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 13 investment choices a fixed account which offers an
interest rate which is guaranteed by Cova, and 12 investment portfolios listed
below. The 12 investment portfolios are part of Cova Series Trust, Lord Abbett
Series Fund, Inc. and General American Capital Company. You can put your money
in the fixed account and/or any of these investment portfolios (except as
noted).
Cova Series Trust:
Managed by J.P. Morgan
Investment Management Inc.
Select Equity
Large Cap Stock
Small Cap Stock
International Equity
Quality Bond
Managed by Lord, Abbett & Co.
Bond Debenture (a "high yield" portfolio under
California insurance regulations)
Mid-Cap Value
Large Cap Research
Developing Growth
Lord Abbett Growth and Income (not currently available)
Lord Abbett Series Fund, Inc.:
Managed by Lord, Abbett & Co.
Growth and Income
General American Capital Company:
Managed by Conning Asset
Management Company
Money Market
The Cova Series Trust Lord Abbett Growth and Income Portfolio is not currently
available. (Check with your broker regarding future availability.)
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the Cova Fixed and
Variable Annuity Contract.
To learn more about the Cova Fixed and Variable Annuity Contract, you can obtain
a copy of the Statement of Additional Information (SAI) dated May 1, 1998. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
legally a part of the prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information regarding registrants that file electronically with the
SEC. The Table of Contents of the SAI is on Page 14 of this prospectus. For a
free copy of the SAI, call us at (800) 523-1661 or write us at: One Tower Lane,
Suite 3000, Oakbrook Terrace, Illinois 60181-4644.
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.
May 1, 1998
TABLE OF CONTENTS Page
INDEX OF SPECIAL TERMS 2
SUMMARY 3
FEE TABLE 5
EXAMPLES 6
1. THE ANNUITY CONTRACT 7
2. ANNUITY PAYMENTS (THE INCOME PHASE) 7
3. PURCHASE 7
Purchase Payments 7
Allocation of Purchase Payments 7
Accumulation Units 8
4. INVESTMENT OPTIONS 8
Cova Series Trust 8
Lord Abbett Series Fund, Inc. 8
General American Capital Company 8
Transfers 8
Dollar Cost Averaging Program 9
Automatic Rebalancing Program 9
Approved Asset Allocation Programs 9
Voting Rights 9
Substitution 9
5. EXPENSES 9
Insurance Charges 9
Contract Maintenance Charge 10
Withdrawal Charge 10
Reduction or Elimination of the
Withdrawal Charge 10
Premium Taxes 10
Transfer Fee 10
Income Taxes 10
Investment Portfolio Expenses 10
6. TAXES 10
Annuity Contracts in General 10
Qualified and Non-Qualified Contracts 10
Withdrawals - Non-Qualified Contracts 11
Withdrawals - Qualified Contracts 11
Withdrawals - Tax-Sheltered Annuities 11
Diversification 11
7. ACCESS TO YOUR MONEY 11
Systematic Withdrawal Program 11
8. PERFORMANCE 11
9. DEATH BENEFIT 12
Upon Your Death 12
Death of Annuitant 13
10. OTHER INFORMATION 13
Cova 13
The Separate Account 13
Distributor 14
Ownership 14
Beneficiary 14
Assignment 14
Suspension of Payments or Transfers 14
Financial Statements 14
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION 14
APPENDIX A A-1
APPENDIX B B-1
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the contract, however, certain technical words
or terms are unavoidable. 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 7
Accumulation Unit 8
Annuitant 7
Annuity Date 7
Annuity Options 7
Annuity Payments 7
Annuity Unit 8
Beneficiary 14
Fixed Account 7
Income Phase 7
Investment Portfolios 8
Joint Owner 14
Non-Qualified 10
Owner 14
Purchase Payment 7
Qualified 10
Tax Deferral 10
SUMMARY
The sections in this Summary correspond to sections in this prospectus which
discuss the topics in more detail.
1. THE ANNUITY CONTRACT:
The fixed and variable annuity contract offered by Cova is a contract between
you, the owner, and Cova, an insurance company. The contract provides a means
for investing on a tax-deferred basis in a fixed account of Cova and 12
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 12 investment portfolios which are listed in Section
4. These portfolios are designed to offer a better return than the fixed
account. However, this is NOT guaranteed. You can also lose your money.
You can put money into any or all of the investment portfolios (except as noted)
and the fixed account. You can transfer between accounts up to 12 times a year
without charge or tax implications. After 12 transfers, the charge is $25 or 2%
of the amount transferred, whichever is less.
The contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving regular payments
from your contract.
The amount of money you are able to accumulate in your account during the
accumulation phase will determine the amount of income payments during the
income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE):
If you want to receive regular income from your annuity, you can choose one of
three options. 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 $500 or more any time you like during the accumulation phase. Your
registered representative can help you fill out the proper forms.
4. INVESTMENT OPTIONS:
You can put your money in any or all of these investment portfolios which are
described in the prospectuses for the funds:
MANAGED BY J.P. MORGAN
INVESTMENT MANAGEMENT INC.
Select Equity
Small Cap Stock
Large Cap Stock
International Equity
Quality Bond
MANAGED BY LORD, ABBETT & CO.
Bond Debenture (a "high yield" portfolio under
California insurance regulations)
Growth and Income
Mid-Cap Value
Large Cap Research
Developing Growth
Lord Abbett Growth and Income (not currently available)
MANAGED BY CONNING ASSET
MANAGEMENT COMPANY
Money Market
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.
During the accumulation phase, 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 1.10% of
the average daily value of the investment portfolio depending upon the
investment portfolio.
6. TAXES:
Your earnings are not taxed until you take them out. If you take money out
during the accumulation phase, earnings come out first and are taxed as income.
If you are younger than 59 1/2 when you take money out, you may be charged a 10%
federal tax penalty on the earnings. Payments during the income phase are
considered partly a return of your original investment. That part of each
payment is not taxable as income.
