFAS #121), which was adopted by the Company in the fourth
quarter of 1995, the Company has considered the recoverability of Goodwill and
has concluded that no circumstances have occurred which would give rise to
impairment of Goodwill for the period ending December 31, 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107, "Disclosures About Fair
Value of Financial Instruments" (SFAS #107) applies fair value disclosure
practices with regard to financial instruments, both assets and liabilities,
for which it is practical to estimate fair value. In cases where quoted
market prices are not readily available, fair values are based on estimates
that use present value or other valuation techniques.
These techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. Although fair value
estimates are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, might
not be realized in the immediate settlement of the instruments. SFAS #107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Because of this, and further because a value of
a business is also based upon its anticipated earning power, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS
AND ACCRUED INVESTMENT INCOME:
The carrying values amounts reported in the balance sheets for these
instruments approximate their fair values. Short-term debt securities are
considered "available for sale" and are carried at fair value.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED SECURITIES):
Fair values for debt securities are based on quoted market prices, where
available. For debt securities not actively traded, fair value estimates are
obtained from independent pricing services. In some cases, such as private
placements and certain mortgage-backed securities, fair values are estimated
by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the investments. (See
note 4 for fair value disclosures).
INVESTMENT CONTRACTS:
The Company's policy contracts require the beneficiaries to commence receipt
of payments by the later of age 85 or 10 years after purchase, and
substantially all permit earlier surrenders, generally subject to fees and
adjustments. Fair values for the Company's liabilities for investment type
contracts (Policyholder Deposits) are estimated as the amount payable on
demand. As of December 31, 1996 and 1995 the cash surrender value of
policyholder funds on deposit were $537,442 and $104,571, respectively, less
than their stated carrying value. Of the contracts permitting surrender, 90%
provide the option to surrender without fee or adjustment during the 30 days
following reset of guaranteed crediting rates. The Company has not determined
a practical method to determine the present value of this option.
All of the Company's deposit obligations are fully guaranteed by the acquirer,
GALIC, and the receivable from OakRe equal to the SPDA obligations is
guaranteed by OakRe's parent, XFSI.
REINSURANCE
The impact of reinsurance on the December 31, 1996 financial statements is not
considered material.
The financing reinsurance agreement entered into with OakRe does not meet the
conditions for reinsurance accounting under Generally Accepted Accounting
Principles (GAAP). The net assets initially transferred to OakRe were
established as a receivable and then are subsequently increased as interest is
accrued on the underlying liabilities and decreased as funds are transferred
back to the Company when policies reach their crediting rate reset date or
benefits are claimed.
OTHER
Certain 1994 and 1995 amounts have been reclassified to conform to the 1996
presentation.
(4) INVESTMENTS
The Company's investments in debt securities and short term investments are
considered available for sale and carried at estimated fair value, with the
aggregate unrealized appreciation or depreciation being recorded as a separate
component of shareholders equity. The carrying value and amortized cost of
investments at December 31, 1996 and 1995 were as follows:
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
<TABLE>
<CAPTION>
1996
GROSS GROSS
ESTIMATED
CARRYING UNREALIZED UNREALIZED
FAIR AMORTIZED
VALUE GAINS LOSSES
VALUE COST (in
thousands of dollars)
<S> <C> <C> <C> <C> <C>
Debt Securities:
US. Government Treasuries $ 101 $ 1 $ -- $ 101 $ 100
Collateralized mortgage obligations 20,143 81 (119) 20,143 20,181
Corporate, state, municipalities,
and political subdivisions 51,019 433 (390) 51,019 50,976
Total debt securities 71,263 515 (509) 71,263 71,257
Policy loans 1,048 -- -- 1,048 1,048
Short term investments 44 -- -- 44 44
Total investments $72,355 $515 $(509) $72,355 $72,349
</TABLE>
<TABLE>
<CAPTION>
1995
GROSS GROSS
ESTIMATED
CARRYING UNREALIZED UNREALIZED
FAIR AMORTIZED
VALUE GAINS LOSSES
VALUE COST
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Debt Securities:
US. Government Treasuries $ 104 $ 3 $ -- $ 104 $ 101
Collateralized mortgage obligations 13,377 237 $(14) 13,377 13,154
Corporate, state, municipalities, and
political subdivisions 24,611 624 -- 24,611 23,987
Total debt securities 38,092 864 (14) 38,092 37,242
Policy loans 1,063 -- -- 1,063 1,063
Short term investments 984 0 (4) 984 988
Total investments $40,139 $864 $(18) $40,139 $39,293
======= ==== ===== ======= =======
</TABLE>
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
The amortized cost and estimated market value of debt securities at December
31, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Maturities of mortgage-backed securities will be substantially shorter than
their contractual maturity because they require monthly principal installments
and mortgagees may prepay principal.
<TABLE>
<CAPTION>
1996
ESTIMATED
AMORTIZED MARKET
COST VALUE
<S> <C> <C>
(in thousands of dollars)
Due after one year through five years $20,531 $20,572
Due after five years through ten years 28,019 28,010
Due after ten years 2,527 2,538
Mortgage-backed securities 20,180 20,143
Total $71,257 $71,263
<FN>
At December 31, 1996, approximately 95.3% of the Company's debt securities are
investment grade or are non-rated but considered to be of investment grade.
Of the 4.7% non-investment grade debt securities, all are rated as BB+ or its
equivalent.
All debt securities were income producing during the years ended December 31,
1996 and 1995. As of December 31, 1996 and 1995 the Company had no impaired
investments.
</TABLE>
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
The components of net investment income, realized capital gains/(losses) and
unrealized gains/(losses)were as follows:
<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR
7 MONTHS 5
MONTHS
ENDED
ENDED
1996 12/31/95
5/31/95 1994
(in thousands of
dollars)
<S> <C> <C> <C> <C>
Income on debt securities $3,926 $1,166 $ 4,075 $ 15,013
Income on short-term investments 243 257 1,261 349
Income on policy loans 86 46 29 57
Miscellaneous interest 8 -- -- 4
Total investment income 4,263 1,469 5,365 15,423
Investment expenses (87) (50) (94) (322)
Net investment income 4,176 1,419 5,271 15,101
Realized capital gains/(losses) were as
follows:
Debt securities (28) 118 (272) 320
Short-term investments -- -- -- (2)
Net realized gains/(losses) on
investments $ (28) $ 118 $ (272) $ 318
======= ========= =========
Unrealized gains/(losses) were as follows:
Debt securities 6 $ 850 $(10,594) $(25,749)
Short-term investments -- (4) 1 (1)
Effects on deferred acquisition costs
amortization (69) -- 4,767 8,340
Effects on present value of future
profits amortization 65 (550) -- --
Unrealized gains/(losses) before income tax 2 296 (5,826) (17,410)
Unrealized income tax benefit/(expense) (1) (104) 2,037 6,094
Net unrealized gains (losses) on
investments $ 1 $ 192 $ (3,789) $(11,316)
</TABLE>
Proceeds from sales, redemptions and paydowns of investments in debt
securities during 1996 were $10,635,608. Gross gains of $16,757 and gross
losses of $44,311 were realized on those sales. Included in these amounts were
$1,355 of gross gains realized on the sale of non-investment grade securities.
Proceeds from sales, redemptions and paydowns of investments in debt
securities for the Company during 1995 were $14,400,247 and for the
Predecessor were $148,796,033. Gross gains of $136,104 and gross losses of
$17,789 were realized by the Company on its sales. The Predecessor realized
gross gains of $23,293 and gross losses of $295,368 on its sales.
Proceeds from sales, redemptions and paydowns of investments in debt
securities during 1994 were $115,993,655. Gross gains of $1,671,736 and gross
losses of $1,351,406 were realized on those sales.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
Unrealized appreciation/(depreciation) of debt securities for the Company in
1996 and 1995, and the Predecessor in 1995 and 1994 were $(844,000), $850,000,
$15,152,000, and $(29,644,000), respectively. Unrealized appreciation/
(depreciation) of debt securities is calculated as the change between the cost
and market values of debt securities for the years then ended.
(5) SECURITIES GREATER THAN 10% OF SHAREHOLDERS EQUITY
As of December 31, 1996 the Company held the following individual securities
which exceeded 10% of Shareholders equity:
<TABLE>
<CAPTION>
<S> <C>
Long-term Debt Carrying
Securities Value
- --------------- ----------
Colonial Realty $2,036,540
</TABLE>
As of December 31, 1995 the Company held the following individual securities
which exceeded 10% of Shareholders equity:
<TABLE>
<CAPTION>
<S> <C>
Long-term Debt Carrying
Securities Value
- ----------------------- ----------
North American Mortgage $1,954,398
</TABLE>
(6) POST-RETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company has no direct employees and no retired employees. All personnel
used to support the operations of the Company are supplied by contract by Cova
Life Management Company (CLMC), a wholly owned subsidiary of Cova Corporation.
The Company is allocated a portion of certain health care and life insurance
benefits for future retired employees of CLMC. In 1996 and 1995, the Company
was allocated a portion of benefit costs including severance pay, accumulated
vacations, and disability benefits. At December 31, 1996 CLMC had no retired
employees nor any employees fully eligible for retirement and had no
disbursements for such benefit commitments. The expense arising from these
obligations is not material.
(7) INCOME TAXES
The Company files its own Federal Income Tax return. Amounts payable or
recoverable related to periods before June 1, 1995 are subject to an
indemnification agreement with XFSI, which has the effect that the Company is
not at risk for any income taxes nor entitled to recoveries related to those
periods.
Income taxes are recorded in the statements of earnings and directly in
certain shareholders equity accounts. Income tax expense (benefit) for the
years ended December 31 was allocated as follows:
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95
1994
(In thousands of
dollars)
<S> <C> <C> <C> <C>
Statements of income:
Operating income (excluded realized
investment gains and losses) $ 295 $194 $ (561) $(2,241)
Realized investment gains/(losses) (10) (54) (2) 111
Income tax expense/(benefit) included
in the statements of income 285 140 (563) (2,130)
Shareholders equity:
Unrealized gains/(losses) on securities
available for sale and intangible assets (103) 104 4,053 (6,829)
Total income tax expense/(benefit) $ 182 $244 $3,490 $(8,959)
</TABLE>
The actual Federal income tax expense differed from the expected tax expense
computed by applying the US. Federal statutory rate to income before taxes on
income as follows:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
1995 1995
1996 7 MONTHS 5 MONTHS
1994
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computed expected tax expense $244 35.0% $108 35.0% $(494) 35.0% $(2,200) 35.0%
Tax-exempt bond interest -- -- -- -- (70) 5.0 -- --
Amortization of intangible assets 37 5.3 25 8.2 -- -- -- --
Other 4 .6 7 2.3 1 (.1) 70 (1.0)
Total $285 40.9% $140 45.5% $(563) 39.9% $(2,130) 34.0%
==== ===== ====== ===== ======== =====
</TABLE>
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996
and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
(in thousands of dollars)
<S> <C> <C>
Deferred tax assets:
Tax basis of intangible assets purchased $ 733 $1,009
Liability for commission on recapture 239 443
Policy reserves 972 143
DAC Proxy Tax 556 277
Other Deferred tax assets 6 81
Total assets $2,506 $1,953
Deferred tax liabilities:
Unrealized gains in investments $ 1 $ 104
PVFP 219 377
Deferred acquisition costs 1,162 407
Other deferred tax liabilities 9 58
Total liabilities 1,391 946
Net deferred tax asset $1,115 $1,007
======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management believes
the deferred tax assets will be fully realized in the future based upon
consideration of the reversal of existing temporary differences, anticipated
future earnings, and all other available evidence. Accordingly, no valuation
allowance is established.
(8) RELATED-PARTY TRANSACTIONS
The Company has entered into management, operations and servicing agreements
with both affiliated and unaffiliated companies. The affiliated companies are
Cova Life Management Company (CLMC), a Delaware corporate, which provides
management services and the employees necessary to conduct the activities of
the Company, and General American Investment Management Company, which
provides investment advice. Additionally, a portion of overhead and other
corporate expenses are allocated by the Companys ultimate parent, GALIC. The
unaffiliated companies are Johnson & Higgins, a New Jersey corporation, and
Johnson & Higgins/Kirke Van Orsdel, Inc., a Delaware corporation, which
provide various services for the Company including underwriting, claims and
administrative functions. The affiliated and unaffiliated service providers
are reimbursed for the cost of their services and are paid a service fee.
Expenses and fees paid to affiliated companies in 1996 and the seven months of
1995 for the Company were $303,694 and $375,764, respectively, and by the
Predecessor in 1995 and 1994 were $334,979 and $674,136 respectively.
(9) STATUTORY SURPLUS AND DIVIDEND RESTRICTION
Generally accepted accounting principles (GAAP) differ in certain respects
from the accounting practices prescribed or permitted by insurance regulatory
authorities (statutory accounting principles).
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
The major differences arise principally from the immediate expense recognition
of policy acquisition costs and intangible assets for statutory reporting,
determination of policy reserves based on different discount rates and
methods, the recognition of deferred taxes under GAAP reporting, the
non-recognition of financial reinsurance for GAAP reporting, and the
establishment of an Asset Valuation Reserve as a contingent liability based on
the credit quality of the Company's investment securities and an Interest
Maintenance Reserve as an unearned liability to defer the realized gains and
losses of fixed income investments presumably resulting from changes to
interest rates and amortize them into income over the remaining life of the
investment sold. In addition, SFAS #115 adjustments to record the carrying
values of debt securities and certain equity securities at market are applied
only under GAAP reporting and capital contributions in the form of notes
receivable from an affiliated company are not recognized under GAAP reporting.
Purchase accounting creates another difference as it requires the restatement
of GAAP assets and liabilities to their established fair values, and
shareholders equity to the net purchase price. Statutory accounting does not
recognize the purchase method of accounting.
As of December 31, the differences between statutory capital and surplus and
shareholder's equity determined in conformity with generally accepted
accounting principles (GAAP) were as follows:
<TABLE>
<CAPTION>
1996 1995
(in thousands of dollars)
<S> <C> <C>
Statutory Capital and Surplus $11,176 $11,457
Reconciling items:
Statutory Asset Valuation Reserves 825 700
Interest Maintenance Reserve 34 69
GAAP investment adjustments to fair value 6 846
Deferred policy acquisition costs 3,321 1,164
GAAP basis policy reserves (2,101) (215)
Deferred federal income taxes (net) 1,115 1,007
Goodwill 2,034 2,306
Present value of future profits 1,178 576
Future purchase price payable (683) (1,265)
Other (1) 38
GAAP Shareholders Equity $16,904 $16,683
========
</TABLE>
Statutory net income (loss) for the years ended December 31, 1996, 1995 and
1994 were $(113,236), $(2,404,316) and $(13,042,271) respectively.
The maximum amount of dividends which can be paid by State of California
insurance companies to shareholders without prior approval of the insurance
commissioner is the greater of 10% of statutory surplus or statutory net gain
from operations for the preceding year. Accordingly, the maximum dividend
permissible during 1997 will be $837,581.
The National Association of Insurance Commissioners has developed certain Risk
Based Capital (RBC) requirements for life insurers. If prescribed levels of
RBC are not maintained, certain actions may be required on the part of the
Company or its regulators. At December 31, 1996 the Company's Total Adjusted
Capital and Authorized Control Level - RBC were, $12,001,030 and $1,360,234
respectively. This level of adjusted capital satisfies regulatory
requirements.
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
(10) GUARANTY FUND ASSESSMENTS
The Company participates with all life insurance companies licensed in
California in an association formed to guarantee benefits to policyholders of
insolvent life insurance companies. Under the state law, as a condition for
maintaining the Companys authority to issue new business, the Company is
contingently liable for its share of claims covered by the guaranty
association for insolvencies incurred through 1996, but for which assessments
have not yet been determined nor assessed, to a maximum generally of 1% of
statutory premiums per annum.
At December 31, 1996, the National Organization of Life and Health Guaranty
Associations (NOLHGA) distributed a study of the major outstanding industry
insolvencies, with estimates of future assessments by state. Based on this
study, the Company has accrued a liability for approximately $1.6 million in
future assessments on insolvencies that occurred before December 31, 1996.
Under the coinsurance agreement between the Company and OakRe (see note 1),
OakRe is required to reimburse the Company for any future assessments that it
pays which relate to insolvencies occurring prior to June 1, 1995. As such,
the Company has recorded an additional receivable from OakRe for $1.6 million.
At the same time, the Company is liable to OakRe for 80% of any future premium
tax recoveries that are realized from any such assessments and may retain the
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
a. FINANCIAL STATEMENTS
The following financial statements of the Separate Account are included in Part
B hereof:
1. Statement of Assets and Liabilities - September 30, 1997 (Unaudited.)
2. Statement of Operations For the Nine Months Ended September 30, 1997
(Unaudited.)
3. Statement of Changes in Contract Owners Equity For the Nine Months
Ended September 30, 1997 (Unaudited).
4. Statement of Changes in Contract Owners Equity For the Year Ended
December 31, 1996.
5. Notes to Unaudited Financial Statements for the Nine Months Ended
September 30, 1997.
6. Independent Auditor's Report.
7. Statement of Assets and Liabilities as of December 31, 1996.
8. Statement of Operations for the year ended December 31, 1996.
9. Statement of Changes in Contract Owner's Equity for the year ended
December 31, 1996 and for the period from June 19, 1995 (commencement
of operations) through December 31, 1995.
10. Financial Highlights for the year or period ended December 31, 1996 and
for the period from commencement of operations through December 31,
1995.
11. Notes to Financial Statements for the year ended December 31, 1996 and
for the period from June 19, 1995 (commencement of operations) through
December 31, 1995.
The following financial statements of the Company are included in Part B
hereof:
1. Independent Auditor's Report.
2. Balance Sheets as of December 31, 1996 and 1995.
3. Statements of Income as of December 31, 1996, 1995 and 1994.
4. Statements of Shareholder's Equity for the Years Ended December
31, 1996, 1995 and 1994.
5. Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 194.
6. Notes to Financial Statements - December 31, 1996, 1995 and 1994.
b. EXHIBITS
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account*
2. Not Applicable
3. (i) Form of Principal Underwriter's Agreement
(ii) Form of Selling Agreement
4. (i) Individual Flexible Purchase Payment Deferred Variable and Fixed
Annuity Contract**
(ii) Death Benefit Rider**
(iii) Rider - Nursing Home Waiver**
5. Application for Variable Annuity
6. (i) Copy of Articles of Incorporation of the Company
(ii) Copy of the Bylaws of the Company
7. Not Applicable
8. Form of Fund Participation Agreements
9. Opinion and Consent of Counsel
10. Consent of Independent Accountants
11. Not Applicable
12. Not Applicable
13. Not Applicable
14. Company Organizational Chart**
27. Not Applicable
* incorporated by reference to Xerox Variable Annuity Account Five,
Form N-4 (File No. 33-50174) as filed on July 29, 1992.
** incorporated by reference to Registrant's Form N-4 ,(File Nos. 333-
34817 and 811-07060) electronically filed on September 2, 1997.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR.
The following are the Officers and Directors who are engaged directly or
indirectly in activities relating to the Registrant or the variable annuity
contracts offered by the Registrant and the executive officers of the Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
- -------------------------------- --------------------------------
Richard A. Liddy Chairman of the Board and Director
700 Market Street
St. Louis, MO 63101
Leonard M. Rubenstein Director
700 Market Street
St. Louis, MO 63101
Lorry J. Stensrud President and Director
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Mark E. Reynolds Executive Vice President and Director
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
John W. Barber Director
13045 Tesson Ferry Rd.
St. Louis, MO 63128
Jerome P. Darga Vice President and Assistant Secretary
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Connie A. Doern Vice President
1776 West Lakes Parkway
West Des Moines, IA 50266
Judy M. Drew Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Patricia E. Gubbe Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Philip A. Haley Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Christopher S. Harden Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
J. Robert Hopson Vice President,
One Tower Lane, Suite 3000 Chief Actuary and Director
Oakbrook Terrace, IL 60181-4644
E. Thomas Hughes, Jr. Treasurer and Director
700 Market Street
St. Louis, MO 63101
Lisa O. Kirchner Vice President
1776 West Lakes Parkway
West Des Moines, IA 50266
Douglas E. Jacobs Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
William C. Mair Vice President, Controller and
One Tower Lane, Suite 3000 Director
Oakbrook Terrace, IL 60181-4644
Matthew P. McCauley Assistant Secretary and Director
700 Market Street
St. Louis, MO 63101
Myron H. Sandberg Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
John W. Schaus Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Peter L. Witkewiz Vice President
1776 West Lakes Parkway
West Des Moines, IA 50266
Kent Zimmerman Assistant Treasurer
700 Market Street
St. Louis, MO 63101
Frances S. Cook Secretary
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT.
A company organizational chart was filed as Exhibit 14 to Registrant's Form
N-4 (File Nos. 333-34817 and 811-07060) filed on September 2, 1997 and is
incorporated herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
Not Applicable
ITEM 28. INDEMNIFICATION.
The Bylaws of the Company (Article V, Section 9) provide that:
This corporation shall indemnify, to the fullest extent allowed by California
law, its present and former directors and officers against expenses, judgments,
fines, settlements, and other amounts incurred in connection with any proceeding
or threatened proceeding brought against such directors or officers in their
capacity as such. Such indemnification shall be made in accordance with
procedures set forth by California law. Sums for expenses incurred in defending
any such proceeding may also be advanced to any such director or officer to the
extent and under the conditions provided by California law.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Cova Life Sales Company is the principal underwriter for the following
investment companies (other than Registrant):
Cova Variable Annuity Account One
First Cova Variable Annuity Account One
Cova Variable Life Account One
Cova Variable Life Account Five
(b) Cova Life Sales Company is the principal underwriter for the Contracts.