7. ACCESS TO YOUR MONEY:
You can take money out at any time during the accumulation phase. After the
first year, you can take up to 10% of your total purchase payments each year
without charge from Cova. Withdrawals 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 withdrawals. 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 provides performance
information in Appendix B and the SAI. Past performance is not a guarantee of
future results.
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.
10. OTHER INFORMATION:
Free Look. If you cancel the contract within 10 days after receiving it (or, in
the state of California, 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 reserve the right to put
your money in the Money Market Fund during the free-look period.
No Probate. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
Who should purchase the contract? This contract is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes. The tax-deferred feature is most attractive to people in
high federal and state tax brackets. You should not buy this contract if you are
looking for a short-term investment or if you cannot take the risk of getting
back less money than you put in.
Additional Features. This contract has additional features you might be
interested in. These include:
o You can arrange to have money automatically sent to you each month while your
contract is still in the accumulation phase. Of course, you'll have to pay
taxes on money you receive. We call this feature the Systematic Withdrawal
Program.
o You can arrange to have a regular amount of money automatically invested in
investment portfolios each month, theoretically giving you a lower average
cost per unit over time than a single one time purchase. We call this feature
Dollar Cost Averaging.
o You can arrange to automatically readjust the money between investment
portfolios periodically to keep the blend you select. We call this feature
Automatic Rebalancing.
o Under certain circumstances, Cova will give you your money without a
withdrawal charge if you need it while you're in a nursing home. We call this
feature the Nursing Home Waiver.
These features may not be suitable for your particular situation.
11. INQUIRIES:
If you need more information, please contact us at:
Cova Life Sales Company
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181
800-523-1661
COVA VARIABLE ANNUITY ACCOUNT FIVE FEE TABLE
Owner Transaction Expenses
Withdrawal Charge (see Note 2 below)
5% of purchase payment withdrawn
Transfer Fee (see Note 3 below)
No charge for first 12 transfers in a contract year; thereafter, the fee is
$25 per transfer or, if less, 2% of the amount transferred.
Contract Maintenance Charge (see Note 4 below)
$30 per contract per year
Separate Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Premium 1.25%
Administrative Expense Charge .15%
-------
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES 1.40%
<TABLE>
<CAPTION>
Investment Portfolio Expenses
(as a percentage of the average daily net assets of an investment portfolio)
Other Expenses
(after expense
Management 12b-1 reimbursement for Total Annual
Fees Fees certain Portfolios) Portfolio Expenses
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Cova Series Trust (a)
Managed by J.P. Morgan
Investment Management Inc.
<S> <C> <C> <C>
Select Equity .75% _ _ .10% .85%
Large Cap Stock .65% _ _ .10% .75%
Small Cap Stock .85% _ _ .10% .95%
International Equity .85% _ _ .10% .95%
Quality Bond .55% _ _ .10% .65%
- ------------------------------------------------------------------------------------------------------------------------------------
Managed by Lord, Abbett & Co.
Bond Debenture (a "high yield" .75% _ _ .10% .85%
portfolio under California
insurance regulations)
Mid-Cap Value(b) 1.00% _ _ .10% 1.10%
Large Cap Research(b) 1.00% _ _ .10% 1.10%
Developing Growth(b) .90% _ _ .10% 1.00%
Lord Abbett Growth and Income (c) .65% - - .10% .75%
- ------------------------------------------------------------------------------------------------------------------------------------
Lord Abbett Series Fund, Inc.
Managed by Lord, Abbett & Co.
Growth and Income(d) .50% .15% .02% .67%
- ------------------------------------------------------------------------------------------------------------------------------------
General American Capital Company
Managed by Conning Asset
Management Company
Money Market .125% _ _ .08% .205%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Since August 20, 1990, an affiliate of 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, 1997 would have been
1.00% for the Select Equity Portfolio, 1.39% for the Small Cap Stock Portfolio,
1.53% for the International Equity Portfolio, 1.08% for the Quality Bond
Portfolio, 1.08% for the Large Cap Stock Portfolio, 1.07% for the Bond Debenture
Portfolio, 8.41% for the Mid-Cap Value Portfolio, 10.04% for the Large Cap
Research Portfolio and 9.00% for the Developing Growth Portfolio.
(b) Annualized. The Portfolio commenced regular investment operations on August
20, 1997.
(c) Estimated. The Portfolio has not yet commenced investment operations.
(d) 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. For the year ending December 31, 1998, the 12b-1 plan fees
are estimated to be .15%. The examples below for this Portfolio reflect the
estimated 12b-1 fees.
</FN>
</TABLE>
<TABLE>
<CAPTION>
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 5 years 10 years
- ------------------------------------------------------------------------------------------------------------------------------------
Cova Series Trust
Managed by J.P. Morgan
Investment Management Inc.
<S> <C> <C> <C> <C>
Select Equity (a) $ 73.80 (a) $ 118.16 (a)$169.99 (a) $266.24
(b) $ 23.80 (b) $ 73.16 (b)$124.99 (b) $266.24
Large Cap Stock (a) $ 72.80 (a) $ 115.15 (a)$164.95 (a) $256.13
(b) $ 22.80 (b) $ 70.15 (b)$119.95 (b) $256.13
Small Cap Stock (a) $ 74.80 (a) $ 121.17 (a)$175.00 (a) $276.23
(b) $ 24.80 (b) $ 76.17 (b)$130.00 (b) $276.23
International Equity (a) $ 74.80 (a) $ 121.17 (a)$175.00 (a) $276.23
(b) $ 24.80 (b) $ 76.17 (b)$130.00 (b) $276.23
Quality Bond (a) $ 71.79 (a) $ 112.12 (a)$159.89 (a) $245.92
(b) $ 21.79 (b) $ 67.12 (b)$114.89 (b) $245.92
- ------------------------------------------------------------------------------------------------------------------------------------
Managed by Lord, Abbett & Co.
Bond Debenture (a "high yield"
portfolio under California (a) $ 73.80 (a) $ 118.16 (a)$169.99 (a) $266.24
insurance regulations) (b) $ 23.80 (b) $ 73.16 (b)$124.99 (b) $266.24
Mid-Cap Value (a) $ 76.30 (a) $ 125.66
(b) $ 26.30 (b) $ 80.66
Large Cap Research (a) $ 76.30 (a) $ 125.66
(b) $ 26.30 (b) $ 80.66
Developing Growth (a) $ 75.30 (a) $ 122.67
(b) $ 25.30 (b) $ 77.67
Lord Abbett Growth and Income (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 (a) $ 71.99 (a) $112.73 (a)$160.90 (a) $247.97
(b) $ 21.99 (b) $ 67.73 (b)$115.90 (b) $247.97
- ------------------------------------------------------------------------------------------------------------------------------------
General American Capital Company
Managed by Conning Asset
Management Company
Money Market (a) $ 67.31 (a) $ 98.54 (a)$137.02 (a) $199.08
(b) $ 17.31 (b) $ 53.54 (b)$ 92.02 (b) $199.08
- ------------------------------------------------------------------------------------------------------------------------------------
</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 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. During the accumulation phase, Cova will not charge the contract
maintenance charge if the value of your contract is $50,000 or more,
although, if you make a complete withdrawal, Cova will charge the contract
maintenance charge.
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.
There is an accumulation unit value history contained in Appendix A - Condensed
Financial Information.
1. THE ANNUITY CONTRACT
This Prospectus describes the Fixed and Variable Annuity Contract offered by
Cova.
An annuity is a contract between you, the owner, and an insurance company (in
this case Cova), where the insurance company promises to pay you an income, in
the form of annuity payments, beginning on a designated date that's at least 30
days in the future. Until you decide to begin receiving annuity payments, your
annuity is in the accumulation phase. Once you begin receiving annuity payments,
your contract switches to the income phase. The contract benefits from tax
deferral.
Tax deferral means that you are not taxed on earnings or appreciation on the
assets in your contract until you take money out of your contract.
The contract is called a variable annuity because you can choose among 12
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 with respect to contracts
issued on or after May 1, 1996. If you select the fixed account, your money will
be placed with the other general assets of Cova. If you select the fixed
account, the amount of money you are able to accumulate in your contract during
the accumulation phase depends upon the total interest credited to your
contract. The amount of the annuity payments you receive during the income phase
from the fixed account portion of the contract will remain level for the entire
income phase.
As owner of the contract, you exercise all rights under the contract. You can
change the owner at any time by notifying Cova in writing. You and your spouse
can be named joint owners. We have described more information on this in Section
10 - Other Information.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
Under the contract you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the annuity
date. Your annuity date must be the first day of a calendar month. You can also
choose among income plans. We call those annuity options.
We ask you to choose your annuity date and annuity option when you purchase the
contract. You can change either at any time before the annuity date with 30 days
notice to us. Your annuity date cannot be any earlier than one month after you
buy the contract. Annuity payments must begin by the annuitant's 85th birthday
or 10 years from the date the contract was issued, whichever is later. The
annuitant is the person whose life we look to when we make annuity payments.
If you do not choose an annuity option at the time you purchase the contract, we
will assume that you selected Option 2 which provides a life annuity with 10
years of guaranteed payments.
During the income phase, you have the same investment choices you had just
before the start of the income phase. At the annuity date, you can choose
whether payments will come from the fixed account, the investment portfolio(s)
or a combination of both. If you don't tell us otherwise, your annuity payments
will be based on the investment allocations that were in place on the annuity
date.
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things: 1) the value of your contract in the investment portfolio(s) on the
annuity date, 2) the 3% assumed investment rate used in the annuity table for
the contract, and 3) the performance of the investment portfolios you selected.
If the actual performance exceeds the 3% assumed rate, your annuity payments
will increase. Similarly, if the actual rate is less than 3%, your annuity
payments will decrease.
You can choose one of the following annuity options or any other annuity option
acceptable to Cova. After annuity payments begin, you cannot change the annuity
option.
Option 1. Life Annuity. Under this option, we will make an annuity payment each
month so long as the annuitant is alive. After the annuitant dies, we stop
making annuity payments.
Option 2. Life Annuity with 5, 10 or 20 Years Guaranteed. Under this option, we
will make an annuity payment each month so long as the annuitant is alive.
However, if, when the annuitant dies, we have made annuity payments for less
than the selected guaranteed period, we will then continue to make annuity
payments for the rest of the guaranteed period to the beneficiary. If the
beneficiary does not want to receive annuity payments, he or she can ask us for
a single lump sum.
Option 3. Joint and Last Survivor Annuity. Under this option, we will make
annuity payments each month so long as the annuitant and a second person are
both alive. When either of these people dies, we will continue to make annuity
payments, so long as the survivor continues to live. The amount of the annuity
payments we will make to the survivor can be equal to 100%, 66 2/3% or 50% of
the amount that we would have paid if both were alive.
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 $500 or more to either type of contract.
Allocation of Purchase Payments
When you purchase a contract, we will allocate your purchase payment to the
fixed account and/or one or more of the investment portfolios you have selected.
If you make additional purchase payments, we will allocate them in the same way
as your first purchase payment unless you tell us otherwise. There is a $500
minimum balance requirement for the fixed account and for each investment
portfolio.
If you change your mind about owning this contract, you can cancel it within 10
days after receiving it (or, in the state of California, 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 reserve
the right to put your purchase payment in the Money Market Fund of General
American Capital Company for 15 days before we allocate your first purchase
payment to the investment portfolio(s) you have selected. Currently, Cova
directly allocates your purchase payment to the investment portfolios and/or
fixed account you select.