The following persons are the officers and directors of Cova Life Sales Company.
The principal business address for each officer and director of Cova Life
Sales Company is One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-
4644.
<TABLE>
<CAPTION>
<S> <C>
(b) Name and Principal Positions and Offices
Business Address with Underwriter
- ----------------------- ---------------------------
Judy M. Drew President, Chief Operations
Officer and Director
Lorry J. Stensrud Director
Patricia E. Gubbe Vice President and Chief
Compliance Officer
William C. Mair Director
Philip A. Haley Vice President
Frances S. Cook Assistant Secretary
Robert A. Miner Treasurer
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Christopher Harden, whose address is One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644 maintains physical possession of the accounts,
books or documents of the Variable Account required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder.
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. Cova Financial Life Insurance Company ("Company") hereby represents that
the fees and charges deducted under the Contracts described in the Prospectus,
in the aggregate, are reasonable in relation to the services rendered, the
expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it has caused this Registration Statement to
be signed on its behalf, in the City of Oakbrook Terrace, and State of Illinois
on this 7th day of November, 1997.
<TABLE>
<CAPTION>
<S> <C>
COVA VARIABLE ANNUITY ACCOUNT FIVE
(Registrant)
By: COVA FINANCIAL LIFE INSURANCE COMPANY
By: /s/LORRY J. STENSRUD
_________________________________________
COVA FINANCIAL LIFE INSURANCE COMPANY
Depositor
By: /s/LORRY J. STENSRUD
_________________________________________
</TABLE>
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Chairman of the Board and
- ---------------------- Director --------
Richard A. Liddy Date
/s/LORRY J. STENSRUD President and Director 11/7/97
- ----------------- --------
Lorry J. Stensrud Date
- ---------------------- Director --------
Leonard M. Rubenstein Date
Director
- ---------------------- --------
J. Robert Hopson Date
William C. Mair* Controller and Director 11/7/97
- ---------------------- --------
William C. Mair Date
E. Thomas Hughes, Jr.* Treasurer and Director 11/7/97
- ---------------------- --------
E. Thomas Hughes, Jr. Date
Matthew P. McCauley* Director 11/7/97
- ---------------------- --------
Matthew P. McCauley Date
John W. Barber* Director 11/7/97
- ---------------------- --------
John W. Barber Date
/s/ MARK E. REYNOLDS Director 11/18/97
- ---------------------- --------
Mark E. Reynolds Date
</TABLE>
*By: /s/LORRY J. STENSRUD
____________________________________
Lorry J. Stensrud, Attorney-in-Fact
INDEX TO EXHIBITS
TO
PRE-EFFECTIVE AMENDMENT NO. 1 (FILE NO. 333-34817)
TO
FORM N-4
COVA VARIABLE ANNUITY ACCOUNT FIVE
EXHIBIT NO. PAGE NO.
EX-99.B3(i) Form of Principal Underwriters Agreement
EX-99.B3(ii) Form of Selling Agreement
EX-99.B5 Application for Variable Annuity
EX-99.B6(i) Articles of Incorporation of the Company
EX-99.B6(ii) Bylaws of the Company
EX-99.B8 Form of Fund Participation Agreements
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Consent of Independent Auditor
PRINCIPAL UNDERWRITER'S AGREEMENT
IT IS HEREBY AGREED by and between COVA FINANCIAL LIFE INSURANCE COMPANY
("INSURANCE COMPANY") on behalf of COVA VARIABLE ANNUITY ACCOUNT FIVE (the
"Variable Account") and COVA LIFE SALES COMPANY ("PRINCIPAL UNDERWRITER") as
follows:
I
INSURANCE COMPANY proposes to issue and sell Individual Flexible Purchase
Payment Deferred Variable Annuity Contracts (collectively the "Contracts")
of the Variable Account to the public through PRINCIPAL UNDERWRITER. The
PRINCIPAL UNDERWRITER agrees to provide sales service subject to the terms and
conditions hereof. The Contracts to be sold are more fully described in the
registration statements and prospectuses hereinafter mentioned. Such Contracts
will be issued by INSURANCE COMPANY through the Variable Account.
II
INSURANCE COMPANY grants PRINCIPAL UNDERWRITER the exclusive right, during
the term of this Agreement, subject to registration requirements of the
Securities Act of 1933 and the Investment Company Act of 1940 and the provisions
of the Securities Exchange Act of 1934, to be the distributor of the Contracts
issued through the Variable Account. PRINCIPAL UNDERWRITER will sell the
Contracts under such terms as set by INSURANCE COMPANY and will make such sales
to purchasers permitted to buy such Contracts as specified in the prospectus.
III
PRINCIPAL UNDERWRITER shall be compensated for its distribution service in
such amount as to meet all of its obligations to selling broker-dealers with
respect to all Purchase Payments accepted by INSURANCE COMPANY on the Contracts
covered hereby.
IV
On behalf of the Variable Account, INSURANCE COMPANY shall furnish
PRINCIPAL UNDERWRITER with copies of all prospectuses, financial statements and
other documents which PRINCIPAL UNDERWRITER reasonably requests for use in
connection with the distribution of the Contracts. INSURANCE COMPANY shall
provide to PRINCIPAL UNDERWRITER such number of copies of the current effective
prospectuses as PRINCIPAL UNDERWRITER shall request.
V
PRINCIPAL UNDERWRITER is not authorized to give any information, or to make
any representations concerning the Contracts or the Variable Account of
INSURANCE COMPANY other than those contained in the current registration
statements or prospectuses relating to the Variable Account filed with the
Securities and Exchange Commission or such sales literature as may be authorized
by INSURANCE COMPANY.
VI
Both parties to this Agreement agree to keep the necessary records as
indicated by applicable state and federal law and to render the necessary
assistance to one another for the accurate and timely preparation of such
records.
VII
This Agreement shall be effective upon the execution hereof and will remain
in effect unless terminated as hereinafter provided. This Agreement shall
automatically be terminated in the event of its assignment by PRINCIPAL
UNDERWRITER.
This Agreement may at any time be terminated by either party hereto upon 60
days' written notice to the other party.
VIII
All notices, requests, demands and other communications under this Agreement
shall be in writing and shall be deemed to have been given on the date of
service if served personally on the party to whom notice is to be given, or on
the date of mailing if sent by First Class Mail, Registered or Certified,
postage prepaid and properly addressed.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their respective officers thereunto duly authorized.
EXECUTED THIS ____ day of ______, 19__.
INSURANCE COMPANY
COVA FINANCIAL LIFE
INSURANCE COMPANY
BY:___________________________
ATTEST:____________________
Secretary
PRINCIPAL UNDERWRITER
COVA LIFE SALES COMPANY
BY:__________________________
ATTEST:____________________
Secretary
SELLING AGREEMENT
Agreement dated as of ___________________, 19____, by and among COVA
FINANCIAL LIFE INSURANCE COMPANY, a California corporation ("Life Company");
COVA LIFE SALES COMPANY, a Delaware corporation ("Distributor");
________________________, ("Broker-Dealer") and __________________________,
("Insurance Agent").
RECITALS
A. Pursuant to a distribution agreement with Distributor, Life Company has
appointed Distributor as the principal underwriter of the variable annuity
contracts identified in Schedule 1 to this Agreement at the time that this
Agreement is executed, and such other variable annuity contracts or variable
life insurance contracts that may be added to Schedule 1 from time-to-time in
accordance with Section 2(f) of this Agreement. Such contracts together with any
fixed annuity contracts shown on Schedule 1 shall be referred to herein as
"Contracts".
B. The parties to this Agreement desire that Broker-Dealer and Insurance Agent
be authorized to solicit applications for the sale of the Contracts to the
general public subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual promises and
covenants hereinafter set forth, the parties agree as follows:
1. ADDITIONAL DEFINITIONS
(a) Affiliate - With respect to a person, any other person controlling,
controlled by, or under common control with, such person.
(b) Agent - An individual associated with Insurance Agent and Broker-Dealer
who is appointed by Life Company as an agent for the purpose of soliciting
applications.
(c) NASD - The National Association of Securities Dealers, Inc.
(d) 1933 Act - The Securities Act of 1933, as amended.
(e) 1934 Act - The Securities and Exchange Act of 1934, as amended.
(f) 1940 Act - The Investment Company Act of 1940, as amended.
(g) Premium - A payment made under a Contract to purchase benefits under
such Contract.
(h) Prospectus - With respect to each Contract, the prospectus for such
Contract included within the Registration Statement for such Contract; provided,
however, that, if the most recently filed prospectus, filed pursuant to Rule 497
under the 1933 Act subsequent to the date on which the Registration Statement
became effective differs from the prospectus on file at the time the
Registration Statement became effective, the term "Prospectus" shall refer to
the most recently filed prospectus filed under Rule 497 from and after the date
on which it shall have been filed.
(i) Registration Statement - With respect to each Contract, the most recent
effective registration statement(s) filed with the SEC or the most recent
effective post-effective amendment(s) thereto with respect to such Contract,
including financial statements included therein and all exhibits thereto. There
may be more than one Registration Statement in effect at the time for a
Contract; in such case, any reference to "the Registration Statement" for a
Contract shall refer to any or all, depending on the context, of the
Registration Statements for such Contract.
(j) SEC - The Securities and Exchange Commission.
(k) Service Center - Policy Service office:
(i) Fixed Products: P.O. Box 295, Des Moines, IA 50301
(ii) Variable Products: P.O. Box 10366, Des Moines, IA 50306
(iii)Express Mail Only: 1776 West Lakes Parkway, West Des Moines, IA
50266
2. AUTHORIZATION OF BROKER-DEALER AND INSURANCE AGENT
(a) Distributor hereby authorizes Broker-Dealer under the securities laws,
and Life Company hereby authorizes and appoints Insurance Agent under the
insurance laws, each in a non-exclusive capacity, to distribute the Contracts.
Broker-Dealer and Insurance Agent accept such authorization and appointment and
shall use their best efforts to find purchasers for the Contracts, in each case
acceptable to Life Company.
(b) Life Company shall notify Broker-Dealer and Insurance Agent in writing
of all states and jurisdictions in which Life Company is licensed to sell the
Contracts. Broker-Dealer and Insurance Agent acknowledge that no territory is
exclusively assigned hereunder, and Life Company reserves the right in its sole
discretion to establish or appoint one or more agencies in any jurisdiction in
which Insurance Agent transacts business hereunder.
(c) Insurance Agent is vested under this Agreement with power and authority
to select and recommend individuals associated with Insurance Agent for
appointment as Agents of Life Company, and only individuals so recommended by
Insurance Agent shall become Agents, provided that Life Company reserves the
right in its sole discretion to refuse to appoint any proposed agent or, once
appointed, to terminate the same at any time with or without cause.
(d) Neither Broker-Dealer nor Insurance Agent shall expend or contract for
the expenditure of the funds of Life Company. Broker-Dealer and Insurance Agent
each shall pay all expenses incurred by each of them in the performance of this
Agreement, unless otherwise specifically provided for in this Agreement or
unless Life Company and Distributor shall have agreed in advance in writing to
share the cost of certain expenses. Initial and renewal state appointment fees
for Insurance Agent and appointees of Insurance Agent as Agents of Life Company
will be paid by Life Company according to the terms set forth in the rules and
regulations as may be adopted by Life Company from time-to-time. Neither
Broker-Dealer nor Insurance Agent shall possess or exercise any authority on
behalf of Distributor or Life Company other than that expressly conferred on
Broker-Dealer or Insurance Agent by this Agreement. In particular, and without
limiting the foregoing, neither Broker-Dealer nor Insurance Agent shall have any
authority, nor shall either grant such authority to any Agent, on behalf of
Distributor or Life Company: to make, alter or discharge any Contract or other
contract entered into pursuant to a Contract; to waive any Contract forfeiture
provision; to extend the time of paying any Premiums; or to receive any monies
or Premiums from applicants for or purchasers of the Contracts (except for the
sole purpose of forwarding monies or Premiums to Life Company).
(e) Broker-Dealer and Insurance Agent acknowledge that Life Company has the
right in its sole discretion to reject any applications or Premiums received by
it and to return or refund to an applicant such applicant's Premium.
(f) Schedule 1 to this Agreement may be amended by Distributor and Life
Company in their sole discretion from time-to-time to include other variable
annuity contracts, fixed annuity contracts, or variable life insurance
contracts, or to delete contracts from the Schedule.
(g) Distributor and Life Company acknowledge that Broker-Dealer and
Insurance Agent are each an independent contractor. Accordingly, Broker-Dealer
and Insurance Agent are not obliged or expected to give full time and energies
to the performance of their obligations hereunder, nor are Broker-Dealer and
Insurance Agent obliged or expected to represent Distributor or Life Company
exclusively. Nothing herein contained shall constitute Broker-Dealer, Insurance
Agent, the Agents or any agents or representatives of Broker-Dealer or Insurance
Agent as employees of Distributor or Life Company in connection with
solicitation of applications for the Contracts.
3. LICENSING AND REGISTRATION OF BROKER-DEALER, INSURANCE AGENT AND AGENTS
(a) Broker-Dealer represents and warrants that it is a Broker-Dealer
registered with the SEC under the 1934 Act, and is a member of the NASD in good
standing. Broker-Dealer must, at all times when performing its functions and
fulfilling its obligations under this Agreement, be duly registered as a
Broker-Dealer under the 1934 Act and as required by applicable law, in each
state or other jurisdiction in which Broker-Dealer intends to perform its
functions and fulfill its obligations hereunder.
(b) Insurance Agent represents and warrants that it is a licensed life
insurance agent where required to solicit applications. Insurance Agent must, at
all times when performing its functions and fulfilling its obligations under
this Agreement, be duly licensed to sell the Contracts in each state or other
jurisdiction in which insurance Agent intends to perform its functions and
fulfill its obligations hereunder.
(c) Broker-Dealer shall ensure that no individual shall offer or sell the
Contracts on its behalf in any state or other jurisdiction in which the
Contracts may lawfully be sold unless such individual is an associated person of
Broker-Dealer (as that term is defined in Section 3(a)(18) of the 1934 Act) and
duly registered with the NASD and any applicable state securities regulatory
authority as a registered person of Broker-Dealer qualified to distribute the
Contracts in such state o jurisdiction. Broker-Dealer shall be solely
responsible for the background investigations of the Agents to determine their
qualifications and will provide Life Company upon request with copies of such
investigations.
(d) Insurance Agent shall ensure that no individual shall offer or sell the
Contracts on behalf of Insurance Agent in any state or other jurisdiction unless
such individual is duly affiliated as an agent of Insurance Agent, duly licensed
and appointed as an agent of Life Company, and appropriately licensed,
registered or otherwise qualified to offer and sell the Contracts to be offered
and sold by such individual under the insurance laws of such state or
jurisdiction. Insurance Agent shall be responsible for investigating the
character, work experience and background of any proposed agent prior to
recommending appointment as agent of Life Company. Upon request, Life Company
shall be provided with copies of such investigation. All matters concerning the
licensing of any individuals recommended for appointment by Insurance Agent
under any applicable state insurance law shall be a matter directly between
Insurance Agent and such individual, and the Insurance Agent shall furnish Life
Company with proof of proper licensing of such individual or other proof,
reasonably acceptable to Life Company. Broker-Dealer and Insurance Agent shall
notify Distributor and Life Company immediately upon termination of an Agent's
association with Broker-Dealer or Insurance Agent.
(e) Without limiting the foregoing, Broker-Dealer and Insurance Agent
represent that they are in compliance with the terms and conditions of letters
issued by the Staff of the SEC with respect to the non-registration as a
broker-dealer of an insurance agency associated with a registered broker-dealer.
Broker-Dealer and the Insurance Agent shall notify Distributor immediately in
writing if Broker-Dealer and/or Insurance Agent fail to comply with any such
terms and conditions and shall take such measures as may be necessary to comply
with any such terms and conditions.
4. BROKER-DEALER AND INSURANCE AGENT COMPLIANCE
(a) Broker-Dealer and Insurance Agent hereby represent and warrant that
they are duly in compliance with all applicable federal and state securities
laws and regulations, and all applicable insurance laws and regulations.
Broker-Dealer and Insurance Agent each shall carry out their respective
obligations under this Agreement in continued compliance with such laws and
regulations. Broker-Dealer shall be responsible for securities training,
supervision and control of the Agents in connection with their solicitation
activities with respect to the Contracts and shall supervise Agents' compliance
with applicable federal and state securities law and NASD requirements in
connection with such solicitation activities. Broker-Dealer and Insurance Agent
shall comply, and shall ensure that Agents comply, with the rules and procedures
established by Life Company from time-to-time, and the rules set forth below,
and Broker-Dealer and Insurance Agent shall be solely responsible for such
compliance.
(b) Broker-Dealer, Insurance Agent and Agents shall not offer or attempt to
offer the Contracts, nor solicit applications for the Contracts, nor deliver
Contracts, in any state or jurisdiction in which the Contracts may not lawfully
be sold or offered for sale.
(c) Broker-Dealer, Insurance Agent and Agents shall not solicit
applications for the Contracts without delivering the Prospectus for the
Contracts, the then-currently effective prospectus(es) for the underlying
fund(s) and, where required by state insurance law, the then-currently effective
statement of additional information for the Contracts.
(d) Broker-Dealer, Insurance Agent and Agents shall not recommend the
purchase of a Contract to an applicant unless each has reasonable grounds to
believe that such purchase is suitable for the applicant in accordance with,
among other things, applicable regulations of any state insurance commission,
the SEC and the NASD.
(e) Insurance Agent shall return promptly to Life Company all receipts for
delivered Contracts, all undelivered contracts and all receipts for
cancellation, in accordance with the requirements established by Life Company
and/or as required under state insurance law. Upon issuance of a Contract by
Life Company and delivery of such Contract to Insurance Agent, Insurance Agent
shall promptly deliver such Contract to its purchaser. For purposes of this
provision "promptly" shall be deemed to mean not later than five (5) calendar
days. Life Company will assume that a Contract will be delivered by Insurance
Agent to the purchaser of such Contract within five (5) calendar days for
purposes of determining when to transfer premiums initially allocated to the
Money Market Account available under such Contracts to the particular investment
options specified by such purchaser. As a result, if purchasers exercise the
free-look provisions under such Contracts, Broker-Dealer shall indemnify Life
Company for any loss incurred by Life Company that results from Insurance
Agent's failure to deliver such Contracts to the purchasers within the
contemplated five (5) calendar day period.
(f) In the event that Premiums are sent to Insurance Agent or
Broker-Dealer, rather than to the Service Center, Insurance Agent and
Broker-Dealer shall promptly (and in any event, not later than two (2) business
days) remit such Premiums to Life Company at the Service Center. Insurance Agent
and Broker-Dealer acknowledge that if any Premium is held at any time by either
of them, such Premium shall be held on behalf of the customer, and Insurance
Agent or Broker-Dealer shall segregate such Premium from their own funds and
promptly (and in any event, within two (2) business days) remit such Premium to
Life Company. All such Premiums, whether by check, money order or wire, shall at
all times be the property of Life Company.
(g) Neither Broker-Dealer nor Insurance Agent, nor any of their directors,
partners, officers, employees, registered persons, associated persons, agents or
affiliated persons, in connection with the offer or sale of the Contracts, shall
give any information or make any representations or statements, written or oral,
concerning the Contracts, the underlying funds or fund Shares, other than
information or representations contained in the Prospectuses, statements of
additional information and Registration Statements for the Contracts, or a fund
prospectus, or in reports or proxy statements therefore, or in promotional,
sales or advertising material or other information supplied and approved in
writing by Distributor and Life Company.
(h) Broker-Dealer and Insurance Agent shall not use or implement any
promotional, sales or advertising material relating to the Contracts without the
prior written approval of Distributor and Life Company.
(i) Broker-Dealer and Insurance Agent shall be solely responsible under
applicable tax laws for the reporting of compensation paid to Agents.
(j) Broker-Dealer and Insurance Agent each represent that it maintains and
shall maintain such books and records concerning the activities of the Agents as
may be required by the SEC, the NASD and any appropriate insurance regulatory
agencies that have jurisdiction and that may be reasonably required by Life
Company. Broker-Dealer and Insurance Agent shall make such books and records
available to Life Company upon written request.
(k) Broker-Dealer and Insurance Agent shall promptly furnish to Life
Company or its authorized agent any reports and information that Life Company
may reasonably request for the purpose of meeting Life Company's reporting and
record keeping requirements under the insurance laws of any state, under any
applicable federal and state securities laws, rules and regulations, and the
rules of the NASD.
(l) Broker-Dealer shall secure and maintain a fidelity bond (including
coverage for larceny and embezzlement), issued by a reputable bonding company,
covering all of its directors, officers, agents and employees who have access to
funds of Insurance Company. This bond shall be maintained at Broker-Dealer's
expense in at least the amount prescribed by the NASD rules. Broker-Dealer shall
upon request provide Distributor with a copy of said bond. Broker-Dealer shall
also secure and maintain errors and omissions insurance acceptable to
Distributor and covering Broker-Dealer, Insurance Agent and Agents.
Broker-Dealer hereby assigns any proceeds received from a fidelity bonding
company, errors and omissions or other liability coverage, to Distributor or
Life Company as their interests may appear, to the extent of their loss due to
activities covered by the bond, policy or other liability coverage. If there is
any deficiency amount, whether due to a deductible or otherwise, Broker-Dealer
shall promptly pay such amount on demand. Broker-Dealer hereby indemnifies and
holds harmless Distributor or Life Company from any such deficiency and from the
costs of collection thereof, including reasonable attorneys' fees.
5. SALES MATERIALS
(a) During the term of this Agreement, Distributor and Life Company will
provide Broker-Dealer and Insurance Agent, without charge, with as many copies
of Prospectuses (and any supplements thereto), current fund prospectus(es) (and
any supplements thereto), and applications for the Contracts, as Broker-Dealer
or Insurance Agent may reasonably request. Upon termination of this Agreement,
Broker-Dealer and Insurance Agent will promptly return to Distributor any
Prospectuses, applications, fund prospectuses, and other materials and supplies
furnished by Distributor or Life Company to Broker-Dealer, Insurance Agent or
the Agents.
(b) During the term of this Agreement, Distributor will be responsible for
providing and approving all promotional, sales and advertising material to be
used by Broker-Dealer and Insurance Agent. Distributor will file such materials
or will cause such materials to be filed with the SEC, the NASD, and/or with any
state securities regulatory authorities, as appropriate.
6. COMMISSION AGREEMENT
(a) During the term of this Agreement, Distributor and Life Company shall
pay to Broker-Dealer or Insurance Agent, as applicable, commissions and fees set
forth in Schedule 1 to this Agreement. The payment of such commissions and fees
shall be subject to the terms and conditions of this Agreement and those set
forth on Schedule 1. Schedule 1, including the commissions and fees therein, may
be amended at any time, in any manner, and without prior notice, by Distributor
or Life Company. Any amendment to Schedule 1 will be applicable to any Contract
for which any application or Premium is received by the Service Center on or
after the effective date of such amendment. However, Life Company reserves the
right to amend such Schedule with respect to subsequent premiums and renewal
commissions and the right to amend such Schedule pursuant to this subsection
even after termination of this Agreement. Compensation with respect to any
Contract shall be paid to Insurance Agent only for so long as Insurance Agent is
the agent-of-record and maintains compliance with applicable state insurance
laws and only while this Agreement is in effect.
(b) No compensation shall be payable, and Broker-Dealer and Insurance Agent
agree to reimburse Distributor and Life Company for any compensation that may
have been paid to Broker-Dealer, Insurance Agent or any Agents in any of the
following situations: (i) Insurance Company, in its sole discretion, determines
not to issue the Contract applied for; (ii) Insurance Company refunds the
premiums upon the applicant's surrender or withdrawal pursuant to any
"free-look" provision; (iii) Insurance Company refunds the premiums paid by
applicant as a result of a complaint by applicant; (iv) Insurance Company
determines that any person soliciting an application who is required to be
licensed or any other person or entity receiving compensation for soliciting
applications or premiums for the Contracts is not or was not duly licensed as an
insurance agent; or (v) any other situation listed on Schedule 1.
(c) Agents shall have no interest in this Agreement or right to any
commissions to be paid by Distributor or Life Company to Insurance Agent.
Insurance Agent shall be solely responsible for the payment of any commission or
consideration of any kind to Agents. Insurance Agent shall have no right to
withhold or deduct any commission from any Premiums in respect of the Contract
which it may collect unless and only to the extent that Life Company agrees in
writing, to permit Insurance Agent to net its commissions against Premiums
collected. Insurance Agent shall have no interest in any compensation paid by
Life Company to Distributor or any affiliate, now or hereafter, in connection
with the sale of any Contracts hereunder.
7. TERM AND TERMINATION
This Agreement may not be assigned except by written consent of the parties
hereto and shall continue for an indefinite term, subject to the termination by
any party hereto upon thirty (30) days advance written notice to the other
parties. This Agreement shall automatically terminate upon its breach by any
party hereto, or in the event the Distributor or Broker-Dealer ceases to be a
registered broker-dealer, a member of the NASD, or Insurance Agent ceases to be
properly licensed or upon th filing by any party hereto for protection under any
state or federal bankruptcy, insolvency or similar law.
8. COMPLAINTS AND INVESTIGATIONS
(a) Distributor, Life Company, Broker-Dealer and Insurance Agent shall
cooperate fully in any insurance regulatory investigation or proceeding or
judicial proceeding arising in connection with the Contracts marketed under this
Agreement. In addition, Distributor, Life Company, Broker-Dealer and Insurance
Agent shall cooperate fully in any securities regulatory investigation or
proceeding or judicial proceeding with respect to Distributor, Broker-Dealer,
their Affiliates and their agents, to the extent that such investigation or
proceeding relates to the Contracts marketed under this Agreement. Without
limiting the foregoing:
(i) Broker-Dealer and Insurance Agent will be notified promptly of any
customer complaint or notice of any regulatory investigation or proceeding
or judicial proceeding received by Distributor or Life Company with respect
to Insurance Agent or any Agent which may affect the issuance of any
Contract marketed under this Agreement.
(ii) Broker-Dealer and Insurance Agent will promptly notify Distributor and
Life Company of any written customer complaint or notice of any regulatory
investigation or proceeding or judicial proceeding received by
Broker-Dealer or Insurance Agent or their Affiliates with respect to
themselves, their Affiliates, or any Agent in connection with any Contract
marketed under this Agreement or any activity in connection with any such
Contract.
(b) In the case of a customer complaint, Distributor, Life Company,
Broker-Dealer and Insurance Agent will cooperate in investigating such complaint
and any response by Broker-Dealer or Insurance Agent to such complaint will be
sent to Distributor and Life Company for approval not less than five (5)
business days prior to its being sent to the customer or regulatory authority,
except that if a more prompt response is required, the proposed response shall
be communicated by telephone or facsimile.
(c) The provisions of this Section 8 shall remain in full force and effect
regardless of any termination of this Agreement.
9. MODIFICATION OF AGREEMENT
This Agreement supersedes all prior agreements, either oral or written,
between the parties relating to the Contracts, and except for any amendment of
Schedule 1 pursuant to the terms of the Agreement, may not be modified in any
way unless by written agreement signed by all of the parties to this Agreement.
10. INDEMNIFICATION
(a) Broker-Dealer and Insurance Agent, jointly and severally, shall
indemnify and hold harmless Distributor and Life Company and each person who
controls or is associated with Distributor or Life Company within the meaning of
such terms under the federal securities laws, and any officer, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any reasonable amounts paid
in settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon any actual or alleged:
(i) violation(s) by Broker-Dealer, Insurance Agent or an Agent of federal
or state securities law or regulations, insurance law or regulation(s), or
any rule or requirement of the NASD;
(ii) unauthorized use of sales or advertising material, any oral or written
misrepresentations, or any unlawful sales practices concerning the
Contracts, by Broker-Dealer, Insurance Agent or an Agent;
(iii) claims by the Agents or other agents or representatives of Insurance
Agent or Broker-Dealer for commissions or other compensation or
remuneration of any type;
(iv) any failure on the part of Broker-Dealer, Insurance Agent, or an Agent
to submit Premiums or applications to Life Company, or to submit the
correct amount of a Premium, on a timely basis and in accordance with this
Agreement;
(v) any failure on the part of Broker-Dealer, Insurance Agent, or an Agent
to deliver Contracts to purchasers thereof on a timely basis as set forth
in Section 4(e) of this Agreement; or
(vi) a breach by Broker-Dealer or Insurance Agent of any provision of this
Agreement.
This indemnification will be in addition to any liability which
Broker-Dealer and Insurance Agent may otherwise have.
(b) Distributor and Life Company, jointly and severally, shall indemnify
and hold harmless Broker-Dealer and Insurance Agent and each person who controls
or is associated with Broker-Dealer or Insurance Agent within the meaning of
such terms under the federal securities laws, and any officer, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any reasonable amounts paid
in settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon a breach by Distributor or Life Company of any
provision of this Agreement. This indemnification will be in addition to any
liability which Distributor and Life Company may otherwise have.
(c) After receipt by a party entitled to indemnification ("indemnified
party") under this Section 10 of notice of the commencement of any action, if a
claim in respect thereof is to be made against any person obligated to provide
indemnification under this Section 10 ("indemnifying party"), such indemnified
party will notify the indemnifying party in writing of the commencement thereof
as soon as practicable thereafter, provided that the omission to so notify the
indemnifying party will not relieve it from any liability under this Section 10,
except to the extent that the omission results in a failure of actual notice to
the indemnifying party and such indemnifying party is damaged as a result of the
failure to give such notice. The indemnifying party will be entitled to
participate in the defense of the indemnified party but such participation will
not relieve such indemnifying party of the obligation to reimburse the
indemnified party for reasonable legal and other expenses incurred by such
indemnified party in defending himself or itself. The indemnification provisions
contained in this Section 10 shall remain operative in full force and effect,
regardless of any termination of this Agreement. A successor by law of
Distributor or Life Company, as the case may be, shall be entitled to the
benefits of the indemnification provisions contained in this Section 10.
11. RIGHTS, REMEDIES, ETC. ARE CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws. Failure of either party to insist upon strict compliance with any
of the conditions of this Agreement shall not be construed as a waiver of any of
the conditions, but the same shall remain in full force and effect. No waiver of
any of the provisions of this Agreement shall be deemed, nor shall constitute, a
waiver of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver.
12. NOTICES
All notices hereunder are to be made in writing and shall be given:
<TABLE>
<CAPTION>
<S> <C>
IF TO DISTRIBUTOR, TO: IF TO LIFE COMPANY, TO:
Cova Life Sales Company Cova Financial Life Insurance Company
Attention: Judy M. Drew, President Attention: Judy M. Drew, Senior Vice President One Tower
Lane One Tower Lane
Suite 3000 Suite 3000
Oakbrook Terrace, Illinois 60181-4644 Oakbrook Terrace, Illinois 60181-4644
IF TO BROKER-DEALER, TO: IF TO INSURANCE AGENT, TO:
XXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXX
</TABLE>
or such other address as such party may hereafter specify in writing. Each
such notice to a party shall be either hand delivered, transmitted by registered
or certified United States mail with return receipt requested or by express
courier, and shall be effective upon delivery.
13. INTERPRETATION, JURISDICTION, ETC.
This Agreement constitutes the whole agreement between the parties hereto
with respect to the subject matter hereof, and supersedes all prior oral or
written understandings, agreements or negotiations between the parties with
respect to the subject matter hereof. No prior writings by or between the
parties hereto with respect to the subject matter hereof shall be used by either
party in connection with the interpretation of any provision of this Agreement.
This Agreement shall be construe and its provisions interpreted under and in
accordance with the internal laws of the State of California without giving
effect to principles of conflict of laws.
14. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement, or
the breach hereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
15. SETOFFS; CHARGEBACKS
Broker-Dealer and Insurance Agent hereby authorize Distributor and Life
Company to set off from all amounts otherwise payable to Broker-Dealer and
Insurance Agent all liabilities of Broker-Dealer, Insurance Agent or Agent.
Broker-Dealer and Insurance Agent shall be jointly and severally liable for the
payment of all monies due to Distributor and/or Life Company which may arise out
of this Agreement or any other agreement between Broker-Dealer, Insurance Agent
and Distributor or Life Company including, but not limited to, any liability for
any chargebacks or for any amounts advanced by or otherwise due Distributor or
Life Company hereunder. All such amounts shall be paid to the Distributor and
Life Company within thirty (30) days of written request therefore. Distributor
and Life Company do not waive any of its other rights to pursue collection of
any indebtedness owed by Broker-Dealer or Insurance Agent or its Agents to
Distributor or Life Company. In the event Distributor or Life Company initiates
legal action to collect any indebtedness of Broker-Dealer, Insurance Agent or
its Agents, Broker-Dealer and Insurance Agent shall reimburse Distributor and
Life Company for reasonable attorney fees and expenses in connection therewith.
This provision shall remain in full force and effect regardless of any
termination of this Agreement.
16. HEADINGS
The headings in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
17. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
18. SEVERABILITY
This is a severable Agreement. In the event that any provision of this
Agreement would require a party to take action prohibited by applicable federal
or state law or prohibit a party from taking action required by applicable
federal or state law, then it is the intention of the parties hereto that such
provision shall be enforced to the extent permitted under the law, and, in any
event, that all other provisions of this Agreement shall remain valid and duly
enforceable as if the provision at issue had never been part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
COVA FINANCIAL
LIFE INSURANCE COMPANY
Date: ______________________________ By: _______________________________________________
Judy M. Drew, Senior Vice President
COVA LIFE SALES COMPANY
Date: ______________________________ By: ________________________________________________
Patricia E. Gubbe, First Vice President
XXXXXXXXXXXXX
Broker-Dealer
Date: ______________________________ By: ________________________________________________
Signature
________________________________________________
Print Name
________________________________________________
Title
XXXXXXXXXXXXXXX
Insurance Agent
Date: ______________________________ By: _________________________________________________
Signature
_________________________________________________
Print Name
_________________________________________________
Title
</TABLE>
Send application and check to:
Cova Financial Life
Insurance Company
P. O. Box 10366
Des Moines, Iowa 50306-9989
Cova Financial Life Insurance Company
FLEXIBLE PURCHASE PAYMENT VARIABLE AND FIXED ANNUITY APPLICATION
1. OWNER (Correspondence is sent to the Owner.)
Name_______________________________________________________________________
(First) (Middle) (Last)
Address____________________________________________________________________
(Street)
___________________________________________________________________________
(City) (State) (Zip)
Sex [ ] M [ ] F Phone (_______)____________________________________
Birthdate____________________/______________/______________________________
(Month) (Day) (Year)
Social Security Number_____________________________________________________
Joint Owners must be spouses. Use Special Requests Section to name other
Joint Owner. If Joint Owners are named, upon the death of either Joint
Owner, the surviving spouse will be the beneficiary. If you wish to
override the provisions of the contract and any endorsement, both Joint
Owners must initial here.
__________________________ ________________________
Joint Owner's Initials Joint Owner's Initials
2. ANNUITANT (Complete only if different than Owner.)
Name_______________________________________________________________________
(First) (Middle) (Last)
Address____________________________________________________________________
(Street) (City) (State) (Zip)
Birthdate_______/______/______ Sex [ ] M [ ] F
(Month) (Day) (Year)
Social Security No.________________________________________________________
Phone (_______)____________________________________________________________
3. BENEFICIARY
(Show full name(s), relationship(s), Social Security number(s), percentage
each is to receive and address. Use Special Requests Section if additional
space is needed.)
Primary____________________________________________________________________
Primary____________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Contingent_________________________________________________________________
___________________________________________________________________________
4. PURCHASE PAYMENT ALLOCATION
Initial Purchase Payment
$_______________________
Must be whole percentages with a minimum of 10% in any Account or Portfolio.
Unless otherwise directed, subsequent purchase payments will be allocated as
shown. Total Allocation must equal 100%.
____% General Account
AIM V.I.
____% Capital Appreciation Fund
____% International Equity Fund
____% Value Fund
Alliance
____% Premier Growth Portfolio
____% Real Estate Investment
Portfolio
Liberty
____% Newport Tiger Fund
Conning
____% Money Market Fund
J.P. Morgan Investment
Management
____% Small Cap Stock Portfolio
____% Large Cap Stock Portfolio
____% Select Equity Portfolio
____% International Equity Portfolio
____% Quality Bond Portfolio
Lord Abbett
____% Bond Debenture Portfolio
____% Large Cap Research Portfolio
____% Developing Growth Portfolio
____% Mid Cap Value Portfolio
____% Growth & Income Portfolio
Investors Fund Series
____% Kemper Small Cap Value
Portfolio
____% Kemper Government
Securities Portfolio
____% Kemper Small Cap
Growth Portfolio
MFS
____% Oppenheimer High Income Fund
____% Oppenheimer Bond Fund
____% Oppenheimer Growth Fund
____% Oppenheimer Growth &
Income Fund
____% Oppenheimer Strategic
Bond Fund
Putnam
____% Putnam VT Growth and
Income Fund
____% Putnam VT International
Growth Fund
____% Putnam VT International
New Opportunities Fund
____% Putnam VT New Value
Fund
____% Putnam VT Vista Fund
5. TYPE OF PLAN Check One
[ ] Non-Qualified
[ ] Qualified - Not available in all states.
[ ] 401(a)
[ ] 408 IRA Rollover
[ ] 408 IRA Transfer
[ ] 403(b) TSA Rollover--
I acknowledge that I understand the withdrawal restrictions under Internal
Revenue Code Section 403(b)(11) on contributions and earnings and have
received a prospectus explaining the restrictions. I understand the other
investment alternatives available under the employer's 403(b) arrangement
to which I may elect to transfer my contract value.
6. ALLOCATION DURING FREE LOOK PERIOD
Under certain circumstances, as described in the accompanying Prospectus,
the initial purchase payment will be allocated to the Conning Money Market
Portfolio until the expiration of the Free Look period. Thereafter, the
purchase payments will be allocated as directed in the Purchase Payment
Allocation Section.
7. SPECIAL REQUESTS
8. TRANSFER AUTHORIZATIONS
I/We acknowledge that neither Cova Financial Services Life Insurance
Company (Cova) nor any person authorized by Cova will be responsible for
any claim, loss, liability or expense in connection with a telephone
transfer if Cova or such other person acted on telephone transfer
instructions in good faith in reliance on this authorization.
Check here if you wish to authorize telephone transfer instructions. [ ]
Check here if you wish to authorize your Registered Representative/Agent to
make transfers. [ ]
9. DOLLAR COST AVERAGING TRANSFERS -- I authorize Dollar Cost Averaging
Transfers of $______________ to be transferred each month ($500 minimum)
from the Conning Money Market Portfolio or the General Account ($6,000
minimum required in the Conning Money Market Portfolio or the General
Account or amount needed to complete all transfers.)
<TABLE>
<CAPTION>
<S> <C> <C>
FROM TO
Check One AIM V.I. MFS
[ ]Conning _______% Capital Appreciation Fund
Money Market _______% International Equity Fund _______% Oppenheimer High Income Fund
Portfolio _______% Value Fund _______% Oppenheimer Bond Fund
_______% Oppenheimer Growth Fund
[ ]General Alliance _______% Oppenheimer Growth &
Account _______% Premier Growth Portfolio Income Fund
_______% Real Estate Investment Portfolio _______% Oppenheimer Strategic Bond
Liberty
_______% Newport Tiger Fund
Conning Putnam Fund
_______% Money Market Fund
J.P. Morgan Investment Management _______% Putnam VT Growth and Income
_______% Small Cap Stock Portfolio Fund
_______% Large Cap Stock Portfolio _______% Putnam VT International Growth
_______% Select Equity Portfolio Fund
_______% International Equity Portfolio _______% Putnam VT International New
_______% Quality Bond Portfolio Opportunities Fund
Lord Abbett _______% Putnam VT New Value Fund
_______% Bond Debenture Portfolio _______% Putnam VT Vista Fund
_______% Large Cap Research Portfolio
_______% Developing Growth Portfolio =======
_______% Mid Cap Value Portfolio 100 % Total
_______% Growth & Income Portfolio
Investors Fund Series I authorize transfers to be made for:
_______% Kemper Small Cap Value Portfolio [ ] 12 months
_______% Kemper Government Securities [ ] 24 months
Portfolio [ ] 36 months
_______% Kemper Small Cap Growth [ ] 48 months
Portfolio [ ] 60 months
Other _______ months
Dollar Cost Averaging Transfers and
Rebalancing Transfers are not available
simultaneously.
</TABLE>
10. AUTOMATIC WITHDRAWALS
I authorize automatic monthly withdrawals of $__________________. Total
monthly withdrawals cannot exceed 10% of purchase payments in any 12 month
period.
I understand that Automatic Withdrawals are available only if I am over age
59-1/2.
FEDERAL AND STATE INCOME TAX WITHHOLDING
Check one: [ ] I elect to have Federal Income Tax withheld from these
distributions.
[ ] I elect NOT to have Federal Income Tax withheld from
these distributions.
Note: Even if you elect not to have Federal Income Tax withheld from a
distribution, you are liable for payment of Federal Income Tax on the
taxable portion of your contract. You may also be subject to tax penalties
under the estimated tax payment rules if your payments of estimated tax and
withholding, if any, are not adequate.
If applicable, a State Income Tax election will be made as elected above
for Federal Income Tax withholding.
11. REBALANCING TRANSFERS -- I authorize Rebalancing Transfers to be made in
the applicable percentages elected in the Purchase Payment Allocation
section. Rebalancing transfers are not made to or from the General Account.
Transfers are to be made: q quarterly q semi-annually q annually. Dollar
Cost Averaging Transfers and Rebalancing Transfers are not available
simultaneously.
12. ANNUITY OPTION-- If no Annuity Option is specified, the Life Annuity
with 10 years Guaranteed Option will be automatically applied.
_________________________
Indicate Annuity Option
13. ANNUITY DATE -- The Annuity Date must always be on the first day of a
calendar month and must be at least one month after the Issue Date. The
Annuity Date may not be later than the first day of the calendar month
following the later of: 1) the Annuitant's 85th birthday; or 2) the tenth
Contract Anniversary.