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 12 investment portfolios which are listed below. Additional
investment portfolios may be available in the future.
YOU SHOULD READ THE PROSPECTUSES FOR THESE FUNDS CAREFULLY BEFORE INVESTING.
COPIES OF THESE PROSPECTUSES ARE ATTACHED TO THIS PROSPECTUS.
Cova Series Trust
Cova Series Trust is managed by Cova Investment Advisory Corporation (Cova
Advisory), which is an indirect subsidiary of Cova. Cova Series Trust is a
mutual fund with multiple portfolios. Each investment portfolio has a different
investment objective. Cova Advisory has engaged sub-advisers to provide
investment advice for the individual investment portfolios. The following
investment portfolios are available under the contract:
J.P. Morgan Investment Management Inc. is the sub-adviser to the following
portfolios:
Select Equity Portfolio
Large Cap Stock Portfolio
Small Cap Stock Portfolio
International Equity Portfolio
Quality Bond Portfolio
Lord, Abbett & Co. is the sub-adviser to the following portfolios:
Bond Debenture Portfolio (a "high yield" portfolio
under California insurance regulations)
Mid-Cap Value Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Lord Abbett Growth and Income Portfolio
THE COVA SERIES TRUST LORD ABBETT GROWTH AND INCOME PORTFOLIO IS NOT CURRENTLY
AVAILABLE. (CHECK WITH YOUR BROKER REGARDING FUTURE AVAILABILITY.)
Lord Abbett Series Fund, Inc.
Lord Abbett Series Fund, Inc. is a mutual fund. The following portfolio managed
by Lord, Abbett & Co. is available under the contract:
Growth and Income Portfolio
General American Capital Company
General American Capital Company is a mutual fund with multiple portfolios. Each
portfolio is managed by Conning Asset Management Company. The following
portfolio is available under the contract:
Money Market Fund
Transfers
You can transfer money among the fixed account and the investment portfolios.
Cova has reserved the right during the year to terminate or modify the transfer
provisions described 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.
Transfers during the Accumulation Phase. You can make 12 transfers every year
during the accumulation phase without charge. We measure a year from the
anniversary of the day we issued your contract. You can make a transfer to or
from the fixed account and to or from any investment portfolio. If you make more
than 12 transfers in a year, there is a transfer fee deducted. The fee is $25
per transfer or, if less, 2% of the amount transferred. The following apply to
any transfer during the accumulation phase:
1. The minimum amount which you can transfer is $500 or your entire value in
the investment portfolio or fixed account.
2. Your request for transfer must clearly state which investment portfolio(s)
or the fixed account are involved in the transfer.
3. Your request for transfer must clearly state how much the transfer is for.
4. You cannot make any transfers within 7 calendar days of the annuity date.
Transfers during the Income Phase. You can only make transfers between the
investment portfolios once each year. We measure a year from the anniversary of
the day we issued your contract. You cannot transfer from the fixed account to
an investment portfolio, but you can transfer from one or more investment
portfolios to the fixed account at any time.
Dollar Cost Averaging Program
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount each month from the Money Market Fund or the fixed account to any of the
other investment portfolio(s). By allocating amounts on a regular schedule as
opposed to allocating the total amount at one particular time, you may be less
susceptible to the impact of market fluctuations. The Dollar Cost Averaging
Program is available only during the accumulation phase.
The minimum amount which can be transferred each month is $500. You must have
at least $6,000 in the Money Market Fund or the fixed account, (or the amount
required to complete your program, if less) in order to participate in the
Dollar Cost Averaging Program.
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.
The Automatic Rebalancing Program is available only during the accumulation
phase. 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 cannot be increased.
Cova will not deduct this charge during the accumulation phase if, when
the deduction is to be made, the value of your contract is $50,000 or more.
Cova may some time in the future discontinue this practice and deduct the
charge.
If you make a complete withdrawal from your contract, the contract maintenance
charge will also be deducted. A pro rata portion of the charge will be deducted
if the annuity date is other than an anniversary. After the annuity date, the
charge will be collected monthly out of the annuity payment.
Withdrawal Charge
During the accumulation phase, you can make withdrawals from your contract. Cova
keeps track of each purchase payment. Once a year after the first year, 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,
becomes confined to a nursing home or hospital for at least 90 consecutive days
under a doctor's care and you need part or all of the money from your contract,
Cova will not impose a withdrawal charge. You or your joint owner cannot have
been so confined when you purchased your contract (confinement must begin after
the first contract anniversary) if you want to take advantage of this provision.
This is called the Nursing Home Waiver.
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-sharing 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.
When you make a withdrawal, the amount of the death benefit may be reduced. See
Section 9. Death Benefits.
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. It does not
reflect the deduction of any applicable contract maintenance charge and
withdrawal charge. The deduction of any applicable contract maintenance charge
and withdrawal charges would reduce the percentage increase or make greater any
percentage decrease. Any advertisement will also include total return figures
which reflect the deduction of the insurance charges, contract maintenance
charges, and withdrawal charges.
For periods starting prior to the date the contracts were first offered, the
performance will be based on the historical performance of the corresponding
investment portfolios for the periods commencing from the date on which the
particular investment portfolio was made available through the Separate Account.
In addition, for certain investment portfolios, performance may be shown for the
period commencing from the inception date of the investment portfolio. These
figures should not be interpreted to reflect actual historical performance of
the Separate Account.
Cova may, from time to time, include in its advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
Appendix B contains performance information that you may find informative. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and the results shown are not necessarily
representative of future results.
9. DEATH BENEFIT
Upon Your Death
If you die before annuity payments begin, Cova will pay a death benefit to your
beneficiary (see below). If you have a joint owner, the death benefit will be
paid when the first of you dies. Joint owners must be spouses. The surviving
joint owner will be treated as the beneficiary.
Beginning May 1, 1998, at the time you buy the contract, you can select Death
Benefit Option A or B. If no option is chosen on the forms provided by Cova,
Option A will be your death benefit. If at the time you buy your contract, the
endorsements for Death Benefit Options A and B are not approved in your state,
Death Benefit Option D will be your death benefit until the death benefit
endorsements are approved. When both death benefit endorsements are approved,
you will be given an opportunity to choose between Option A or B. You will have
60 days to make this selection. If you fail to make an election during this
time, your death benefit will automatically be enhanced to Death Benefit Option
B.
If you bought your contract before May 1, 1998, you will have a one time
election for a 60 day period, to choose Death Benefit Option B or C on your next
contract anniversary after May 1, 1998 (or for a 60 day period after both
endorsements are approved in your state). If you fail to make an election during
the 60 day period, your death benefit will automatically be enhanced to Death
Benefit Option B. If on May 1, 1998, you or the joint owner are age 80 or older,
you will be unaffected by the changes in death benefits. Death Benefit Option D
will continue to be your death benefit.
The death benefits are described below. If you have a joint owner, the death
benefit is determined based on the age of the oldest joint owner and the death
benefit is payable on the death of the first joint owner.
DEATH BENEFIT OPTION A
Prior to you, or your joint owner, reaching age 80, the death benefit will be
the greatest of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals); or
2. The value of your contract at the time the death benefit is to be paid; or
3. The greatest adjusted contract value (GACV) (as explained below).
The GACV is evaluated at each contract anniversary prior to the date of your or
your joint owner's death, and on each day a purchase payment or withdrawal is
made. On the contract anniversary, if the current contract value is greater than
the GACV, the GACV will be increased to the current value of your contract. If a
purchase payment is made, the amount of the purchase payment will increase the
GACV. If a withdrawal is made, the GACV will be reduced by the sum of the amount
withdrawn (and any associated withdrawal charges) divided by the value of your
contract immediately before the withdrawal multiplied by the GACV immediately
prior to the withdrawal. The following example describes the effect of a
withdrawal on the GACV:
Example:
Assumed facts for example:
$ 10,000 current GACV
$ 8,000 contract value
$2,100 partial withdrawal ($ 2,000 withdrawal + $100
withdrawal charge)
New GACV = $10,000 - [($2,100 / $8,000) X $10,000] which results in the
current GACV of $10,000 being reduced by $2,625
The new GACV is $7,375.
After you, or your joint owner, reaches age 80, the death benefit will be the
greatest of:
1. Total purchase payments made, less any withdrawals (and any withdrawal
charges paid on the withdrawals); or
2. The value of your contract at the time the death benefit is to be paid; or
3. The greatest adjusted contract value (GACV) (as explained below).
The GACV is evaluated at each contract anniversary on or before your, or your
joint owner's, 80th birthday, and on each day a purchase payment or withdrawal
is made. On the contract anniversary on or before your, or your joint owner's,
80th birthday, if the current contract value is greater than the GACV, the GACV
will be increased to the current value of your contract. If a purchase payment
is made, the amount of the purchase payment will increase the GACV. If a
withdrawal is made, the example above explains the effect of a withdrawal on the
GACV.
DEATH BENEFIT OPTION B
Prior to you, or your joint owner, reaching age 80, the death benefit will be
the greatest of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals) accumulated at an annual rate of 4% until the date
of death; or
2. The value of your contract at the time the death benefit is to be paid; or
3. The greatest of the values of your contract resulting from taking the
contract value on any five (5) year contract anniversary prior to your, or
your joint owner's death, plus any payments you made subsequent to that
contract anniversary, less any withdrawals (and any withdrawal charges paid
on the withdrawals) subsequent to that contract anniversary.
After you, or your joint owner, reaches age 80, the death benefit will be the
greatest of:
1. Total purchase payments made on or before your, or your joint owner's, 80th
birthday, less any withdrawals (and any withdrawal charges paid on the
withdrawals) accumulated at an annual rate of 4% until you, or your joint
owner, reach age 80 plus any subsequent purchase payments, less any
subsequent withdrawals (and any withdrawal charges paid on the
withdrawals); or
2. The value of your contract at the time the death benefit is to be paid; or
3. The greatest of the values of the contract resulting from taking the
contract value on any prior five (5) year contract anniversary on or before
your or your joint owner's 80th birthday, plus any purchase payments made
after that contract anniversary, less any withdrawals (and any withdrawal
charges paid on the withdrawals) made after that contract anniversary.
DEATH BENEFIT OPTION C
Prior to you, or your joint owner, reaching age 80, the death benefit will be
the greatest of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals); or
2. The value of your contract at the time the death benefit is to be paid; or
3. The greatest adjusted contract value (GACV) (as explained below).
The GACV is initially the death benefit determined as of the day Cova receives
notice that you have elected this death benefit option. This figure is based on
your existing death benefit as defined in your contract, Option D (not as
defined in the endorsement for this option). The GACV is then evaluated at each
subsequent contract anniversary prior to your or your joint owner's death and on
each subsequent day a purchase payment or withdrawal is made. On the contract
anniversary, if the current contract value is greater than the GACV, the GACV
will be increased to the current value of your contract. If a purchase payment
is made, the amount of the purchase payment will increase the GACV. If a
withdrawal is made, the GACV will be reduced by the amount withdrawn (and any
associated withdrawal charges) divided by the value of your contract immediately
before the withdrawal multiplied by the GACV immediately prior to the
withdrawal. The example above under Death Benefit Option A explains the effect
of a withdrawal on the GACV under this death benefit option.