______________________
Indicate Annuity Date
14. Will the annuity applied for replace or change any existing life insurance
or annuity? [ ] Yes [ ] No
15. ACKNOWLEDGEMENT AND AUTHORIZATION -- I (We) agree that the above
information and statements and those made on the reverse side are true and
correct to the best of my (our) knowledge and belief and are made as the
basis of my (our) application. I (We) acknowledge receipt of the current
prospectus(es) of Cova Variable Annuity Account Five, AIM Variable
Insurance Funds, Inc., Alliance Variable Products Series Fund, Inc.,
Liberty Variable Investment Trust, General American Capital Company, Cova
Series Trust, Investors Fund Series, Lord Abbett Series Fund, Inc., MFS
Variable Insurance Trust, Oppenheimer Variable Account Funds, Putnam
Variable Trust. PAYMENTS AND VALUES PROVIDED BY THE CONTRACT FOR WHICH
APPLICATION IS MADE ARE VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR
AMOUNT.
_________________________________________________________
(Signature of Owner(s). Annuitant unless otherwise noted)
_________________________________________________________
(Signature of Annuitant if other than Owner)
Signed at________________________________________________
(City) (State)
Date_____________________________________________________
16. AGENT'S REPORT Will the annuity replace or change any existing life
insurance or annuity?
[ ] No [ ] Yes (Indicate type and cost basis information.)
Type Cost Basis
[ ] Life Pre-TEFRA $___________________ $__________________
(Cost Basis) (Gain)
[ ] Annuity Post-TEFRA $___________________ $__________________
(Cost Basis) (Gain)
Complete any required replacement forms.
Agent's Signature___________________________________
Phone_______________________________________________
Agent's Name and Number_____________________________
____________________________________________________
Name and Address of Firm____________________________
____________________________________________________
CC-3019 (11/97) 02-VARI-CSMO (11/97)
Send application and check to:
Cova Financial Life
Insurance Company
P. O. Box 10366
Des Moines, Iowa 50306-9989
Cova Financial Life Insurance Company
FLEXIBLE PURCHASE PAYMENT VARIABLE AND FIXED ANNUITY APPLICATION
1. OWNER (Correspondence is sent to the Owner.)
Name_______________________________________________________________________
(First) (Middle) (Last)
Address____________________________________________________________________
(Street)
___________________________________________________________________________
(City) (State) (Zip)
Sex [ ] M [ ] F Phone (_______)____________________________________
Birthdate____________________/______________/______________________________
(Month) (Day) (Year)
Social Security Number_____________________________________________________
Joint Owners must be spouses. Use Special Requests Section to name other Joint
Owner. If Joint Owners are named, upon the death of either Joint Owner, the
surviving spouse will be the beneficiary. If you wish to override the provisions
of the contract and any endorsement, both Joint Owners must initial here.
__________________________ ________________________
Joint Owner's Initials Joint Owner's Initials
2. ANNUITANT (Complete only if different than Owner.)
Name_______________________________________________________________________
(First) (Middle) (Last)
Address____________________________________________________________________
(Street) (City) (State) (Zip)
Birthdate_______/______/______ Sex [ ] M [ ] F
(Month) (Day) (Year)
Social Security No______________________________________________________________
Phone (_______)_________________________________________________________________
3. BENEFICIARY
(Show full name(s), relationship(s), Social Security number(s), percentage
each is to receive and address. Use Special Requests Section if additional
space is needed.)
Primary____________________________________________________________________
Primary____________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Contingent_________________________________________________________________
___________________________________________________________________________
4. PURCHASE PAYMENT ALLOCATION
Initial Purchase
Payment
$______________________
Must be whole percentages with a minimum of 10% in any Account or
Portfolio. Unless otherwise directed, subsequent purchase payments will be
allocated as shown. Total Allocation must equal 100%.
____% General Account
Russell Insurance Funds
____% Multi-Style Equity
____% Aggressive Equity
____% Non-U.S.
____% Core Bond
Conning
____% Money Market Portfolio
5. TYPE OF PLAN Check One
[ ] Non-Qualified
[ ] Qualified - Not available in all states.
[ ] 401(a) [ ] 408 IRA Rollover
[ ] 408 IRA Transfer
[ ] 403(b) TSA Rollover --
I acknowledge that I understand the withdrawal restrictions under
Internal Revenue Code Section 403(b)(11) on contributions and earnings
and have received a prospectus explaining the restrictions. I
understand the other investment alternatives available under the
employer's 403(b) arrangement to which I may elect to transfer my
contract value.
6. ALLOCATION DURING FREE LOOK PERIOD
Under certain circumstances, as described in the accompanying
Prospectus, the initial purchase payment will be allocated to the
Conning Money Market Portfolio until the expiration of the Free Look
period. Thereafter, the purchase payments will be allocated as
directed in the Purchase Payment Allocation Section.
7. SPECIAL REQUESTS
8. TRANSFER AUTHORIZATIONS
I/We acknowledge that neither Cova Financial Life Insurance Company
(Cova) nor any person authorized by Cova will be responsible for any
claim, loss, liability or expense in connection with a telephone
transfer if Cova or such other person acted on telephone transfer
instructions in good faith in reliance on this authorization.
Check here if you wish to authorize telephone transfer instructions.[]
Check here if you wish to authorize your Registered
Representative/Agent to make transfers. [ ]
9. DOLLAR COST AVERAGING TRANSFERS -- I authorize Dollar Cost Averaging
Transfers of $___________ to be transferred each month ($500 minimum) from
the Conning Money Market Portfolio or the General Account ($6,000 minimum
required in the Conning Money Market Portfolio or the General Account or
amount needed to complete all transfers.)
FROM TO
Check One Russell Insurance Funds
[ ] Conning _______% Multi-Style Equity
Money Market _______% Aggressive Equity
Portfolio _______% Non-U.S.
[ ] General _______% Core Bond
Account Conning
=======% Money Market Portfolio
100 % Total
I authorize transfers to be made for: [ ] 12 months [ ] 24 months [ ] 36
months [ ] 48 months [ ] 60 months Other ______ months
Dollar Cost Averaging Transfers and Rebalancing Transfers are not available
simultaneously.
10. AUTOMATIC WITHDRAWALS
I authorize automatic monthly withdrawals of $__________. Total monthly
withdrawals cannot exceed 10% of purchase payments in any 12 month period.
I understand that Automatic Withdrawals are available only if I am over age
59-1/2.
FEDERAL AND STATE INCOME TAX WITHHOLDING
Check one:
[ ] I elect to have Federal Income Tax withheld fromthese distributions.
[ ]I elect NOT to have Federal Income Tax withheld from these
distributions.
Note: Even if you elect not to have Federal Income Tax withheld from a
distribution, you are liable for payment of Federal Income Tax on the
taxable portion of your contract. You may also be subject to tax penalties
under the estimated tax payment rules if your payments of estimated tax and
withholding, if any, are not adequate.
If applicable, a State Income Tax election will be made as elected above
for Federal Income Tax withholding.
11. REBALANCING TRANSFERS -- I authorize Rebalancing Transfers to be made in
the applicable percentages elected in the Purchase Payment Allocation
section. Rebalancing transfers are not made to or from the General Account.
Transfers are to be made: [ ] quarterly [ ] semi-annually [ ] annually.
Dollar Cost Averaging Transfers and Rebalancing Transfers are not available
simultaneously.
12. ANNUITY OPTION-- If no Annuity Option is specified, the Life Annuity with
10 years Guaranteed Option will be automatically applied.
_______________________
Indicate Annuity Option
13. ANNUITY DATE -- The Annuity Date must always be on the first day of a
calendar month and must be at least one month after the Issue Date. The
Annuity Date may not be later than the first day of the calendar month
following the later of: 1) the Annuitant's 85th birthday; or 2) the tenth
Contract Anniversary.
_____________________
Indicate Annuity Date
14. Will the annuity applied for replace or change any existing life insurance
or annuity? [ ] Yes [ ] No
15. ACKNOWLEDGEMENT AND AUTHORIZATION -- I (We) agree that the above
information and statements and those made on the reverse side are true and
correct to the best of my (our) knowledge and belief and are made as the
basis of my (our) application. I (We) acknowledge receipt of the current
prospectus(es) of Cova Variable Annuity Account Five, Frank Russell
Investment Management Company and General American Capital Company.
PAYMENTS AND VALUES PROVIDED BY THE CONTRACT FOR WHICH APPLICATION IS MADE
ARE VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
_____________________________________________________________
(Signature of Owner(s). Annuitant unless otherwise noted)
_____________________________________________________________
(Signature of Annuitant if other than Owner)
Signed at____________________________________________________
(City) (State)
Date_________________________________________________________
16. AGENT'S REPORT Will the annuity replace or change any existing life
insurance or annuity?
[ ] No [ ] Yes (Indicate type and cost basis information.)
Type Cost Basis
[ ] Life Pre-TEFRA $___________________ $__________________
(Cost Basis) (Gain)
[ ] Annuity Post-TEFRA $___________________ $__________________
(Cost Basis) (Gain)
Complete any required replacement forms.
Agent's Signature______________________________________
Phone__________________________________________________
Agent's Name and Number________________________________
_______________________________________________________
Name and Address of Firm_______________________________
_______________________________________________________
CC-3010 (11/97) 02-VARI-RSCA-- (11/97)
ARTICLES OF INCORPORATION
OF
INDUSTRIAL INDEMNITY LIFE INSURANCE COMPANY
KNOW ALL MEN BY THESE PRESENT:
We, the undersigned, all citizens and residents of the State of California,
have this day voluntarily associated ourselves together for the purpose of
forming a corporation under the laws of the State of California, and we do
hereby certify:
I.
The name of this corporation is Industrial Indemnity Life Insurance
Company.
II.
The purposes for which this corporation is formed are:
(A) The primary business in which this corporation is intended to engage is
to transact the business of insurance of the following classes, to-wit:
1. Life;
2. Disability;
3. Liability;
4. Workmen's Compensation;
5. Common Carrier Liability.
The foregoing classes of insurance shall have the definitions assigned
thereto by the Insurance Code of the State of California as the same may be from
time to time amended.
(B) This corporation is also formed for the following additional purposes:
1. To issues participating policies for any and all classes of insurance
above enumerated, except as prohibited by law;
2. To subscribe for, purchase, own, hold, loan upon, and dispose of, shares
of the capital stock of other corporations, and to exercise the rights of a
stockholder therein;
3. To acquire, own, hold, loan upon, pledge, reissue, and dispose of the
shares of the capital stock of this corporation;
4. To acquire, hold, own and dispose of bonds, notes, bills, debentures,
and any and every kind of obligation or evidence of indebtedness of individuals
or corporations, both public and private;
5. To acquire, own, hold, lease, improve, sell and dispose of real estate
to the full extent that an insurance company is permitted so to do under the
laws of the State of California;
6. To incur indebtedness, and as evidence thereof, to make, execute and
deliver the promissory notes or other obligations of this corporation, and
secure the same by pledge of its personal property, or mortgage, or deed of
trust of its real estate;
7. To lend money, and to take as security for such loans such security as
insurance companies are permitted to loan upon under and by virtue of the laws
of the State of California;
8. To employ agents to solicit insurance business on its behalf;
9. To make contracts and to do and perform any and all other matters and
things incidental or proper for the accomplishment of any of the purposes herein
enumerated, or which shall at any time appear conducive to or expedient for the
protection or benefit of this corporation, and to do any, and perform any and
all other matters and things which it may legally do and perform under and by
virtue of the laws of the State of California;
10. To do business anywhere in the world;
11. To act as partner or joint venturer or in any other legal capacity in
any transaction; and
12. To have and exercise all rights and powers and to do all acts which may
from time to time be authorized or granted by the General Corporation Law of the
State of California.
The foregoing enumeration of specific powers shall be construed as
independent objects, purposes and powers, and each of the purposes and objects
mentioned in this Article II of these Articles shall be in furtherance of, but
not in limitation of each other, and each shall, except when otherwise expressly
stated, be in no wise limited or restricted by the statement of other objects or
purposes herein, and said enumeration of specific powers shall not be construed
or held as limiting or restricting the ordinary powers of this corporation as
granted in the laws of the State of California.
III.
The county in this State where the principal office for the transaction of
the business of the corporation is located shall be the City and County of San
Francisco.
IV.
The total number of shares which the corporation is authorized to issue is
thirty thousand (30,000) shares. The aggregate par value of all said shares is
one million five hundred thousand ($1,500,000) dollars, and the par value of
each share is fifty ($50) dollars.
V.
The number of directors of this corporation is five (5). The number of
directors of the corporation set forth above shall constitute the authorized
number of directors until changed by an amendment of these Articles of
Incorporation or by a by-law duly adopted by the vote or written consent of a
majority of the then outstanding shares of stock of the corporation.
The names and addresses of the persons who are appointed to act as the
first directors are:
Fred Drexler #1 Myrtle Avenue
Mill Valley, California 94941
James G. LaPlante 1200 Bay Laurel Drive
Menlo Park, California 94025
Arno A. Rayner 275 East Strawberry Drive
Mill Valley, California 94941
Donald W. Satterlee 336 Hedge Road
Menlo Park, California 94025
Roxani M. Gillespie 134 Presidio Avenue
San Francisco, California 94115
IN WITNESS WHEREOF, for the purpose of forming this corporation under the
laws of the State of California, we, the undersigned, constituting the
incorporators of this corporation, and including all of the persons named herein
as the first directors, have executed these Articles of Incorporation this 29th
day of August, 1972.
/s/ Fred Drexler
----------------
/s/ James G. LaPlante
---------------------
/s/ Arno A. Rayner
------------------
/s/ Donald W. Satterlee
-----------------------
/s/ Roxani M. Gillespie
-----------------------
STATE OF CALIFORNIA
City and County of San Francisco
On this 29th day of August, 1972, before me, Marion E. Larson, a Notary
Public in and for the City and County of San Francisco, State of California,
residing therein, duly commissioned and sworn, personally appeared Fred Drexler,
James G. LaPlante, Arno A. Rayner, Donald W. Satterlee and Roxani M. Gillespie,
known to me to be the persons whose names are subscribed to the foregoing
Articles of Incorporation of Industrial Indemnity Life Insurance Company, and
acknowledged to me that they executed the same.
WITNESS my hand and official seal.
/s/ Marion E. Larson
--------------------
Notary Public
In and for the City and
County of San Francisco,
State of California
My Commission expires:
March 17, 1975
XEROX FINANCIAL LIFE
INSURANCE COMPANY
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
ROBERT A. PUCCINELLI and LAWRENCE E. MULRYAN Certify that:
1. They are the president and the secretary, respectively, of INDUSTRIAL
INDEMNITY LIFE INSURANCE COMPANY, a California Corporation.
2. Article I of the articles of incorporation of this corporation is
amended to read as follows:
"The name of this corporation is Xerox Financial Life Insurance
Company."
3. The foregoing amendment of articles of incorporation has been duly
approved by the board of directors.
4. The foregoing amendment of articles of incorporation has been duly
approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding
shares of the corporation is 12,000. The number of number of shares
voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
to our knowledge.
Date: August 11, 1985 /s/ Robert A. Puccinelli
------------------------
Robert A. Puccinelli, President
/s/ Lawrence E. Mulryan
-----------------------
Lawrence E. Mulryan, Secretary
STATE OF CALIFORNIA
Department of Insurance
San Francisco
I, BRUCE BUNNER, Insurance Commissioner of the State of California, do
hereby certify that on the date specified herein, the name XEROX FINANCIAL LIFE
INSURANCE COMPANY has been approved for use in California as a name change for
INDUSTRIAL INDEMNITY LIFE INSURANCE COMPANY for a period of 90 days from the
date herein.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed my official seal the day and
year specified below.
BRUCE BUNNER
Insurance Commissioner
By: /s/ Rita Fontana Pasquinucci
--------------------------------
RITA FONTANA PASQUINUCCI
Deputy
October 24, 1985
A California corporation must attach this Certificate to its Articles of
Incorporation (Amendment) filed with the California Secretary of State.
CERTIFICATE OF AMENDMENT
OF THE ARTICLES OF INCORPORATION
OF XEROX FINANCIAL LIFE INSURANCE COMPANY
UNDER SECTION 905 OF THE GENERAL CORPORATION LAW OF CALIFORNIA
We, Michael R. Hogan and Jeffrey K. Hoelzel, the duly elected Chairman and
Secretary, respectively, of Xerox Financial Life Insurance Company, a
corporation duly organized and existing under the General Corporation Law of the
State of California (the "Corporation"), do hereby certify as follows:
1. The Corporation's Articles of Incorporation were filed with the
California Secretary of State on September 6, 1972.
2. Article I of the Corporation's Articles of Incorporation is hereby
amended to read, in its entirety, as follows:
I.
The name of this corporation is Cova Financial Life Insurance
Company.
3. Article III of the Corporation's Articles of Incorporation is hereby
amended to read, in its entirety, as follows:
III.
The City and County in this State where the principal office for
the transaction of the business of the Corporation is located shall
be the City of Costa Mesa in Orange County.
4. The foregoing amendments of the Articles of Incorporation of the
Corporation have been duly approved by the Corporation's Board of
Directors.
5. The foregoing amendments to the Articles of Incorporation have been
duly approved by the required vote of shareholders in accordance with
Section 902 of the General Corporation Law of California. The total
number of outstanding shares of the Corporation is 12,000. The number
of shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than 50 percent.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
to the best of our own knowledge.
Date: June 1, 1995
Place: St. Louis, Missouri
/s/ Michael R. Hogan
--------------------
Michael R. Hogan, Chairman
/s/ Jeffery K. Hoelzel
----------------------
Jeffery K. Hoelzel, Secretary
STATE OF CALIFORNIA
DEPARTMENT OF INSURANCE
San Francisco
I, CHUCK QUACKENBUSH, Insurance Commissioner of the State of California, do
hereby certify that on the date specified herein, the name Cova Financial Life
Insurance Company has been approved and reserved in California as name change
for Xerox Financial Life Insurance Company for a period of 90 days from the date
herein.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed my official seal the day
and year specified below.
CHUCK QUACKENBUSH
Insurance Commissioner
By: /s/ Judith A. Milch
-----------------------
JUDITH A. MILCH
Deputy
August 11, 1995
A California corporation must attach this Certificate to its Articles of
Incorporation (Amendment) filed with the California Secretary of State.
Note: This certificate does not authorize the subject entity to transact
business in California unless and until a Certificate of Authority
or license has been issued.
BY-LAWS
OF
COVA FINANCIAL LIFE INSURANCE COMPANY
(Amended 6/l/95) (Formerly Xerox Financial Life
Insurance Company - Amended 8/12/85)
(Formerly Industrial Indemnity Life Insurance Company)
a California domiciled life insurance company
ARTICLE I
OFFICES
Section 1. Principal Office.
The Board of Directors is hereby granted full power and authority to select the
location of the principal office for the transaction of the business of the
corporation in the State of California and may change said location by
resolution at any time. (Amended 6/l/96)
Section 2. Other Offices.
Branch or subordinate offices may be established at any place or places where
the corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings.
All meetings of the shareholders shall be held at the principal office of the
corporation, or at any other place within or without the State of California
designated either by the written consent of all shareholders entitled to vote
thereat or designated by the Board of Directors. In the absence of such
designation, such meetings shall be held at the principal office of the
corporation.
Any meeting shall be valid, wherever held, if held by written consent of all the
shareholders entitled to vote thereat, given either before or after the meeting
and filed with the Secretary of the corporation.
Section 2. Annual Meetings.
An annual meeting of the shareholders to elect directors and to transact such
other business as may properly be brought before the meeting shall be held each
year at such date, time and place as the Board of Directors may determine.
(Amended 6/1/95)
Section 3. Special Meetings - Call - Notice.
Special meetings of shareholders for any purpose or purposes whatsoever, may be
called at any time by the Chief Executive Officer, or by the Board of Directors,
or by any two or more members thereof, or by one or more shareholders holding at
least one-fifth (1/5th) of the voting power of the corporation. Except in
special cases where other express provision is made by statute, notice of such
special meetings shall be given as provided by law. Notices of any special
meeting shall specify in addition to the place, day and hour of such meeting,
the general nature of the business to be transacted.
Section 4. Adjourned Meetings and Notice Thereof.
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of a majority of the
shares, the holders of which are either present in person or represented by
proxy thereat, but in the absence of a quorum no other business may be
transacted at any such meeting.
When any shareholders' meeting, either annual or special, is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting. Save as aforesaid, it shall not be necessary to
give any notice of an adjournment or of the business to be transacted at an
adjourned meeting, other than by announcement at the meeting at which such
adjournment is taken.
Section 5. Entry of Notice.
Whenever any shareholder entitled to vote has been absent from any meeting of
shareholders, whether annual or special, an entry in the minutes to the effect
that notice has been duly given shall be conclusive and incontrovertible
evidence that due notice of such meeting was given to such shareholders, as
required by law and the by-laws of the corporation.
Section 6. Voting.
At all meetings of shareholders, every shareholder entitled to vote shall have
the right to vote in person or by proxy the number of shares standing in his own
name on the stock records of the corporation. Such vote may be by voice vote or
by ballot; provided, however, that all elections for directors must be by ballot
upon demand made by a shareholder at any election before voting begins. The
candidates receiving the highest number of votes up to the number of directors
to be elected shall be elected. (Amended 6/1/95)
Section 7. Quorum
The presence in person or by proxy of the holders of a majority of the shares
entitled to vote at any meeting shall constitute a quorum for the transaction of
business. The shareholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
Section 8. Consent of Absentees.
The transactions of any meetings of shareholders, either annual or special,
however called and noticed, shall be as valid as though had a meeting duly-held
after regular call and notice, if a quorum be present either in person or by
proxy, and if, either before or after the meeting, each of the shareholders
entitled to vote, not present in person or by proxy, sign a written waiver of
notice, or a consent to the holding of such meeting, or an approval of the
minutes thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 9. Action without Meeting.
Any action which under the provisions of the Corporations Code may be taken at a
meeting of the shareholders may be taken without a meeting if authorized by a
writing signed by all the holders of shares who would be entitled to vote at a
meeting for such purpose and filed with the Secretary of the Corporation.
Section 10. Proxies.
Every person entitled to vote or execute consents shall have the right to do so
either in person or by an agent or agents authorized by a written proxy executed
by such person or his duly authorized agent and filed with the Secretary of the
Corporation; provided that no such proxy shall be valid after the expiration of
eleven (11) months from the date of its execution, unless the shareholder
executing it specifies therein the length of time for which such proxy is to
continue in force, which in no case shall exceed seven (7) years from the date
of its execution.
ARTICLE III
DIRECTORS
Section 1. Powers.
Subject to the limitations of the Articles of Incorporation, By-Laws and the
California Corporations Code as to actions to be authorized or approved by the
shareholders, all corporate power shall be exercised by or under the authority
of, and the business and affairs of the corporation shall be controlled by, the
Board of Directors.
Section 2. Committees.
A. Executive Committee. The Board of Directors may from time to time appoint
from its own number an Executive Committee of three (3) or more members,
and shall by resolution fix the Chairmanship of said committee and the
members thereof.
The Executive Committee shall consult with the Chief Executive Officer upon
such matters as he may designate. In addition, the Executive Committee
shall have authority to exercise, at any time when the Board of Directors
is not in session, all powers of the Board of Directors which may be
lawfully delegated, and shall report to the Board of Directors all actions
taken under such authority.
The members of the Executive Committee may be allowed a fixed fee, with or
without expenses of attendance, for attending a meeting of the committee,
such fee to be determined from time to time by resolution of the Board of
Directors.
B. Investment Committee. By resolution, the Board of Directors may appoint
from its own number, supplemented in the minority by persons other than
members of the Board, an Investment Committee which shall have all the
powers as designated by the Board, except as limited by statute. The
Investment Committee shall be responsible for establishing the Investment
Policy of the Corporation, reviewing all of the corporation's investments
and shall conduct its business and hold meetings as determined by it from
time to time; that a quorum of such Committee shall be a majority of the
members of such Committee and that a majority vote of the members present
at a meeting of such committee shall constitute the act of such committee.
The Investment Committee shall keep a record of its acts and proceedings
and report the same to the Board of Directors. (Amended 5/23/86)
C. Standing or Temporary Committees. The Board of Directors may from time to
time appoint from its own number, or supplemented in the minority by
persons other than members of the Board, standing or temporary committees;
and the Board of Directors may from time to time invest such committees
which such powers as may be prescribed by the Board.
Section 3. Number of Directors.
Unless and until changed by the Board of Directors as hereinafter provided the
number of directors to constitute the Board of Directors shall be nine (9). The
Board of Directors, to the extent permitted by law, shall have the power, by
resolution, to change the number of directors from time to time provided that
any notice required by law of any such change is duly given. Directors need not
be shareholders unless the Articles of Incorporation at any time so provide.
(Amended 6/l/95)
Section 4. Election and Term of Office.
The directors shall be elected at each annual meeting of shareholders, but if
any such annual meeting is not held, or the directors are not elected thereat,
the directors may be elected at any meeting of the shareholders. All directors
shall hold office until his respective successors are elected.
Section 5. Vacancies.
Vacancies in the Board of Directors may be filled by a majority of the remaining
directors, though less than a quorum, and each director so elected shall hold
office until his successor is elected at an annual meeting of shareholders, or
at a special meeting called for that purpose.
A vacancy or vacancies shall be deemed to exist in case of the death,
resignation, or removal of any director, or if the shareholders shall increase
the authorized number of directors but shall fail at the voting at which such
increase is authorized, or at an adjournment thereof, to elect the additional
directors so provided for, or in case the shareholders fail at any time to elect
the full number of authorized directors.
The shareholders may at any time elect directors to fill any vacancy not filled
by the directors, and may elect the additional directors at the meeting at which
an amendment of the by-laws is voted authorizing an increase in the number of
directors.
If any director tenders his resignation, the Board shall have the power to elect
a successor to take office at such time as the resignation shall become
effective. No reduction of the authorized number of directors shall have the
effect of removing any director prior to the date of the next annual meeting of
shareholders.
Section 6. Place of Meeting.
All meetings of the Board of Directors shall be held at the principal office of
the corporation, or at such other place within or without the State of
California designated at any time by resolution of the Board or by written
consent of all members of the Board.
Section 7. Organization Meeting.
Immediately following each annual meeting of shareholders, the Board of
Directors shall hold a meeting for the purpose of organization, election of
officers, and the transaction of other business. Notice of such meeting is
hereby dispensed with.
Section 8. Regular Meetings. A regular meeting of the Board of Directors shall
be held without notice other than this By-Law immediately after, and at the same
place as, the annual meeting of shareholders. The Board of Directors may
provide, by resolution the time and place, either within or without the State of
California, for the holding of additional regular meetings without notice other
than such resolution. (Amended 6/1/95)
Section 9. Notice of Adjournment.
Notice of adjournment of any directors' meeting need not be given to absent
directors, if the time and place are fixed at the meeting.
Section 10. Entry of Notice.
Whenever any director has been absent from any meeting of the Board of
Directors, an entry in the minutes to the effect that notice has been duly given
shall be conclusive and incontrovertible evidence that due notice of such
meeting was given to such director, as required by law and the by-laws of the
corporation.
Section 11. Waiver of Notice.
The transactions of any meeting of the Board of Directors, however called and
noticed and wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present, and if, either
before or after the meeting, each of the directors not present sign a written
waiver of notice or a consent to holding such meeting, or an approval of the
minutes thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 12. Quorum.
One-third (1/3rd) of the authorized number of directors, but not less than two
(2), shall be necessary to constitute a quorum for the transaction of all
business, except to adjourn, as hereinafter provided, and except as provided
under Article IV, subsections 4 and 6.
Section 13. Adjournment.
A quorum of two directors may adjourn any directors' meeting to meet again at a
stated day and hour; provided, however, that in the absence of a quorum, a
majority of the directors present at any directors' meeting may adjourn from
time to time.
Section 14. Fees and Compensation.
Directors shall not receive any stated salary for their services as directors,
but, by resolution of the Board, a fixed fee, with or without expenses of
attendance, may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity, as an officer, agent, employee, or otherwise,
and receiving compensation therefor.
Section 15. Meeting by Conference Telephone.
Members of the Board of Directors or any committee thereof may participate in
any meeting through the use of conference telephone or similar communications
equipment, so long as all members participating in such a meeting can hear one
another. Participation in a meeting pursuant to this section constitutes
presence in person at any such meeting.
Section 16. Removal of Directors.
Any director may be removed either with or without cause at any time by the
affirmative vote of the shareholders of record holding a majority of the
outstanding shares of the corporation entitled to vote for the election of
directors, given at a meeting of the shareholders called for that purpose, or by
the holders of a majority of the outstanding shares entitled to vote for the
election of directors without holding a meeting or notice but by merely
presenting their majority to the secretary of the corporation in writing for the
removal of a director or directors without cause. Any director may be removed
with cause by a majority of the total number of directors constituting the
entire Board of Directors at a meeting of the Board of Directors. (Amended
6/l/95)
ARTICLE IV
OFFICERS
Section 1. Officers.
The officers of the corporation shall be the Chairman of the Board, Vice
Chairman of the Board, President, one or more Vice Presidents, Secretary, and
Treasurer. The corporation may also have such other officers as may be elected
by the Board of Directors or appointed in accordance with the provisions of
Section 3 of this Article. Officers other than the Chairman of the Board, Vice
Chairman of the Board and President need not be directors. One person may hold
two or more offices, except those of President and Secretary.
Section 2. Election.
The officers of the corporation required by Section I shall be chosen annually
by the Board of Directors, and each shall hold his office until he shall resign
or shall be removed or otherwise disqualified to serve, or his successor shall
be elected or qualified.
Section 3. Other Officers.
The Board of Directors or the Chief Executive Officer, subject to confirmation
by the Board of Directors, may appoint such other officers as the business of
the corporation may require, each of whom shall have such titles, hold office
for such period, have such authority and perform such duties as are provided in
the by-laws or as the Board of Directors or the Chief Executive Officer may from
time to time determine.
Section 4. Removal and Resignation.
Any officer may be removed, either with or without cause, by a majority of the
directors at the time in office, at any regular or special meeting of the Board,
or, except in the case of an officer elected by the Board of Directors, by the
Chief Executive Officer.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the chairman of the Board or to the President. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 5. Vacancies.
A vacancy in any office because of death, resignation, removal,
disqualification, or any other cause, shall be filled in the manner prescribed
by the by-laws for regular appointment to such office.
Section 6. Chief Executive Officer.
The Board of Directors shall by vote of a majority of the directors in office at
the time of any regular or special meeting of the Board at which a majority of
the authorized directors are present, designate as Chief Executive Officer
either the Chairman of the Board or the President, and may by said majority vote
remove such designation. The Chief Executive Officer shall, subject to the
authority vested in the Board of Directors, supervise and control all of the
business and affairs of the corporation.
Section 7. Chairman of the Board.
The Chairman of the Board shall, if present, preside at all meetings of the
shareholders and of the Board of Directors and exercise and perform such other
powers and duties as may be from time to time assigned to him by the Board of
Directors or prescribed by the by-laws.
Section 8. Vice Chairman of the Board.
The Vice Chairman of the Board shall, in the absence of the Chairman of the
Board, preside at all meetings of the shareholders and of the Board of Directors
at which he is present and perform such other duties and exercise such other
powers as may be from time to time assigned to him by the Board of Directors or
the Chairman of the Board or prescribed by the by-laws.
Section 9. The President.
The President shall be the chief operating officer of the corporation in charge
of insurance affairs, subject to the direction and control of the Chief
Executive Officer. The President shall, in the absence of the Chairman of the
Board and the Vice Chairman of the Board, preside at all meetings of the
shareholders and of the Board of Directors.
Section 10. Vice Presidents.
Each Vice President shall have such powers and perform such duties as may be
from time to time assigned to him by the Board of Directors or the Chief
Executive Officer or prescribed by the by-laws.
Section 11. Secretary.
The Secretary shall keep, or cause to be kept, a book of minutes at the
principal office, or such other place as the Board of Directors may order, of
all meetings of directors and shareholders, with the time and place of holding,
how authorized, the notice thereof given, the names of those present at
directors' meetings, the number of shares present or represented at
shareholders' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or at the
Office of the corporation's transfer agent, a share register, or a duplicate
share register, showing the names of the shareholders and their addresses, the
number of classes of shares held by each, the number and date of certificates
issued for the same, and the number and date of cancellation of every
certificate surrendered for cancellation.
The Secretary shall give, or cause to be given notice of all the meetings of the
shareholders and of the Board of Directors required by the by-laws to be given,
and he shall keep the seal of the corporation in safe custody, and shall have
such other powers and perform such other duties as may be assigned by the Board
of Directors or the Chief Executive Officer or prescribed by the by-laws.
Section 12. Treasurer.
The treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital surplus and shares. Any surplus, including
earned surplus, paid-in surplus and surplus arising from a reduction of stated
capital, shall be classified according to source and shown in a separate
account. The books of account shall at all times be open to inspection by any
director.
The treasurer shall have such other powers and perform such other duties as may
be assigned to him by the Board of Directors or the Chief Executive Officer or
prescribed by the by-laws.
ARTICLE V
MISCELLANEOUS
Section 1. Record Date and Closing Stock Books.
The Board of Directors may fix a time, in the future, not exceeding thirty (30)
days preceding the date of any meeting of shareholders, and not exceeding thirty
(30) days preceding the date fixed for the payment of any dividend or
distribution, or for the allotment of rights, or when any change or conversion
or exchange or shares shall go into effect, as a record date for the
determination of the shareholders entitled to notice of and to vote at any such
meeting, or entitled to receive any such dividend or distribution, or any such
allotment of rights or to exercise the right in respect to any such change,
conversion or exchange of shares, and in such case only shareholders of record
on the date so fixed shall be entitled to notice of and to vote at such meeting,
or to receive such dividend, distribution or allotment of rights, or to exercise
such rights, as the case may be, notwithstanding any transfer of any shares on
the books of the corporation after any record date fixed as aforesaid. The Board
of Directors may close the books of the corporation against transfers of shares
during the whole, or any part of any such period.
Section 2. Inspection of Corporate Records.
The share register or duplicate share register, the books of account, the
minutes of proceedings of the shareholders and directors shall be open to
inspection upon the written demand of any shareholders or the holder of a voting
trust certificate, at any reasonable time, and for a purpose reasonably related
to his interests as a shareholder, and shall be produced at any time when
required by the demand of ten percent (10%) of the shares represented at any
shareholder's meeting. Such inspection may be made in person or by an agent or
attorney, and shall include the right to make extracts. Demand of inspection
other than at a shareholder's meeting shall be made in writing upon the Chairman
of the Board, President, Secretary or Assistant Secretary of the corporation.
Section 3. Checks, Drafts, etc.
All checks, drafts or other orders for payment of money, notes, or other
evidence of indebtedness, issued in the name of or payable to the corporation,
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the Board of Directors.
Section 4. Annual Report.
Any annual report to the shareholders required by law is hereby expressly
dispensed with.
Section 5. Contract, etc./How Executed.
The Board of Directors, except as the by-laws otherwise provide, may authorize
any officer or officers, or agent or agents, to enter into any contract or
execute any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances; and unless so
authorized by the Board of Directors or Chief Executive Officer, shall have any
power or authority to bind the corporation by any contract or engagement, except
contracts of insurance, or to pledge its credit, or to render it liable for any
purpose, or to any amount; provided, the officers of the corporation are
expressly authorized to issue participating policies on its behalf, containing
such language with reference to participating as in their discretion will be to
the best interests of the corporation.
Section 6. Certificates of Stock.
A certificate or certificates for shares of the capital stock of the corporation
shall be issued to each shareholder when any such shares are fully paid up. All
such certificates shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary, or be authenticated by facsimile of the
signature of the President or a Vice President and the written signature of the
Secretary or an Assistant Secretary. Every certificate authenticated by a
facsimile of a signature must be countersigned by a transfer agent or transfer
clerk, and be registered by an incorporated bank or trust company, either
domestic or foreign, as registrar of transfers, before issuance.
Section 7. Representation of Shares of Other Corporation.
The Chief Executive Officer, President or Treasurer of this corporation is
authorized to vote, represent and exercise on behalf of this corporation, all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority herein granted to said
officers to vote or represent on behalf of this corporation shares in any other
corporation or corporations may be exercised either by such officers in person
or by a person authorized to do so by proxy or power of attorney duly executed
by said officer.
Section 8. Inspection of By-Laws.
The corporation shall keep in its principal office for the transaction of
business, the original or a copy of the ByLaws, as amended or otherwise altered
to date, certified by the Secretary, which shall be open to inspection by the
shareholders at all reasonable times during office hours.
Section 9. Indemnification.
This corporation shall indemnify, to the fullest extent allowed by California
law, its present and former directors and officers against expenses, judgments,
fines, settlements, and other amounts incurred in connection with any proceeding
or threatened proceeding brought against such directors or officer in their
capacity as such. Such indemnification shall be made in accordance with
procedures set forth by California law. Sums for expenses incurred in defending
any such proceeding may also be advanced to any such director or officer to the
extent and under the conditions provided by California law.
ARTICLE VI
CORPORATE SEAL
SECTION 1. Corporate Seal.
The Board of Directors may provide a corporate seal in the form of a circle with
the name of the corporation inscribed thereon. (Amended 6/1/95).
ARTICLE VII
AMENDMENTS
Section 1. Power of Shareholders.
By-laws may be adopted, amended or repealed, either at a meeting by the vote of
shareholders entitled to exercise a majority of the voting power, or by the
written assent of such shareholders.
Section 2. Power of Directors.
Authority to adopt, repeal or amend the By-Law fixing the number of directors is
hereby delegated to the Board of Directors.
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
COVA FINANCIAL LIFE INSURANCE COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this ____ day of November 1997, by
and among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), COVA FINANCIAL LIFE INSURANCE COMPANY, a California corporation (the
"Company") on its own behalf and on behalf of each of the segregated asset
accounts of the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable annuity
and/or variable life insurance contracts that are allocated to the Accounts (the
Policies and the Accounts covered by this Agreement, and each corresponding
Portfolio covered by this Agreement in which the Accounts invest, is specified
in Schedule A attached hereto as may be modified from time to time);
WHEREAS, the Company has registered or will register the Accounts as unit
investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered as a
broker-dealer with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), and is
a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD");
WHEREAS, Cova Life Sales Company, the underwriter for the individual
variable annuity and the variable life policies, is registered as a
broker-dealer with the SEC under the 1934 Act and is a member in good standing
of the NASD; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust, MFS,
and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that Business
Day, as defined below) and which are available for purchase by such
Accounts, executing such orders on a daily basis at the net asset value
next computed after receipt by the Trust or its designee of the order for
the Shares. For purposes of this Section 1.1, the Company shall be the
designee of the Trust for receipt of such orders from Policy owners and
receipt by such designee shall constitute receipt by the Trust; provided
that the Trust receives notice of such orders by 9:30 a.m. New York time on
the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange, Inc. (the "NYSE") is open for trading and on
which the Trust calculates its net asset value pursuant to the rules of the
SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall calculate such net asset
value on each day which the NYSE is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (the "Board") may refuse to
sell any Shares to the Company and the Accounts, or suspend or terminate
the offering of the Shares if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Board acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interest of
the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to insurance
companies which have entered into participation agreements with the Trust
and MFS (the "Participating Insurance Companies") and their separate
accounts, qualified pension and retirement plans and MFS or its affiliates
as provided for under Section 817(h)(4) of the Internal Revenue Code of
1986, as amended (the "Code") and the regulations thereunder. The Trust and
MFS will not sell Trust shares to any insurance compan or separate account
unless and agreement containing provisions substantially the same as
Articles III and VII of this Agreement is in effect to govern such sales.
The Company will not resell the Shares except to the Trust or its agents.
1.4. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed by
Policy holders on that Business Day), executing such requests on a daily
basis at the net asset value next computed after receipt by the Trust or
its designee of the request for redemption. For purposes of this Section
1.4, the Company shall be the designee of the Trust for receipt of requests
for redemption from Policy owners and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of
such request for redemption by 9:30 a.m. New York time on the next
following Business Day.
1.5. Each purchase, redemption and exchange order placed by the Company
shall be placed separately for each Portfolio and shall not be netted with
respect to any Portfolio. However, with respect to payment of the purchase
price by the Company and of redemption proceeds by the Trust, the Company
and the Trust shall net purchase and redemption orders with respect to each
Portfolio and shall transmit one net payment for all of the Portfolios in
accordance with Section 1.6.
1.6. In the event of net purchases, the Company shall pay for the Shares by
2:00 p.m. New York time on the next Business Day after an order to purchase
the Shares is made in accordance with the provisions of Section 1.1.
hereof. In the event of net redemptions, the Trust shall pay the redemption
proceeds by 2:00 p.m. New York time on the next Business Day after an order
to redeem the shares is made in accordance with the provisions of Section
1.4. hereof. All such payments shall be in federal funds transmitted by
wire.
1.7. Issuance and transfer of the Shares will be by book entry only. Stock
certificates will not be issued to the Company or the Accounts. The Shares
ordered from the Trust will be recorded in an appropriate title for the
Accounts or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone followed
by written confirmation) to the Company of any dividends or capital gain
distributions payable on the Shares. The Company hereby elects to receive
all such dividends and distributions as are payable on a Portfolio's Shares
in additional Shares of that Portfolio. The Trust shall notify the Company
of the number of Shares so issued as payment of such dividends and
distributions.
1.9. The Trust or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and
shall use its best efforts to make such net asset value per share available
by 6:30 p.m. New York time. In the event that the Trust is unable to meet
the 6:30 p.m. time stated herein, it shall provide additional time for the
Company to place orders for the purchase and redemption of Shares. Such
additional time shall be equal to the additional time which the Trust takes
to make the net asset value available to the Company. If the Trust provides
materially incorrect share net asset value information, the Trust shall
make an adjustment to the number of shares purchased or redeemed for the
Accounts to reflect the correct net asset value per share. Any material
error in the calculation or reporting of net asset value per share,
dividend or capital gains inform ation shall be reported promptly upon
discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1. The Company represents and warrants that the Policies are or will be
registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold, and
distributed in compliance in all material respects with all applicable
state and federal laws, including without limitation the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940
Act. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that
it has legally and validly established the Account as a segregated asset
account under applicable law and has registered or, prior to any issuance
or sale of the Policies, will register the Accounts as unit investment
trusts in accordance with the provisions of the 1940 Act (unless exempt
therefrom) to serve as segregated investment accounts for the Policies, and
that it will maintain such registration for so lon as any Policies are
outstanding except for proper reliance on an exemption from registration
under the 1940 Act. The Company shall amend the registration statements
under the 1933 Act for the Policies and the registration statements under
the 1940 Act for the Accounts from time to time as required in order to
effect the continuous offering of the Policies or as may otherwise be
required by applicable law. The Company shall register and qualify the
Policies for sales accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2. The Company represents and warrants that the Policies are currently
and at the time of issuance will be treated as life insurance, endowment or
annuity contract under applicable provisions of the Code , that it will
maintain such treatment and that it will notify the Trust or MFS
immediately upon having a reasonable basis for believing that the policies
have ceased to be so treated or that they might not be so treated in the
future.