After you, or your joint owner, reaches age 80, the death benefit will be the
greatest of:
1. Total purchase payments made, less any withdrawals (and any withdrawal
charges paid on the withdrawals); or
2. The value of your contract at the time the death benefit is to be paid; or
3. The greatest adjusted contract value (GACV) (as explained below).
The GACV is initially the death benefit determined as of the day Cova receives
notice that you have elected this death benefit option. This figure is based on
your existing death benefit as defined in your contract, Option D (not as
defined in the endorsement for this option). The GACV is then evaluated at each
subsequent contract anniversary on or before your, or your joint owner's, 80th
birthday, and on each subsequent day a purchase payment or withdrawal is made.
On the contract anniversary on or before your, or your joint owner's, 80th
birthday, if the current contract value is greater than the GACV, the GACV will
be increased to the current value of your contract. If a purchase payment is
made, the amount of the purchase payment will increase the GACV. If a withdrawal
is made, the GACV will be reduced by the sum of the amount withdrawn (and any
associated withdrawal charges) divided by the value of your contract immediately
before the withdrawal, multiplied by the GACV immediately prior to the
withdrawal. The example above under Death Benefit Option A explains the effect
of a withdrawal on the GACV under this death benefit option.
DEATH BENEFIT OPTION D
In certain states, the Death Benefit Options described above may not be
available, in which case you will have Death Benefit Option D. When your state
approves the endorsements for Option A or C and Option B, your death benefit
will change. See the section above for details.
Prior to you, or your joint owner, reaching 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) accumulated at an annual rate of 4% from the date
your contract was issued until the date of death; or
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent five year anniversary 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) accumulated at an annual rate of 4% from the date
your contract was issued until you or your joint owner reaches age 80, plus
any subsequent purchase payments, less any withdrawals (and any withdrawal
charges paid on the withdrawals); or
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent five year anniversary 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).
CHECK YOUR CONTRACT AND APPLICABLE ENDORSEMENT FOR YOUR DEATH BENEFIT.
The entire death benefit must be paid within 5 years of the date of death unless
the beneficiary elects to have the death benefit payable under an annuity
option. The death benefit payable under an annuity option must be paid over the
beneficiary's lifetime or for a period not extending beyond the beneficiary's
life expectancy. Payment must begin within one year of the date of death. If the
beneficiary is the spouse of the owner, he/she can continue the contract in
his/her own name at the then current value. If a lump sum payment is elected and
all the necessary requirements are met, the payment will be made within 7 days.
Death of Annuitant
If the annuitant, not an owner or joint owner, dies before annuity payments
begin, you can name a new annuitant. If no annuitant is named within 30 days of
the death of the annuitant, you will become the annuitant. However, if the owner
is a non-natural person (for example, a corporation), then the death or change
of annuitant will be treated as the death of the owner, and a new annuitant may
not be named.
Upon the death of the annuitant after annuity payments begin, the death benefit,
if any, will be as provided for in the annuity option selected.
10. OTHER INFORMATION
Cova
Cova Financial Life Insurance Company ("Cova") was originally incorporated on
September 6, 1972 as Industrial Indemnity Life Insurance Company, a California
corporation and changed its name to Xerox Financial Life Insurance Company in
1986. On June 1, 1995, a wholly-owned subsidiary of General American Life
Insurance Company purchased Cova which on that date changed its name to Cova
Financial Life Insurance Company.
Cova is presently licensed to do business in the state of California.
The Separate Account
Cova has established a separate account, Cova Variable Annuity Account Five
(Separate Account), to hold the assets that underlie the contracts. The Board of
Directors of Cova adopted a resolution to establish the Separate Account under
California insurance law on March 24, 1992. We have registered the Separate
Account with the Securities and Exchange Commission as a unit investment trust
under the Investment Company Act of 1940.
The assets of the Separate Account are held in Cova's name on behalf of the
Separate Account and legally belong to Cova. However, those assets that underlie
the contracts, are not chargeable with liabilities arising out of any other
business Cova may conduct. All the income, gains and losses (realized or
unrealized) resulting from these assets are credited to or charged against the
contracts and not against any other contracts Cova may issue.
Distributor
Cova Life Sales Company (Life Sales), One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644, acts as the distributor of the contracts. Life
Sales is an affiliate of Cova.
Commissions will be paid to broker-dealers who sell the contracts.
Broker-dealers will be paid commissions up to 5.5% of purchase payments but,
under certain circumstances, may be paid 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.
Ownership
Owner. You, as the owner of the contract, have all the rights under the
contract. Prior to the annuity date, the owner is as designated at the time the
contract is issued, unless changed. On and after the annuity date, the annuitant
is the owner. The beneficiary becomes the owner when a death benefit is payable.
Joint Owner. The contract can be owned by joint owners. Any joint owner must be
the spouse of the other owner. Upon the death of either joint owner, the
surviving spouse will be the designated beneficiary. Any other beneficiary
designation at the time the contract was issued or as may have been later
changed will be treated as a contingent beneficiary unless otherwise indicated.
Beneficiary
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued unless
changed at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before you die.
Assignment
You can assign the contract at any time during your lifetime. Cova will not be
bound by the assignment until it receives the written notice of the assignment.
Cova will not be liable for any payment or other action we take in accordance
with the contract before we receive notice of the assignment. AN ASSIGNMENT MAY
BE A TAXABLE EVENT.
If the contract is issued pursuant to a qualified plan, there may be limitations
on your ability to assign the contract.
Suspension of Payments or Transfers
Cova may be required to suspend or postpone payments for withdrawals or
transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the
investment portfolios is not reasonably practicable or Cova cannot
reasonably value the shares of the investment portfolios;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of owners.
Cova has reserved the right to defer payment for a withdrawal or transfer from
the fixed account for the period permitted by law but not for more than six
months.
Financial Statements
The consolidated financial statements of Cova and the Separate Account have been
included in the Statement of Additional Information.