2.3. The Company represents and warrants that Cova Life Sales Company, the
underwriter for the individual variable annuity and the variable life
policies, is a member in good standing of the NASD and is a registered
broker-dealer with the SEC. The Company represents and warrants that the
Company and Cova Life Sales Company will sell and distribute such policies
in accordance in all material respects with all applicable state and
federal securities laws, including without limitation the 1933 Act, the
1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized
for issuance and sold in compliance with the laws of The Commonwealth of
Massachusetts and all applicable federal and state securities laws and that
the Trust is and shall remain registered under the 1940 Act. The Trust
shall amend the registration statement for its Shares under the 1933 Act
and the 1940 Act from time to time as required in order to effect the
continuous offering of its Shares. The Trust shall register and qualify the
Shares for sale in accordance with the laws of the various states only if
and to the extent deemed necessary by the Trust.
2.5. MFS represents and warrants that the Underwriter is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Trust and MFS represent that the Trust and the Underwriter will sell and
distribute the Shares in accordance in all material respects with all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and any
applicable regulations thereunder. The Trust represents and warrants that
any of its trustees, officers, employees, investment advisers, and other
individuals/entities who deal with the money and/or securities of the Trust
are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage (including larceny and embezzlement) for the
benefit of the Trust in an amount not less than that required by Rule 17g-1
under the 1940 Act issued by a reputable bonding company.
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it shall
perform its obligations for the Trust in compliance in all material
respects with any applicable federal securities laws and with the
securities laws of The Commonwealth of Massachusetts. MFS represents and
warrants that it is not subject to state securities laws other than the
securities laws of The Commonwealth of Massachusetts and that it is exempt
from registration as an investment adviser under the securities laws of The
Commonwealth of Massachusetts.
2.8. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably request so
that it may carry out fully the obligations imposed upon it by the
conditions contained in the exemptive application pursuant to which the SEC
has granted exemptive relief to permit mixed and shared funding (the "Mixed
and Shared Funding Exemptive Order").
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the Shares
as the Company may reasonably request for distribution to existing Policy
owners whose Policies are funded by such Shares. The Trust or its designee
shall provide the Company, at the Company's expense, with as many copies of
the current prospectus for the Shares as the Company may reasonably request
for distribution to prospective purchasers of Policies. If requested by the
Company in lieu thereof, the Trust or its designee shall provide such
documentation (including a "camera ready" copy of the new prospectus as set
in type or, at the request of the Company, as a diskette in the form sent
to the financial printer) and other assistance as is reasonably necessary
in order for the parties hereto once each year (or more frequently if the
prospectus for the Shares is supplemented or amended) to have the
prospectus for the Policies and the prospectus for the Shares printed
together in one document; the expenses of such printing to be apportioned
between (a) the Company and (b) the Trust or its designee in proportion to
the number of pages of the Policy and Shares' prospectuses, taking account
of other relevant factors affecting the expense of printing, such as
covers, columns, graphs and charts; the Trust or its designee to bear the
cost of printing the Shares prospectus portion of such document for
distribution to owners of existing Policies funded by the Shares and the
Company to bear the expenses of printing the portion of such document
relating to the Accounts; provided, however, that the Company shall bear
all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing Policies
not funded by the Shares. The Company may print the prospectus for the
Shares in combination with other fun prospectuses in accordance with the
expense allocation provisions set forth in the immediately preceding
sentence (provided that the applicable fund will bear expenses with respect
to its prospectus). In the event that the Company requests that the Trust
or its designee provides the Trust's prospectus in a "camera ready" or
diskette format, the Trust shall be responsible for providing the
prospectus in the format in which it or MFS is accustomed to formatting
prospectuses and shall bear the expense of providing the prospectus in such
format (e.g., typesetting expenses), and the Company shall bear the expense
of adjusting or changing the format to conform with any of its
prospectuses.
3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or its
designee. The Trust or its designee, at its expense, shall print and
provide such statement of additional information to the Company (or a
master of such statement suitable for duplication by the Company) for
distribution to any owner of a Policy funded by the Shares. The Trust or
its designee, at the Company's expense, shall print and provide such
statement to the Company (or a master of such statement suitable for
duplication by the Company) for distribution to a prospective purchaser who
requests such statement or to an owner of a Policy not funded by the
Shares.
3.3. The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Trust's proxy
materials, reports to Shareholders and other communications to Shareholders
in such quantity as the Company shall reasonably require for distribution
to Policy owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above, or
of Article V below, the Company shall pay the expense of printing or
providing documents to the extent such cost is considered a distribution
expense. Distribution expenses would include by way of illustration, but
are not limited to, the printing of the Shares' prospectus or prospectuses
for distribution to prospective purchasers or to owners of existing
Policies not funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate to
include in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received from
Policy owners; and
(c) vote the Shares for which no instructions have been received in
the same proportion as the Shares of such Portfolio for which
instructions have been received from Policy owners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass through voting privileges for variable
contract owners. The Company will in no way recommend action in
connection with or oppose or interfere with the solicitation of
proxies for the Shares held for such Policy owners. The Company
reserves the right to vote shares held in any segregated asset account
in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of
their separate accounts holding Shares calculates voting privileges in
the manner required by the Mixed and Shared Funding Exemptive Order.
The Trust and MFS will notify the Company of any changes of
interpretations or amendments to the Mixed and Shared Funding
Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, MFS, any other investment adviser to the
Trust, or any affiliate of MFS are named, at least three (3) Business Days
prior to its use. No such material shall be used if the Trust, MFS, or
their respective designees reasonably objects to such use within three (3)
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any representations
or statement on behalf of the Trust, MFS, any other investment adviser to
the Trust, or any affiliate of MFS or concerning the Trust or any other
such entity in connection with the sale of the Policies other than the
information or representations contained in the registration statement,
prospectus or statement of additional information for the Shares, as such
registration statement, prospectus and statement of additional information
may be amended or supplemented from time to time, or in reports or proxy
statements for the Trust, except with the permission of the Trust, MFS or
their respective designees. The Trust, MFS or their respective designees
each agrees to respond to any request for approval on a prompt and timely
basis. The Company shall adopt and implement procedures reasonably designed
to ensure that information concerning the Trust, MFS or any of their
affiliates which is intended for use only by brokers or agents selling the
Policies (i.e., information that is not intended for distribution to Policy
holders or prospective Policy holders) is so used, and neither the Trust,
MFS nor any of their affiliates shall be liable for any losses, damages or
expenses relating to the improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or the Accounts is
named, at least three (3) Business Days prior to its use. No such material
shall be used if the company or its designee reasonably objects to such use
within three (3) Business Days after receipt of such material.
4.4. The Trust and MFS shall not give, and agree that the Underwriter shall
not give, any information or make any representations on behalf of the
Company or concerning the Company, the Accounts, or the Policies in
connection with the sale of the Policies other than the information or
representations contained in a registration statement, prospectus, or
statement of additional information for the Policies, as such registration
statement, prospectus and statement of additional information may be
amended or supplemented from time to time, or in reports for the Accounts,
except with the permission of the Company. The Company or its designee
agrees to respond to any request for approval on a prompt and timely basis.
The parties hereto agree that this Section 4.4. is neither intended to
designate nor otherwise imply that MFS is an underwriter or distributor of
the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company or
the Trust, as appropriate) will each provide to the other at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales literature and
other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to
the Policies, or to the Trust or its Shares, prior to or contemporaneously
with the filing of such document with the SEC or other regulatory
authorities. The Company and the Trust shall also each promptly inform the
other or the results of any examination by the SEC (or other regulatory
authorities) that relates to the Policies, the Trust or its Shares, and the
party that was the subject of the examination shall provide the other party
with a copy of relevant portions of any "deficiency letter" or other
correspondence or written report regarding any such examination.
4.6. The Trust and MFS will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Portfolio, and of
any material change in the Trust's registration statement, particularly any
change resulting in change to the registration statement or prospectus or
statement of additional information for any Account. The Trust and MFS will
cooperate with the Company so as to enable the Company to solicit proxies
from Policy owners or to make changes to its prospectus, statement of
additional information or registration statement, in an orderly manner. The
Trust and MFS will make reasonable efforts to attempt to have changes
affecting Policy prospectuses become effective simultaneously with the
annual updates for such prospectuses.
4.7. For purpose of this Article IV and Article VIII, the phrase "sales
literature or other promotional material" includes but is not limited to
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media), and sales literature (such as brochures, circulars,
reprints or excerpts or any other advertisement, sales literature, or
published articles), distributed or made generally available to customers
or the public, educational or training materials or communications
distributed or made generally available to some or all agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the Company under
this Agreement, and the Company shall pay no fee or other compensation to
the Trust, except that if the Trust or any Portfolio adopts and implements
a plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution
and Shareholder servicing expenses, then, subject to obtaining any required
exemptive orders or regulatory approvals, the Trust may make payments to
the Company or to the underwriter for the Policies if and in amounts agreed
to by the Trust in writing. Each party, however, shall, in accordance with
the allocation of expenses specified in Articles III and V hereof,
reimburse other parties for expense initially paid by one party but
allocated to another party. In addition, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust and/or
to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal
and state laws, including preparation and filing of the Trust's
registration statement, and payment of filing fees and registration fees;
preparation and filing of the Trust's proxy materials and reports to
Shareholders; setting in type and printing its prospectus and statement of
additional information (to the extent provided by and as determined in
accordance with Article III above); setting in type and printing the proxy
materials and reports to Shareholders (to the extent provided by and as
determined in accordance with Article III above); the preparation of all
statements and notices required of the Trust by any federal or state law
with respect to its Shares; all taxes on the issuance or transfer of the
Shares; and the costs of distributing the Trust's prospectuses and proxy
materials to owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act. The Trust shall not bear any expenses
of marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies and
of distributing the Trust's Shareholder reports and proxy materials to
Policy owners. The Company shall bear all expenses associated with the
registration, qualification, and filing of the Policies under applicable
federal securities and state insurance laws; the cost of preparing,
printing and distributing the Policy prospectus and statement of additional
information; and the cost of preparing, printing and distributing annual
individual account statements for Policy owners as required by state
insurance laws.
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1 The Trust and MFS represent and warrant that each Portfolio of the
Trust will meet the diversification requirements of Section 817(h) (1) of
the Code and Treas. Reg. 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts,
as they may be amended from time to time (and any revenue rulings, revenue
procedures, notices, and other published announcements of the Internal
Revenue Service interpreting these sections), as if those requirements
applied directly to each such Portfolio. In the event that any Portfolio is
not so diversified at the end of any applicable quarter, the Trust and MFS
will make every effort to (a) adequately diversify the Portfolio so as to
achieve compliance within the grace period afforded by Treas. Reg. 1.817.5
and (b) notify the Company.
6.2. The Trust and MFS represent that each Portfolio of the Trust will
elect to be qualified as a Regulated Investment Company under Subchapter M
of the Code and will maintain such qualification (under Subchapter M or any
successor or similar provision) and that the Trust or its designee will
notify the Company promptly upon having a reasonable basis for believing
that any Portfolio of the Trust has ceased to so qualify or that any
Portfolio might not so qualify in the future.
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests of
the variable annuity contract owners and the variable life insurance policy
owners of the Company and/or affiliated companies ("contract owners")
investing in the Trust. The Board shall have the sole authority to
determine if a material irreconcilable conflict exists, and such
determination shall be binding on the Company only if approved in the form
of a resolution by a majority of the Board, or a majority of the
disinterested trustees of the Board. The Board will give prompt notice of
any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the Board
in carrying out its responsibilities under the conditions set forth in the
Trust's exemptive application pursuant to which the SEC has granted the
Mixed and Shared Funding Exemptive Order by providing the Board, as it may
reasonably request, with all information necessary for the Board to
consider any issues raised and agrees that it will be responsible for
promptly reporting any potential or existing conflicts of which it is aware
to the Board including, but not limited to, an obligation by the Company to
inform the Board whenever contract owner voting instructions are disregard.
The Company also agrees that, if a material irreconcilable conflict arises,
it will at is own cost remedy such conflict up to an including (a)
withdrawing the assets allocable to some or all of the Accounts from the
Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to another Portfolio of the
Trust, or submitting to a vote of all affected contract owners whether to
withdraw assets from the Trust or any Portfolio and reinvesting such assets
in a different investment medium and, as appropriate, segregating the
assets attributable to any appropriate group of contract owners that votes
in favor of such segregation, or offering to any of the affected contract
owners the option of segregating the assets attributable to their contracts
or policies, and (b) establishing a new registered management investment
company and segregating the assets underlying the Policies, unless a
majority of Policy owners materially adversely affected by the conflict
have voted to decline the offer to establish a new registered management
investment company.
7.3. A majority of the disinterested trustees of the Board shall determine
whether any proposed action by the Company adequately remedies any material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy any material irreconcilable
conflict, the Company will withdraw from investment in the Trust each of
the Accounts designated by the disinterested trustees and terminate this
Agreement within six (6) months after the Board informs the Company in
writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required to
remedy any such material irreconcilable conflict as determined by a
majority of the disinterested trustees of the Board.
7.4. If and to the extent that rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or
shares funding (as defined in the Mixed and Shared Funding Exemptive Order)
on terms and conditions materially different from those contained in the
Mixed Shared Funding Exemptive Order, then (a) the Trust and/or the
Participating Insurance Companies, as appropriate, shall tak such steps as
may be necessary to comply with Rule 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1, 7.2, 7.3 and 7.4 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
The Company agrees to indemnify and hold harmless the Trust, MFS, any
affiliates of MFS, and each of their respective directors/trustees, officers and
each person, if any, who controls the Trust or MFS within the meaning of Section
15 of the 1933 Act, and any agents or employees of the foregoing (each an
"Indemnified Party," or collectively, the "Indemnified Parties" for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or expenses (including reasonable counsel fees) to which an Indemnified Party
may become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement,
prospectus or statement of additional information for the Policies or contained
in the Policies or sales literature or other promotional material for the
Policies (or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the commission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reasonable reliance upon and in conformity
with information furnished to the Company or its designee by or on behalf of the
Trust or MFS for use in the registration statement, prospectus or statement of
additional information fo the Policies or in the Policies or sales literature or
other promotional material (or any amendment or supplement) or otherwise for use
in connection with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus, statement of additional information or sales literature or other
promotional material of the Trust not supplied by the Company or this designee,
or persons under its control and on which the Company has reasonably relied) or
wrongful conduc of the Company or persons under its control, with respect to the
sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, prospectus, statement of
additional information, or sales literature or other promotional literature of
the Trust, or any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished to the
Trust by or on behalf of the Company; or
(d) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or result
from any other material breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to provide the services
and furnish the materials under the terms of this Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.2. INDEMNIFICATION BY THE TRUST
The Trust agrees to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act, and any agents or employees of the
foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.2.) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust) or expenses (including reasonable counsel fees) to which
any Indemnified Party may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement,
prospectus, statement of additional information or sales literature or other
promotional material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reasonable reliance upon and in conformity with information furnished to the
Trust, MFS, the Underwriter or their respective designees by or on behalf of the
Company for use in the registration statement, prospectus or statement of
additional information for the Trust or in sales literature or other promotional
material for the Trust (or any amendment or supplement) or otherwise for use in
connection with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations (other
than statement or representations contained in the registration statement,
prospectus, statement of additional information or sales literature or other
promotional material for the Policies not supplied by the Trust, MFS the
Underwriter or any of their respective designees or persons under their
respective control and on which any such entity has reasonably relied) or
wrongful conduct of the Trust or persons under its control, with respect to the
sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, prospectus, statement of
additional information, or sales literature or other promotional literature of
the Accounts or relating to the Policies, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein no misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Trust, MFS or the
Underwriter; or
(d) arise out of or result from any material breach of any representation
and/or warranty made by the Trust in this Agreement (including a failure,
whether unintentional or in good faith or otherwise, to comply with the
diversification requirements or a failure to qualify as a regulated investment
company each as specified in Article VI of this Agreement) or arise out of or
result from any other material breach of this Agreement by the Trust; or
(e) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share or dividend or
capital gain distribution rate; or
(f) arise as a result of any failure by the Trust to provide the services
and furnish the materials under the terms of the Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.3. In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including without limitation, the Company, or any Participating Insurance
Company or any Policy holder, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of
any representation, warranty, and/or covenant made by the Company hereunder
or by any Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii) the
failure by the Company or any Participating Insurance Company to maintain
its segregated asset account (which invests in any Portfolio) as a legally
and validly established segregated asset account under applicable state law
and as a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom); or (iii) the failure by the Company or
any Participating Insurance Company to maintain its variable annuity and/or
variable life insurance contracts (with respect to which any Portfolio
serves as an underlying funding vehicle) as life insurance, endowment or
annuity contracts under applicable provisions of the Code.
8.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, willful misconduct, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
8.5. Promptly after receipt by an Indemnified Party under this Section 8.5.
of commencement of action, such Indemnified Party will, if a claim in
respect thereof is to be made against the indemnifying party under this
section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any Indemnified Party otherwise than under
this section. In case any such action is brought against any Indemnified
Party, and it notified the indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
satisfactory to such Indemnified Party. After notice from the indemnifying
party of its intention to assume the defense of an action, the Indemnified
Party shall bear the expenses of any additional counsel obtained by it, and
the indemnifying party shall not b liable to such Indemnified Party under
this section for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation.
8.6. Each of the parties agrees promptly to notify the other parties of the
commencement of any litigation or proceeding against it or any of its
respective officers, directors, trustees, employees or 1933 Act control
persons in connection with the Agreement, the issuance or sale of the
Policies, the operation of the Accounts, or the sale or acquisition of
Shares.
8.7. A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII.
These indemnity provisions shall survive termination of this Agreement and
are in addition to any liability which the parties to this Agreement may
otherwise have.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees by the NASD,
the SEC, or any insurance department or any other regulatory body regarding such
party's duties under this Agreement or related to the sale of the Policies, the
operation of the Accounts, or the purchase of the Shares.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate with respect to the Accounts, or one,
some, or all Portfolios:
(a) at the option of any party upon 180 days advance written notice to
the other parties; or
(b) at the option of the Company to the extent that the Shares of
Portfolios are not reasonably available to meet the requirements of
the Policies or are not "appropriate funding vehicles" for the
Policies, as reasonably determined by the Company. Without limiting
the generality of the foregoing, the Shares of a Portfolio would not
be "appropriate funding vehicles" if, for example, such Shares did not
meet the diversification or other requirements referred to in Article
VI hereof; or if the Company would be permitted to disregard Policy
owner voting instructions pursuant to Rule 6e-2 or 6e-3(T) under the
1940 Act. Prompt notice of the election to terminate for such cause
and an explanation of such cause shall be furnished to the Trust by
the Company; or
(c) at the option of the Trust or MFS by written notice to the Company
upon institution of formal proceedings against the Company by the
NASD, the SEC, or any insurance department or any other regulatory
body regarding the Company's duties under this Agreement or related to
the sale of the Policies, the operation of the Accounts, or the
purchase of the Shares; or
(d) at the option of the Company by written notice to the Trust and
MFS upon institution of formal proceedings against the Trust by the
NASD, the SEC, or any state securities or insurance department or any
other regulatory body regarding the Trust's or MFS' duties under this
Agreement or related to the sale of the shares; or
(e) at the option of the Company, the Trust or MFS upon receipt of any
necessary regulatory approvals and/or the vote of the Policy owners
having an interest in the Accounts (or any subaccounts) to substitute
the shares of another investment company for the corresponding
Portfolio Shares in accordance with the terms of the Policies for
which those Portfolio Shares had been selected to serve as the
underlying investment media. The Company will give thirty (30) day's
prior written notice to the Trust of the Date of any proposed vote or
other action taken to replace the Shares; or
(f) termination by either the Trust or MFS by written notice to the
Company, if either one or both of the Trust or MFS respectively, shall
determine, in their sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Trust and MFS,
if the Company shall determine, in its sole judgment exercised in good
faith, that the Trust or MFS has suffered a material adverse change in
this business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse
publicity; or
(h) at the option of any party to this Agreement by written notice to
the other parties, upon another party's material breach of any
provision of this Agreement; or
(i) upon assignment of this Agreement, unless made with the written
consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies and,
if applicable, the Accounts as to which the Agreement is to be terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised for
cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated transactions,
or as required by state insurance laws or regulations, the Company shall
not redeem the Shares attributable to the Policies (as opposed to the
Shares attributable to the Company's assets held in the Accounts), and the
Company shall not prevent Policy owners from allocating payments to a
Portfolio that was otherwise available under the Policies, until thirty
(30) days after the Company shall have notified the Trust of its intention
to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and MFS
shall, at the option of the Company, continue to make available additional
shares of the Portfolios pursuant to the terms and conditions of this
Agreement, for all Policies in effect on the effective date of termination
of this Agreement (the "Existing Policies"), except as otherwise provided
under Article VII of this Agreement. Specifically, without limitation, the
owners of the Existing Policies shall be permitted to transfer or
reallocate investment under the Policies, redeem investments in any
Portfolio and/or invest in the Trust upon the making of additional purchase
payments under the Existing Policies.
11.6. If this Agreement terminates, the parties agree that Article VIII,
and to the extent that all or a portion of assets of the Accounts continue
to be invested in the Trust, Articles I, II, III, VI and VII, will remain
in effect after termination.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
MFS VARIABLE INSURANCE TRUST
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, Secretary
If to the Company:
COVA FINANCIAL LIFE INSURANCE COMPANY
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181
Attention: General Counsel
Copy to:
COVA LIFE SALES COMPANY
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181
If to MFS:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. MISCELLANEOUS
13.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and,
except as permitted by this Agreement or as otherwise required by
applicable law or regulation, shall not disclose, disseminate or
utilize such names and addresses and other confidential information
without the express written consent of the affected party until such
time as it may come into the public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and
the same instrument.
13.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state insurance
regulators) relating to this Agreement or the transactions
contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are
entitled to under state and federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument
are not binding upon any of the Trust's trustees, officers, employees,
agents or shareholders individually, but are binding solely upon the
assets and property of the Trust in accordance with its proportionate
interest hereunder. The Company further acknowledges that the assets
and liabilities of each Portfolio are separate and distinct and that
the obligations of or arising out of this instrument are binding
solely upon the assets or property of the Portfolio on whose behalf
the Trust has executed this instrument. The Company also agrees that
the obligations of each Portfolio hereunder shall be several and not
joint, in accordance with its proportionate interest hereunder, and
the Company agrees not to proceed against any Portfolio for the
obligations of another Portfolio.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
COVA FINANCIAL LIFE INSURANCE COMPANY
By its authorized officer,
By: _______________________________
Title: ____________________________
MFS VARIABLE INSURANCE TRUST, ON BEHALF OF THE PORTFOLIOS
By its authorized officer and not individually,
By: _______________________________
A. Keith Brodkin
Chairman
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: _______________________________
Arnold D. Scott
Senior Executive Vice President
As of November __, 1997
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
NAME OF SEPARATE
ACCOUNT AND DATE POLICIES FUNDED PORTFOLIOS
ESTABLISHED BY BOARD OF DIRECTORS BY SEPARATE ACCOUNT APPLICABLE TO POLICIES
(DATE ESTABLISHED)
========================================= ================================ ============================================
<S> <C> <C>
Cova Variable Annuity Account Five XLCC-648 MFS RESEARCH SERIES
(est. 3/29/92) XLCC-833 MFS EMERGING GROWTH SERIES
MFS/FOREIGN & COLONIAL EMERGING MARKETS SERIES
MFS HIGH INCOME SERIES
MFS WORLD GOVERNMENTS SERIES
MFS GROWTH WITH INCOME SERIES
- ----------------------------------------- -------------------------------- --------------------------------------------
</TABLE>
INDEMNIFICATION AGREEMENT
BETWEEN
MASSACHUSETTS FINANCIAL SERVICES COMPANY
AND
COVA FINANCIAL LIFE INSURANCE COMPANY
THIS AGREEMENT (the "Agreement") is made and entered into this __ day
November, 1997 by and between MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS"), and COVA FINANCIAL LIFE INSURANCE COMPANY, a
California corporation (the "Company"), on its own behalf and on behalf of each
of the segregated asset accounts (the "Accounts") of the Company referenced in
the Participation Agreement (as defined below).
WHEREAS, MFS and the Company, on its own behalf and on behalf of the
Accounts, have entered into a Participation Agreement with MFS Variable
Insurance Trust, a Massachusetts business trust (the "Trust"), dated as of the
date hereof (the "Participation Agreement");
NOW, THEREFORE, in consideration of their mutual promises as set forth in
the Participation Agreement, MFS and the Company agree as follows:
ARTICLE I. DEFINITIONS
All capitalized terms not defined herein shall have the meanings as set
forth in the Participation Agreement.
ARTICLE II. APPLICABILITY
The indemnification provided by MFS under this Agreement shall relate
solely to certain losses, claims, damages, liabilities and expenses that may
arise in connection with the performance by the Trust or MFS of its obligations
and duties under the Participation Agreement.
ARTICLE III. INDEMNIFICATION
3.1. MFS agrees to indemnify and hold harmless the Company and each of
its directors, officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act and any
agents or employees of the foregoing (each an "Indemnified Party" or,
collectively, the "Indemnified Parties") against any and all losses,
claims, damages, liabilities (including amounts paid in settlement
with the written consent of MFS) or expenses (including reasonable
counsel fees) to which an Indemnified Party may become subject under
any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition
of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information ("SAI") of the Trust or sales literature or other
promotional material for the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
Agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reasonable reliance upon and in conformity
with information furnished to the Trust, MFS or the Underwriter
by or on behalf of the Company for use in the registration
statement, prospectus, or SAI of the Trust or in sales literature
or other promotional materia for the Trust (or any amendment or
supplement) or otherwise for use in connection with the sales of
the Policies or Shares; or
(b) arise out of or as a result of material statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI or sales
literature or other promotional literature for the Policies not
supplied by the Trust, MFS, the Underwriter or their respective
designees or persons under their control and on which the Trust
has reasonably relied) or wrongful conduct of the Trust, MFS, the
Underwriter or persons under their control, with respect to the
sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, SAI or sales literature or other promotional
literature covering the Policies, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the
Trust; or
(d) arise as a result of any material failure by the Trust or MFS
to provide the services and furnish the materials under the terms
of the Participation Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or MFS in the
Participation Agreement (including a failure, whether
unintentional or in good faith or otherwise, of the Trust to
comply with the diversification requirements or a failure to
qualify as a regulated investment company each as specified in
Article VI of the Participation Agreement) or any other material
breach of the Participation Agreement by MFS or the Trust; or
(f) arise out of or result from the materially incorrect or
untimely calculation or reporting by the Trust or its custodian
of the daily net asset value per share or dividend or capital
gain distribution rate;
as limited by and in accordance with the provisions of this Article
III.
3.2. In no event shall MFS be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including, without limitation, the Company, any Participating
Insurance Company or any Policy holder, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result
from (i) a breach of any representation, warranty, and/or covenant
made by the Company under the Participation Agreement or by any
Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii)
the failure by the Company or any Participating Insurance Company to
maintain its segregated asset account (which invests in any Portfolio)
as a legally and validly established segregated asset account under
applicable state law and as a duly registered unit investment trust
under the provisions of the 1940 Act (unless exempt therefrom); or
(iii) the failure by the Company or any Participating Insurance
Company to maintain its variable annuity and/or variable life
insurance contracts (with respect to which any Portfolio serves as an
underlying funding vehicle) as life insurance, endowment or annuity
contracts under applicable provisions of the Code.
3.3. MFS shall not be liable under this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, willful misconduct, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations
and duties under this Agreement or the Participation Agreement.
3.4. Promptly after receipt by an Indemnified Party under this Section
3.4 of commencement of an action, such Indemnified Party will, if a
claim in respect thereof is to be made against MFS under this section,
notify MFS of the commencement thereof; but the omission so to notify
MFS will not relieve it from any liability that it may have to any
Indemnified Party otherwise than under this section. In case any such
action is brought against any Indemnified Party, and it notified MFS o
the commencement thereof, MFS will be entitled to participate therein
and, to the extent that it may wish, assume the defense thereof, with
counsel satisfactory to such Indemnified Party. After notice from MFS
of its intention to assume the defense of an action, the Indemnified
Party shall bear the expenses of any additional counsel obtained by
it, and MFS shall not be liable to such Indemnified Party under this
section for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation.
3.5. Each party hereto shall promptly notify the other parties to the
Participation Agreement of the commencement of any litigation or
proceeding against it or any of its respective officers, directors,
trustees, employees or 1933 Act control persons in connection with
this Agreement and the Participation Agreement, the issuance or sale
of the Policies, the operation of the Accounts, or the sale or
acquisition of Shares.
3.6. A successor by law of the parties to this Agreement and the
Participation Agreement shall be entitled to the benefits of the
indemnification contained herein. The indemnification provisions
contained herein shall survive any termination of this Agreement and
the Participation Agreement.
ARTICLE IV. DURATION AND TERMINATION
This Agreement shall be effective upon execution and shall terminate with
respect to the Accounts, or one, some or all Portfolios, two years after the
date of termination of the Participation Agreement with respect to the Accounts,
or one, some or all Portfolios, in accordance with the provisions of Article XI
thereof.
ARTICLE V. CONFIDENTIALITY
Except as required by applicable law or pursuant to the written consent of
MFS, the Company shall treat as confidential the indemnification provided
pursuant to this Agreement, all information reasonably related to this
Agreement, and the existence of this Agreement. This Article V shall survive the
termination of this Agreement.
ARTICLE VI. MISCELLANEOUS
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts. This
Agreement may be executed simultaneously in one or more counterparts, each of
which taken together shall constitute one and the same instrument. The captions
in this Agreement are included for convenience of reference only. Any notice
required by this Agreement shall be sent to the persons so specified to receive
notice in the Participation Agreement.
IN WITNESS WHEREOF, both of the parties hereto have caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: __________________________________
Arnold D. Scott
Senior Executive Vice President
COVA FINANCIAL LIFE INSURANCE COMPANY
By its authorized officer,
By: __________________________________
Title: _______________________________
PARTICIPATION AGREEMENT
AMONG
COVA FINANCIAL LIFE INSURANCE COMPANY,
COVA LIFE SALES COMPANY,
ALLIANCE CAPITAL MANAGEMENT LP
AND
ALLIANCE FUND DISTRIBUTORS, INC.
DATED AS OF
[ ]
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the ___ day of ___________,
199__ ("Agreement"), by and among Cova Financial Life Insurance Company, a
California life insurance company ("Insurer") (on behalf of itself and its
"Separate Account," defined below); Cova Life Sales Company, a ____________
corporation ("Contracts Distributor"), the principal underwriter with respect to
the Contracts referred to below; Alliance Capital Management L.P., a Delaware
limited partnership ("Adviser"), the investment adviser of the Fund referred to
below; and Alliance Fund Distributors, Inc., a Delaware, corporation
("Distributor"), the Fund's principal underwriter (collectively, the "Parties"),
WITNESSETH THAT:
WHEREAS Insurer, the Distributor, and Alliance Variable Products Series
Fund, Inc. (the "Fund") desire that shares of the Fund's Premier Growth and Real
Estate Investment Portfolios (the "Portfolios"; reference herein to the "Fund"
includes reference to each Portfolio to the extent the context requires) be made
available by Distributor to serve as underlying investment media for those
combination fixed and variable annuity contracts of Insurer that are the subject
of Insurer's Form N-4 registration statement filed with the Securities and
Exchange Commission (the "SEC"), File No. ____________ (the "Contracts"), to be
offered through Contracts Distributor and other registered broker-dealer firms
as agreed to by Insurer and Contracts Distributor; and
WHEREAS the Contracts provide for the allocation of net amounts received by
Insurer to separate series (the "Divisions"; reference herein to the "Separate
Account" includes reference to each Division to the extent the context requires)
of the Separate Account for investment in the shares of corresponding Portfolios
of the Fund that are made available through the Separate Account to act as
underlying investment media,
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Fund and Distributor will make shares of the Portfolios
available to Insurer for this purpose at net asset value and with no sales
charges, all subject to the following provisions:
Section 1. Additional Portfolios
The Fund has and may, from time to time, add additional Portfolios, which
will become subject to this Agreement, if, upon the written consent of each of
the Parties hereto, they are made available as investment media for the
Contracts.
Section 2. Processing Transactions
2.1 Timely Pricing and Orders.
The Adviser or its designated agent will provide closing net asset value,
dividend and capital gain information for each Portfolio to Insurer at the close
of trading on each day (a "Business Day") on which (a) the New York Stock
Exchange is open for regular trading, (b) the Fund calculates the Portfolio's
net asset value and (c) Insurer is open for business. The Fund or its designated
agent will use its best efforts to provide this information by 6:00 p.m.,
Eastern time. Insurer will use these data to calculate unit values, which in
turn will be used to process transactions that receive that same Business Day's
Separate Account Division's unit values. Such Separate Account processing will
be done the same evening, and corresponding orders with respect to Fund shares
will be placed the morning of the following Business Day. Insurer will use its
best efforts to place such orders with the Fund by 10:00 a.m., Eastern time. In
the event that Fund is unable to meet the 6:00 p.m. time stated herein it shall
provide additional time for the Insurer to place orders for the purchase and
redemption of shares. Such additional time shall be equal to the additional time
which Fund takes to make the net asset value available to the Insurer. If Fund
provides the Insurer with materially incorrect share net asset value information
through no fault of the Insurer, the Insurer on behalf of the Separate Accounts,
shall be entitled to an adjustment to the number of shares purchased or redeemed
to reflect the correct share net asset value. Any material error in the
calculation of net asset value per share, dividend or capital gain information
shall be reported promptly upon discovery to the Insurer. If a Separate Account
due to such error has received amounts in excess of the amounts of which it is
entitled, the Insurer, when requested by Fund, shall make adjustments to the
Separate Account to reflect the change in the values of the shares as reflected
in the unit values of the affected Contract owners who still have values in the
Portfolio. No adjustment for an error shall be taken in any Separate Account
until such time as the parties hereto have agreed to a resolution of the error,
but the parties shall use all reasonable efforts to reach such agreement within
two business days after the discovery of the error.
2.2 Timely Payments.
Insurer will transmit orders for purchases and redemptions of Fund shares
to Distributor, and will wire payment for net purchases to a custodial account
designated by the Fund on the day the order for Fund shares is placed, to the
extent practicable. Payment for net redemptions will be wired by the Fund to an
account designated by Insurer on the same day as the order is placed, to the
extent practicable, and in any event be made within six calendar days after the
date the order is placed in orde to enable Insurer to pay redemption proceeds
within the time specified in Section 22(e) of the Investment Company Act of
1940, as amended (the "1940 Act").
2.3 Redemption in Kind.
The Fund reserves the right to pay any portion of a redemption in kind of
portfolio securities, if the Fund's board of directors (the "Board of
Directors") determines that it would be detrimental to the best interests of
shareholders to make a redemption wholly in cash.
2.4 Applicable Price.
The Parties agree that Portfolio share purchase and redemption orders
resulting from Contract owner purchase payments, surrenders, partial
withdrawals, routine withdrawals of charges, or other transactions under
Contracts will be executed at the net asset values as determined as of the close
of regular trading on the New York Stock Exchange on the Business Day that
Insurer receives such orders and processes such transactions, which, Insurer
agrees shall occur not earlier than the Business Day prior to Distributor's
receipt of the corresponding orders for purchases and redemptions of Portfolio
shares. For the purposes of this section, Insurer shall be deemed to be the
agent of the Fund for receipt of such orders from holders or applicants of
contracts, and receipt by Insurer shall constitute receipt by the Fund. All
other purchases and redemptions of Portfolio shares by Insurer, will be effected
at the net asset values next computed after receipt by Distributor of the order
therefor, and such orders will be irrevocable. Insurer hereby elects to reinvest
all dividends and capital gains distributions in additional shares of the
corresponding Portfolio at the record-date net asset values until Insurer
otherwise notifies the Fund in writing, it being agreed by the Parties that the
record date and the payment date with respect to any dividend or distribution
will be the same Business Day.
Fund represents that all shares of the Portfolios of the Fund will be sold
only to Participating Insurance Companies which have agreed to participate in
the Fund to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h)(4) of the Internal Revenue
Service Code of 1986, as amended ("Code") and Treasury Regulation 1.817-5.
Shares of the Portfolios of the Fund will not be sold directly to the general
public.
Section 3. Costs and Expenses
3.1 General.
Except as otherwise specifically provided herein, each Party will bear all
expenses incident to its performance under this Agreement.
3.2 Registration.
The Fund will bear the cost of its registering as a management investment
company under the 1940 Act and registering its shares under the Securities Act
of 1933, as amended (the "1933 Act"), and keeping such registrations current and
effective; including, without limitation, the preparation of and filing with the
SEC of Forms N-SAR and Rule 24f-2 Notices respecting the Fund and its shares and
payment of all applicable registration or filing fees with respect to any of the
foregoing. Insurer will bear the cost of registering the Separate Account as a
unit investment trust under the 1940 Act and registering units of interest under
the Contracts under the 1933 Act and keeping such registrations current and
effective; including, without limitation, the preparation and filing with the
SEC of Forms N-SAR and Rule 24f-2 Notices respecting the Separate Account and
its units of interest and payment of all applicable registration or filing fees
with respect to any of the foregoing.
3.3 Other (Non-Sales-Related) Expenses.
The Fund will bear the costs of preparing, filing with the SEC and setting
for printing the Fund's prospectus, statement of additional information and any
amendments or supplements thereto (collectively, the "Fund Prospectus"),
periodic reports to shareholders, Fund proxy material and other shareholder
communications and any related requests for voting instructions from
Participants (as defined below). Insurer will bear the costs of preparing,
filing with the SEC and setting for printing, the Separate Account's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "Separate Account Prospectus"), any periodic reports to
owners, annuitants or participants under the Contracts (collectively,
"Participants"), and other Participant communications. The Fund and Insurer each
will bear the costs of printing in quantity and delivering to existing
Participants the documents as to which it bears the cost of preparation as set
forth above in this Section 3.3, it being understood that reasonable cost
allocations will be made in cases where any such Fund and Insurer documents are
printed or mailed on a combined or coordinated basis. If requested by Insurer,
the Fund will provide annual Prospectus text to Insurer on diskette for printing
and binding with the Separate Account Prospectus.
3.4 Other Sales-Related Expenses.
Expenses of distributing the Portfolio's shares and the Contracts will be
paid by Contracts Distributor and other parties, as they shall determine by
separate agreement.
3.5 Parties to Cooperate.
The Adviser, Insurer, Contracts Distributor, and Distributor each agrees to
cooperate with the others, as applicable, in arranging to print, mail and/or
deliver combined or coordinated prospectuses or other materials of the Fund and
Separate Account.
Section 4. Legal Compliance
4.1 Tax Laws.
(a) The Adviser will qualify and maintain qualification of each Portfolio
as a regulated investment company ("RIC") under Subchapter M of the Code, and
the Adviser or Distributor will notify Insurer immediately upon having a
reasonable basis for believing that a Portfolio has ceased to so qualify or that
it might not so qualify in the future.
(b) Insurer represents that it believes, in good faith, that the Contracts
will be treated as annuity contracts under applicable provisions of the Code and
that it will make every effort to maintain such treatment. Insurer will notify
the Fund and Distributor immediately upon having a reasonable basis for
believing that any of the Contracts have ceased to be so treated or that they
might not be so treated in the future.
(c) The Fund will comply and maintain each Portfolio's compliance with the
diversification requirements set forth in Section 817(h) of the Code and Section
1.817-5(b) of the regulations under the Code, and the Fund, Adviser or
Distributor will notify Insurer immediately upon having a reasonable basis for
believing that a Portfolio has ceased to so comply or that a Portfolio might not
so comply in the future.
(d) Insurer represents that it believes, in good faith, that the Separate
Account is a "segregated asset account" and that interests in the Separate
Account are offered exclusively through the purchase of or transfer into a
"variable contract," within the meaning of such terms under Section 817(h) of
the Code and the regulations thereunder. Insurer will make every effort to
continue to meet such definitional requirements, and it will notify the Fund and
Distributor immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in the future.
(e) The Adviser will manage the Fund as a RIC in compliance with Subchapter
M of the Code and will cause the Fund to be in compliance with Section 817(h) of
the Code and regulations thereunder. The Fund has adopted and will maintain
procedures for ensuring that the Fund is managed in compliance with Subchapter M
and Section 817(h) and regulations thereunder.
(f) Should the Distributor or Adviser become aware of a failure of Fund, or
any of its Portfolios, to be in compliance with Subchapter M of the Code or
Section 817(h) of the Code and regulations thereunder, they represent and agree
that they will immediately notify Insurer of such in writing and will
immediately take all reasonable steps to adequately diversify the Portfolio to
achieve compliance.
4.2 Insurance and Certain Other Laws.
(a) The Adviser will use its best efforts to cause the Fund to comply with
any applicable state insurance laws or regulations, to the extent specifically
requested in writing by Insurer. If it cannot comply, it will so notify Insurer
in writing.
(b) Insurer represents and warrants that (i) it is an insurance company
duly organized, validly existing and in good standing under the laws of the
State of California and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains the
separate account as a segregated asset account under California law, and (iii)
the Contracts comply in all material respects with all other applicable federal
and state laws and regulations.
(c) Insurer and Contracts Distributor represent and warrant that Contracts
Distributor is a business corporation duly organized, validly existing, and in
good standing under the laws of the State of [____________] and has full
corporate power, authority and legal right to execute, deliver, and perform its
duties and comply with its obligations under this Agreement.
(d) Distributor represents and warrants that it is a business corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and has full corporate power, authority and legal right to
execute, deliver, and perform its duties and comply with its obligations under
this Agreement.