Table of Contents of the
Statement of Additional Information
Company
Experts
Legal Opinions
Distribution
Performance Information
Federal Tax Status
Annuity Provisions
Financial Statements
APPENDIX A
CONDENSED FINANCIAL INFORMATION
Accumulation Unit Value History
The following schedule includes accumulation unit values for the periods
indicated. This data has been extracted from the Separate Account's Financial
Statements. This information should be read in conjunction with the Separate
Account's Financial Statements and related notes which are included in the
Statement of Additional Information.
<TABLE>
<CAPTION>
Period from Commencement
Year or Period Year or Period of Operations
Ended 12/31/97 Ended 12/31/96 through 12/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Cova Series Trust
Managed by Lord Abbett & Co.
Bond Debenture Sub-Account
<S> <C> <C>
Beginning of Period $11.30 $10.15 *
End of Period $12.88 11.30
Number of Accum. Units
Outstanding 347,400 39,545
- ------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Sub-Account
Beginning of Period $10.05 * *
End of Period $10.47
Number of Accum. Units
Outstanding 8,510
Developing Growth Sub-Account
Beginning of Period $10.83 * *
End of Period $10.53
Number of Accum. Units
Outstanding 6,039
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* The Lord Abbett Series Fund, Inc. Growth and Income Portfolio started regular
investment operations on July 20, 1995 and the Quality Bond Portfolio started
regular investment operations on August 16, 1995. The accumulation unit values
shown for the beginning of the period for the Select Equity, Small Cap Stock,
Large Cap Stock, International Equity, Quality Bond and Bond Debenture
Portfolios reflect the dates these investment portfolios were first offered for
sale to the public which were as follows: May 15, 1996 for the Select Equity and
Small Cap Stock Portfolios; May 16, 1996 for the Large Cap Stock Portfolio; May
14, 1996 for the International Equity Portfolio; May 20, 1996 for the Quality
Bond and Bond Debenture Portfolios; and November 7, 1997 for the Developing
Growth and Mid-Cap Value Portfolios. The accumulation unit values for the
beginning of the period for the General American Capital Company Money Market
Sub-Account reflect the date they were first offered for sale under the
contracts which was on December 4, 1997. The Separate Account had not invested
in the following Portfolios which are advised by Lord, Abbett & Co. as of
December 31, 1997: Large Cap Research and Lord Abbett Growth and Income.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Accumulation Unit Value History (continued)
Period from Commencement
Year or Period Year or Period of Operations
Ended 12/31/97 Ended 12/31/96 through 12/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Managed by J.P. Morgan
Investment Management Inc.
Select Equity Sub-Account
<S> <C> <C>
Beginning of Period $10.84 $10.15 *
End of Period $14.05 10.84
Number of Accum. Units
Outstanding 700,550 185,509
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Stock Sub-Account
Beginning of Period $11.31 $10.91
End of Period $13.49 11.31
Number of Accum. Units
Outstanding 487,580 113,118
International Equity Sub-Account
Beginning of Period $10.97 $10.10 *
End of Period $11.46 10.97
Number of Accum. Units
Outstanding 554,105 124,032
Quality Bond Sub-Account
Beginning of Period $10.37 $ 9.95 *
End of Period $11.16 10.37
Number of Accum. Units
Outstanding 234,643 64,534
- ------------------------------------------------------------------------------------------------------------------------------------
Large Cap Stock Sub-Account
Beginning of Period $11.34 $10.16 *
End of Period $14.89 11.34
Number of Accum. Units
Outstanding 686,677 126,231
- ------------------------------------------------------------------------------------------------------------------------------------
Lord Abbett Series Fund, Inc.
Growth and Income Sub-Account
Beginning of Period $25.09 $21.31 $19.54
End of Period $30.84 25.09 21.31
Number of Accum. Units Outstanding 791,310 375,304 125,555
- ------------------------------------------------------------------------------------------------------------------------------------
General American Capital Company
Money Market Sub-Account
Beginning of Period $10.63 * *
End of Period $10.67
Number of Accum. Units Outstanding 14,091
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* The Lord Abbett Series Fund, Inc. Growth and Income Portfolio started regular
investment operations on July 20, 1995 and the Quality Bond Portfolio started
regular investment operations on August 16, 1995. The accumulation unit values
shown for the beginning of the period for the Select Equity, Small Cap Stock,
Large Cap Stock, International Equity, Quality Bond and Bond Debenture
Portfolios reflect the dates these investment portfolios were first offered for
sale to the public which were as follows: May 15, 1996 for the Select Equity and
Small Cap Stock Portfolios; May 16, 1996 for the Large Cap Stock Portfolio; May
14, 1996 for the International Equity Portfolio; May 20, 1996 for the Quality
Bond and Bond Debenture Portfolios; and November 7, 1997 for the Developing
Growth and Mid-Cap Value Portfolios. The accumulation unit values for the
beginning of the period for the General American Capital Company Money Market
Sub-Account reflect the date they were first offered for sale under the
contracts which was on December 4, 1997. The Separate Account had not invested
in the following Portfolios which are advised by Lord, Abbett & Co. as of
December 31, 1997: Large Cap Research and Lord Abbett Growth and Income.
</FN>
</TABLE>
APPENDIX B
PERFORMANCE INFORMATION
Future performance will vary and the results shown are not necessarily
representative of future results.
Part 1
J.P. Morgan Investment Management Inc. is the sub-adviser to the following
portfolios of Cova Series Trust: Select Equity, Small Cap Stock, International
Equity, Quality Bond and Large Cap Stock. Lord, Abbett & Co. is the sub-adviser
for the following portfolios of Cova Series Trust: Bond Debenture, Mid-Cap
Value, Large Cap Research and Developing Growth. Lord, Abbett & Co. is the
investment adviser for Lord Abbett Series Fund, Inc. Growth and Income
Portfolio. Conning Asset Management Company is the adviser for General American
Capital Company Money Market Fund. All of these portfolios began operations
before May 1, 1998. As a result, performance information is available for the
accumulation unit values investing in these portfolios.