(e) Distributor represents and warrants that the Fund is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
(f) Adviser represents and warrants that it is a limited partnership, duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 Securities Laws.
(a) Insurer represents and warrants that (i) interests in the Separate
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act and the Contracts will be duly authorized for
issuance and sold in compliance with California law, (ii) the Separate Account
is and will remain registered under the 1940 Act to the extent required by the
1940 Act, (iii) the Separate Account does and will comply in all material
respects with the requirements of th 1940 Act and the rules thereunder, (iv) the
Separate Account's 1933 Act registration statement relating to the Contracts,
together with any amendments thereto, will, at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder, and (v)
the Separate Account Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(b) The Adviser and Distributor represent and warrant that (i) Fund shares
sold pursuant to this Agreement will be registered under the 1933 Act to the
extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Maryland law, (ii) the Fund is and will remain registered under
the 1940 Act to the extent required by the 1940 Act, (iii) the Fund will amend
the registration statement for its shares under the 1933 Act and itself under
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares, (iv) the Fund does and will comply in all material
respects with the requirements of the 1940 Act and the rules thereunder, (v) the
Fund's 1933 Act registration statement, together with any amendments thereto,
will at all times comply in all material respects with the requirements of the
1933 Act and rules thereunder, and (vi) the Fund Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
(c) The Fund will register and qualify its shares for sale in accordance
with the laws of any state or other jurisdiction only if and to the extent
reasonably deemed advisable by the Fund, Insurer or any other life insurance
company utilizing the Fund.
(d) Distributor and Contracts Distributor each represents and warrants that
it is registered as a broker-dealer with the SEC under the Securities Exchange
Act of 1934, as amended, and is a member in good standing of the National
Association of Securities Dealers Inc. (the "NASD").
4.4 Notice of Certain Proceedings and Other Circumstances.
(a) Distributor or the Fund shall immediately notify Insurer of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Fund's registration statement
under the 1933 Act or the Fund Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Fund Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of the Fund's shares, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of Fund shares in any
state or jurisdiction, including, without limitation, any circumstances in which
(x) the Fund's shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law or (y) such law
precludes the use of such shares as an underlying investment medium of the
Contracts issued or to be issued by Insurer. Distributor and the Fund will make
every reasonable effort to prevent the issuance of any such stop order, cease
and desist order or similar order and, if any such order is issued, to obtain
the lifting thereof at the earliest possible time.
(b) Insurer and Contracts Distributor shall immediately notify the Fund of
(i) the issuance by any court or regulatory body of any stop order, cease and
desist order or similar order with respect to the Separate Account's
registration statement under the 1933 Act relating to the Contracts or the
Separate Account Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or Separate Account Prospectus, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of the Separate Account interests pursuant to the
Contracts, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. Insurer and Contracts Distributor will make every reasonable effort
to prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
4.5 Insurer to Provide Documents.
Upon request, Insurer will provide the Fund and the Distributor one
complete copy of SEC registration statements, Separate Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and amendments to
any of the above, that relate to the Separate Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6 Fund to Provide Documents.
Upon request, the Fund will provide to Insurer one complete copy of SEC
registration statements, Fund Prospectuses, reports, any preliminary and final
proxy material, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
Section 5. Mixed and Shared Funding
5.1 General.
The Fund has obtained an order exempting it from certain provisions of the
1940 Act and rules thereunder so that the Fund is available for investment by
certain other entities, including, without limitation, separate accounts funding
variable life insurance policies and separate accounts of insurance companies
unaffiliated with Insurer ("Mixed and Shared Funding Order"). The Parties
recognize that the SEC has imposed terms and conditions for such orders that are
substantially identical to many o the provisions of this Section 5.
5.2 Disinterested Directors.
The Fund agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of Adviser or Distributor within the meaning of Section 2(a)(I 9) of the
1940 Act.
5.3 Monitoring for Material Irreconcilable Conflicts.
The Fund agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
participants in all separate accounts of life insurance companies utilizing the
Fund, including the Separate Account. Insurer agrees to inform the Board of
Directors of the Fund of the existence of or any potential for any such material
irreconcilable conflict of which it is aware. The concept of a "material
irreconcilable conflict" is not defined by th 1940 Act or the rules thereunder,
but the Parties recognize that such a conflict may arise for a variety of
reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax or securities
regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity contract
and variable life insurance contract participants or by participants of
different life insurance companies utilizing the Fund; or
(f) a decision by a life insurance company utilizing the Fund to disregard
the voting instructions of participants.
Insurer will assist the Board of Directors in carrying out its
responsibilities by providing the Board of Directors with all information
reasonably necessary for the Board of Directors to consider any issue raised,
including information as to a decision by Insurer to disregard voting
instructions of Participants.
5.4 Conflict Remedies.
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, Insurer and the other life insurance
companies utilizing the Fund will, at their own expense and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Directors), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps may include, but are not limited
to:
(i) withdrawing the assets allocable to some or all of the separate
accounts from the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a
vote of all affected participants and, as appropriate, segregating the
assets of any particular group (e.g., annuity contract owners or
participants, life insurance contract owners or all contract owners and
participants of one or more life insurance companies utilizing the Fund)
that votes in favor of such segregation, or offering to the affected
contract owners or participants the option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "Management Company" in Section 4(3) of the 1940 Act or a new
separate account that is operated as a Management Company.
(b) If the material irreconcilable conflict arises because of Insurer's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, Insurer may be
required, at the Fund's election, to withdraw the Separate Account's investment
in the Fund. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal must take place within six months after the Fund
gives notice to Insurer that this provision is being implemented, and until such
withdrawal Distributor and the Fund shall continue to accept and implement
orders by Insurer for the purchase and redemption of shares of the Fund.
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to Insurer conflicts with the majority
of other state regulators, then Insurer will withdraw the Separate Account's
investment in the Fund within six months after the Fund's Board of Directors
informs Insurer that it has determined that such decision has created a material
irreconcilable conflict, and until such withdrawal Distributor and Fund shall
continue to accept and implement orders by Insurer for the purchase and
redemption of shares of the Fund.
(d) Insurer agrees that any remedial action taken by it in resolving any
material irreconcilable conflict will be carried out at its expense and with a
view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will the Fund or Distributor be
required to establish a new funding medium for any Contracts. Insurer will not
be required by the terms hereof to establish a new funding medium for any
Contracts if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
5.5 Notice to Insurer.
The Fund will promptly make known in writing to Insurer the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 Information Requested by Board of Directors.
Insurer and the Fund will at least annually submit to the Board of
Directors of the Fund such reports, materials or data as the Board of Directors
may reasonably request so that the Board of Directors may fully carry out the
obligations imposed upon it by the provisions hereof, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Directors. All reports received by the Board of Directors of
potential or existing conflicts, and all Board of Directors actions with regard
to determining the existence of a conflict, notifying life insurance companies
utilizing the Fund of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
Board of Directors or other appropriate records, and such minutes or other
records will be made available to the SEC upon request.
5.7 Compliance with SEC Rules.
If, at any time during which the Fund is serving an investment medium for
variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2
are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to
mixed and shared funding, the Parties agree that they will comply with the terms
and conditions thereof and that the terms of this Section 5 shall be deemed
modified if and only to the extent required in order also to comply with the
terms and conditions of such exemptive relief that is afforded by any of said
rules that are applicable.
Section 6. Termination
6.1 Events of Termination.
Subject to Section 6.4 below, this Agreement will terminate as to a
Portfolio:
(a) at the option of Insurer or Distributor upon at least six months
advance written notice to the other Parties, or
(b) at the option of the Fund upon (i) at least sixty days advance written
notice to the other parties, and (ii) approval by (x) a majority of the
disinterested Directors upon a finding that a continuation of this Contract is
contrary to the best interests of the Fund, or (y) a majority vote of the shares
of the affected Portfolio in the corresponding Division of the Separate Account
(pursuant to the procedures set forth in Section 10 of this Agreement for voting
Trust shares in accordance with Participant instructions).
(c) at the option of the Fund upon institution of formal proceedings
against Insurer or Contracts Distributor by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding Insurer's obligations
under this Agreement or related to the sale of the Contracts, the operation of
the Separate Account, or the purchase of the Fund shares, if, in each case, the
Fund reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on the Portfolio to be terminated; or
(d) at the option of Insurer upon institution of formal proceedings against
the Fund, Adviser, or Distributor by the NASD, the SEC, or any state insurance
regulator or any other regulatory body regarding the Fund's, Adviser's or
Distributor's obligations under this Agreement or related to the operation or
management of the Fund or the purchase of Fund shares, if, in each case, Insurer
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on Insurer, Contracts Distributor or the Division
corresponding to the Portfolio to be terminated; or
(e) at the option of any Party in the event that (i) the Portfolio's shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable state and federal law or (ii) such law precludes the use of
such shares as an underlying investment medium of the Contracts issued or to be
issued by Insurer; or
(f) upon termination of the corresponding Division's investment in the
Portfolio pursuant to Section 5 hereof; or
(g) at the option of Insurer if the Portfolio ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions; or
(h) at the option of Insurer if the Portfolio fails to comply with Section
817(h) of the Code or with successor or similar provisions; or
(i) at the option of Insurer if Insurer reasonably believes that any change
in a Fund's investment adviser or investment practices will materially increase
the risks incurred by Insurer; or
(j) at the option of the Insurer, upon the breach of any material provision
of this Agreement by the Fund, Adviser or Distributor, which breach has not been
cured to the satisfaction of the Insurer within ten days after written notice of
such breach is delivered to the breaching party; or
(k) at the option of Fund, upon the Insurer's breach of any material
provision of this Agreement, which breach has not been cured to the satisfaction
of Fund within ten days after written notice of such breach is delivered to the
Insurer.
6.2 Funds to Remain Available.
Except (i) as necessary to implement Participant-initiated transactions,
(ii) as required by state insurance laws or regulations, (iii) as required
pursuant to Section 5 of this Agreement, or (iv) with respect to any Portfolio
as to which this Agreement has terminated, Insurer shall not (x) redeem Fund
shares attributable to the Contracts, or (y) prevent Participants from
allocating payments to or transferring amounts from a Portfolio that was
otherwise available under the Contracts, until, in either case, 30 calendar days
after Insurer shall have notified the Fund or Distributor of its intention to do
so.
6.3 Survival of Warranties and Indemnifications.
All warranties and indemnifications will survive the termination of this
Agreement.
6.4 Continuance of Agreement for Certain Purposes.
Notwithstanding any termination of this Agreement, the Distributor shall
continue to make available shares of the Portfolios pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement (the "Existing Contracts"), except as otherwise
provided under Section 5 of this Agreement. Specifically, and without
limitation, the Distributor shall facilitate the sale and purchase of shares of
the Portfolios as necessary in order t process premium payments, surrenders and
other withdrawals, and transfers or reallocations of values under Existing
Contracts.
Section 7. Parties to Cooperate Respecting Termination
The other Parties hereto agree to cooperate with and give reasonable
assistance to Insurer in taking all necessary and appropriate steps for the
purpose of ensuring that the Separate Account owns no shares of a Portfolio
after the Final Termination Date with respect thereto.
Section 8. Assignment
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
Section 9. Notices
Notices and communications required or permitted by Section 2 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
Cova Financial Life Insurance Company
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181
Attention: General Counsel
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas
New York NY 10105
Attn.: Edmund P. Bergan
FAX: (212) 969-2290
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York NY 10105
Attn: Edmund P. Bergan
FAX: (212) 969-2290
Section 10. Voting Procedures
Subject to the cost allocation procedures set forth in Section 3 hereof,
Insurer will distribute all proxy material furnished by the Fund to Participants
and will vote Fund shares in accordance with instructions received from
Participants. Insurer will vote Fund shares that are (a) not attributable to
Participants or (b) attributable to Participants, but for which no instructions
have been received, in the same proportion as Fund shares for which said
instructions have been received from Participants. Insurer agrees that it will
disregard Participant voting instructions only to the extent it would be
permitted to do so pursuant to Rule 6e-3 (T)(b)(15)(iii) under the 1940 Act if
the Contracts were variable life insurance policies subject to that rule. Other
participating life insurance companies utilizing the Fund will be responsible
for calculating voting privileges in a manner consistent with that of Insurer,
as prescribed by this Section 10.
Section 11. Foreign Tax Credits
The Adviser agrees to consult in advance with Insurer concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to the Fund's shareholders.
Section 12. Indemnification
12.1 Of Fund, Distributor and Adviser by Insurer.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below,
Insurer agrees to indemnify and hold harmless the Fund, Distributor and Adviser,
each of their directors and officers, and each person, if any, who controls the
Fund, Distributor or Adviser within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 12. 1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Insurer) or actions in respect thereof
(including, to the extent reasonable, legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
actions are related to the sale, acquisition, or holding of the Fund's shares
and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate Account's
1933 Act registration statement, the Separate Account Prospectus, the
Contracts or, to the extent prepared by Insurer or Contracts Distributor,
sales literature or advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to Insurer or Contracts Distributor by or on behalf
of the Fund, Distributor or Adviser for use in the Separate Account's 1933
Act registration statement, the Separate Account Prospectus, the Contracts,
or sales literature or advertising (or any amendment or supplement to any
of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in the
Fund's 1933 Act registration statement, Fund Prospectus, sales literature
or advertising of the Fund, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of Insurer or
Contracts Distributor) or the negligent, illegal or fraudulent conduct of
Insurer or Contracts Distributor or persons under their contro (including,
without limitation, their employees and "Associated Persons," as that term
is defined in paragraph (m) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or advertising of
the Fund, or any amendment or supplement to any of the foregoing, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance upon and in
conformity with information furnished to the Fund, Adviser or Distributor
by or on behalf of Insurer or Contracts Distributor for use in the Fund's
1933 Act registration statement, Fund Prospectus, sales literature or
advertising of the Fund, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by Insurer or Contracts
Distributor to perform the obligations, provide the services and furnish
the materials required of them under the terms of this Agreement.
(b) Insurer shall not be liable under this Section 12.1 with respect to any
losses, claims, damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of that Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to Distributor or to the Fund.
(c) Insurer shall not be liable under this Section 12.1 with respect to any
action against an Indemnified Party unless the Fund, Distributor or Adviser
shall have notified Insurer in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Insurer of any such action shall not relieve
Insurer from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 12. 1. In
case any such action is brought against an Indemnified Party, Insurer shall be
entitled to participate, at its own expense, in the defense of such action.
Insurer also shall be entitled to assume the defense thereof, with counsel
approved by the Indemnified Party named in the action, which approval shall not
be unreasonably withheld. After notice from Insurer to such Indemnified Party of
Insurer's election to assume the defense thereof, the Indemnified Party will
cooperate fully with Insurer and shall bear the fees and expenses of any
additional counsel retained by it, and Insurer will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
12.2 Indemnification of Insurer and Contracts Distributor by Adviser.
(a) Except to the extent provided in Sections 12.2(d) and 12.2(e), below,
Adviser agrees to indemnify and hold harmless Insurer and Contracts Distributor,
each of their directors and officers, and each person, if any, who controls
Insurer or Contracts Distributor within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Adviser) or actions in respect thereof
(including, to the extent reasonable, legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions are
related to the sale, acquisition, or holding of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or advertising of
the Fund or, to the extent not prepared by Insurer or Contracts
Distributor, sales literature or advertising for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished to Distributor, Adviser or the Fund by or on
behalf of Insurer or Contracts Distributor for use in the Fund's 1933 Act
registration statement, Fund Prospectus, or in sales literature or
advertising (or any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in the
Separate Account's 1933 Act registration statement, Separate Account
Prospectus, sales literature or advertising for the Contracts, or any
amendment or supplement to any of the foregoing, not supplied for use
therein by or on behalf of Distributor, Adviser, or the Fund) or the
negligent, illegal or fraudulent conduct of the Fund, Distributor, Adviser
or persons under their control (including, without limitation, their
employees and Associated Persons), in connection with the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate Account's
1933 Act registration statement, Separate Account Prospectus, sales
literature or advertising covering the Contracts, or any amendment or
supplement to any of the foregoing, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement or omission
was made in reliance upon and in conformity with information furnished to
Insurer or Contracts Distributor by or on behalf of the Fund, Distributor
or Adviser for use in the Separate Account's 1933 Act registration
statement, Separate Account Prospectus, sales literature or advertising
covering the Contracts, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by the Fund, Adviser or
Distributor to perform the obligations, provide the services and furnish
the materials required of them under the terms of this Agreement;
(b) Except to the extent provided in Sections 12.2(d) and 12.2(e) hereof,
Adviser agrees to indemnify and hold harmless the Indemnified Parties from and
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement thereof with, except as set forth in Section 12.2(c) below, the
written consent of Adviser) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses) to which the Indemnified Parties
may become subject directly o indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Portfolio
to operate as a regulated investment company in compliance with (i) Subchapter M
of the Code and regulations thereunder and (ii) Section 817(h) of the Code and
regulations thereunder (except to the extent that such failure is caused by
Insurer), including, without limitation, any income taxes and related penalties,
rescission charges, liability under state law to Contract owners or Participants
asserting liability against Insurer or Contracts Distributor pursuant to the
Contracts, the costs of any ruling and closing agreement or other settlement
with the Internal Revenue Service, and the cost of any substitution by Insurer
of shares of another investment company or portfolio for those of any adversely
affected Portfolio as a funding medium for the Separate Account that Insurer
deems necessary or appropriate as a result of the noncompliance.
(c) The written consent of Adviser referred to in Section 12.2(b) above
shall not be required with respect to amounts paid in connection with any ruling
and closing agreement or other settlement with the Internal Revenue Service.
(d) Adviser shall not be liable under this Section 12.2 with respect to any
losses, claims; damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of such Indemnified Party's reckless disregard of its obligations and
duties under this Agreement or to Insurer, Contracts Distributor or the Separate
Account.
(e) Adviser shall not be liable under this Section 12.2 with respect to any
action against an Indemnified Party unless Insurer or Contracts Distributor
shall have notified Adviser in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Adviser of any such action shall not relieve
Adviser from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 12.2. In
case any such action is brought against an Indemnified Party, Adviser will be
entitled to participate, at its own expense, in the defense of such action.
Adviser also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the Internal Revenue Service),
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably withheld. After notice from Adviser to such
Indemnified Party of Adviser's election to assume the defense thereof, the
Indemnified Party will cooperate fully with Adviser and shall bear the fees and
expenses of any additional counsel retained by it, and Adviser will not be
liable to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
12.3 Effect of Notice.
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Section 12.1(c) or 12.2(e) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
Section 13. Applicable Law
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with New York law, without regard for that state's
principles of conflict of laws.
Section 14. Execution in Counterparts
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
Section 15. Severability
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 16. Rights Cumulative
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
Section 17. Restrictions on Sales of Fund Shares
Insurer agrees that the Fund will be permitted (subject to the other terms
of this Agreement) to make its shares available to separate accounts of other
life insurance companies.
Section 18. Headings
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
Section 19. Survival
In the event of the termination of this Agreement, the parties agree that
Section 12 and Section 20 shall remain in effect after termination.
Section 20. Cooperation
Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the National
Association of Securities Dealers, Inc. and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in
their names and on their behalf by and through their duly authorized officers
signing below.
COVA FINANCIAL LIFE INSURANCE
COMPANY
By:
Name:
COVA LIFE SALES COMPANY
By:
Name:
ALLIANCE CAPITAL MANAGEMENT LP
By: Alliance Capital Management Corporation,
its General Partner
Name:
ALLIANCE FUND DISTRIBUTORS, INC.
By:
Name:
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
November 19, 1997
Board of Directors
Cova Financial Life Insurance Company
4100 Newport Place Drive, Suite 840
Newport Beach, CA 92600
RE: Opinion of Counsel - Cova Variable Annuity Account Five
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission of a Pre-Effective Amendment to a
Registration Statement on Form N-4 for the Individual Flexible Purchase
Payment Deferred Variable Annuity Contracts (the "Contracts") to be issued
by Cova Financial Life Insurance Company and its separate account, Cova
Variable Annuity Account Five.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below.
We are of the following opinions:
1. Cova Variable Annuity Account Five is a Unit Investment Trust as
that term is defined in Section 4(2) of the Investment Company Act of 1940
(the "Act"), and is currently registered with the Securities and Exchange
Commission, pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by an Owner pursuant to
a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such an Owner
will have a legally-issued, fully paid, non-assessable contractual interest
under such Contract.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /S/ LYNN KORMAN STONE
_____________________________________
Lynn Korman Stone
Consent of Independent Auditors
The Board of Directors
Cova Financial Life Insurance Company
We consent to the reference to our firm under the caption "Experts" in the
statement of additional information and to the use of our report with respect to
the financial statements of Cova Financial Life Insurance Company as of December
31, 1996 and for the seven-month period ended December 31, 1996 and the
preacquisition five-month period ended May 31, 1996, and the year ended December
31, 1994, dated March 7, 1997, and our report with respect to the financial
statements of Cova Variable Annuity Account Five as of December 31, 1996 and
for the year then ended and for the period June 19, 1995 (Commencement
of Operations) to December 31, 1995, dated February 13, 1997, in the
Pre-Effective Amendment No. 1 to the Registration Statement (Form N-4 No.
333-34817) of Cova Variable Annuity Account Five.
/s/ KPMG PEAT MARWICK LLP
Chicago, Illinois
November 14, 1997