Column A presents performance figures for the accumulation units which reflect
the insurance charges as well as the fees and expenses of the investment
portfolio. Column B presents performance figures for the accumulation units
which reflect the insurance charges, the contract maintenance charge, the fees
and expenses of the investment portfolio, and assume that you make a withdrawal
at the end of the period and therefore the withdrawal charge is reflected. The
inception dates shown below reflect the dates the Separate Account first
invested in the Portfolio.
<TABLE>
<CAPTION>
Part 1 Cova Series Trust
Average Annual Total Return for the periods ended 12/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects insurance charges (reflects all charges
and portfolio expenses) and portfolio expenses)
- ------------------------------------------------------------------------------------------------------------------------------------
Separate Account Inception Since Since
Portfolio Date in Portfolio 1 yr Inception 1 yr Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Select Equity 5/15/96 29.67% 22.08% 24.47% 19.23%
Small Cap Stock 5/15/96 19.31% 13.94% 14.12% 10.98%
International Equity 5/14/96 4.52% 8.07% (0.64)% 5.07%
Quality Bond 5/20/96 7.58% 7.32% 2.43% 4.28%
Large Cap Stock 5/16/96 31.36% 26.51% 26.15% 23.69%
Bond Debenture 5/20/96 14.05% 15.91% 8.87% 12.97%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Part 1 Lord Abbett Series Fund, Inc.
Average Annual Total Return for the periods ended 12/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects insurance charges (reflects all charges
and portfolio expenses) and portfolio expenses)
- ------------------------------------------------------------------------------------------------------------------------------------
Separate Account Inception Since Since
Portfolio Date in Portfolio 1 yr Inception 1 yr Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income 7/20/95 22.91% 20.45% 17.48% 18.53%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Part 1 General American Capital Company Money Market Fund
Average Annual Total Return for the periods ended 12/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column A Column B
(reflects insurance charges (reflects all charges
and portfolio expenses) and portfolio expenses)
- ------------------------------------------------------------------------------------------------------------------------------------
Separate Account Inception
Portfolio Date in Portfolio Since Inception Since Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 12/4/97 .34% (4.81)%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PART 2
Shares of the General American Capital Company Money Market Fund were made
available under the contract on May 1, 1997. Shares of the Select Equity, Small
Cap Stock, International Equity, Quality Bond, Large Cap Stock and Bond
Debenture Portfolios of Cova Series Trust were offered under the contracts on
May 1, 1996 and shares of the Mid-Cap Value, Large Cap Research and Developing
Growth Portfolios of Cova Series Trust were offered under the contracts on
November 15, 1997. However, certain Portfolios have been in existence for a
longer time and therefore have an investment performance history. In order to
show how the historical performance of the Portfolios affects accumulation unit
values, we have developed performance information.
The chart below shows the investment performance of the Portfolios and the
accumulation unit performance calculated by assuming that accumulation units
were invested in the Portfolios for the same periods.
The performance figures in Column A for the Portfolios reflect the fees and
expenses paid by the Portfolios. Column B presents performance figures for the
accumulation units which reflect the insurance charges as well as the fees and
expenses of the Portfolios. Column C presents performance figures for the
accumulation units which reflect the insurance charges, the contract maintenance
charge, the fees and expenses of the Portfolios, and assumes that you make a
withdrawal at the end of the period and therefore the withdrawal charge is
reflected.
<TABLE>
<CAPTION>
Part 2 Cova Series Trust
Total Return for the periods ended 12/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column B Column C
Column A (reflects insurance charges (reflects all charges
Portfolio Performance and portfolio expenses) and portfolio expenses)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio
Portfolio Inception since since since
Date 1 yr inception 1 yr inception 1 yr inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Select Equity 5/1/96 31.55% 23.74% 29.67% 21.97% 24.48% 19.33%
Small Cap Stock 5/1/96 20.89% 17.72% 19.31% 16.10% 14.12% 13.38%
International Equity 5/1/96 5.96% 8.67% 4.52% 7.14% (0.64)% 4.31%
Quality Bond 5/1/96 9.06% 8.87% 7.58% 7.42% 2.43% 4.60%
Large Cap Stock 5/1/96 33.25% 28.66% 31.36% 26.87% 26.15% 24.29%
Bond Debenture 5/1/96 15.63% 17.28% 14.05% 15.69% 8.87% 12.97%
Mid-Cap Value 8/20/97 - - 4.90% - - 4.68% - - (0.54)%
Large Cap Research 8/20/97 - - (0.74)% - - (1.00)% - - (6.21)%
Developing Growth 8/20/97 - - 5.52% - - 5.28% - - 0.06%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Part 2 General American Capital Company Money Market Fund
Total Return for the periods ended 12/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column B Column C
Column A (reflects insurance charges (reflects all charges
Portfolio Performance and portfolio expenses) and portfolio expenses)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio
Portfolio Inception
Date 1 yr 5 yrs. 10 yrs. 1 yr 5 yrs. 10 yrs. 1 yr 5 yrs. 10 yrs.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market 10/1/87 5.71% 4.89% 5.99% 4.31% 3.49% 4.59% (0.79)% (1.11)% 4.49%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Part 2 Lord Abbett Series Fund, Inc.
Total Return for the periods ended 12/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Performance
Column B Column C
Column A (reflects insurance charges (reflects all charges
Portfolio Performance and portfolio expenses) and portfolio expenses)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio
Portfolio Inception since since since
Date 1 yr 5 yrs. inception 1 yr 5 yrs. inception 1 yr 5 yrs. inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income 12/11/89 24.30% 17.90% 16.60% 22.91% 16.28% 14.99% 17.48% 15.25% 14.59%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 May
1, 1998 for The Annuity Contract issued by Cova.
(Please print or type and fill in all information)
................................................................................
Name
................................................................................
Address
................................................................................
City State Zip Code
CC-851 (5/98) COVA VA
