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 MAY 1, 1999 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 MAY 1, 1999.
TABLE OF CONTENTS
Page
COMPANY .................................................................. 3
EXPERTS .................................................................. 3
LEGAL OPINIONS............................................................. 3
DISTRIBUTION............................................................... 3
Reduction or Elimination of the Withdrawal Charge................. 4
CALCULATION OF PERFORMANCE INFORMATION..................................... 4
Total Return...................................................... 4
Historical Unit Values............................................ 5
Reporting Agencies................................................ 6
Performance Information........................................... 7
FEDERAL TAX STATUS......................................................... 7
General ......................................................... 7
Diversification................................................... 8
Multiple Contracts............................................... 10
Contracts Owned by Other than Natural Persons.................... 10
Tax Treatment of Assignments or Transfer of Ownership............ 10
Income Tax Withholding........................................... 10
Tax Treatment of Withdrawals - Non-Qualified Contracts........... 11
Qualified Plans.................................................. 11
Tax Treatment of Withdrawals - Qualified Contracts............... 14
Tax Sheltered Annuities - Withdrawal Limitations................. 16
ANNUITY PROVISIONS........................................................ 16
Variable Annuity................................................. 16
Fixed Annuity.................................................... 17
Annuity Unit Value............................................... 17
Net Investment Factor............................................ 17
Mortality and Expense Guarantee.................................. 17
FINANCIAL STATEMENTS...................................................... 17
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 $300 billion
of life insurance in force and approximately $24 billion in assets. It provides
life and health insurance, retirement plans, and related financial services to
individuals and groups.
EXPERTS
The balance sheets of the Company as of December 31, 1998 and 1997, and the
related statements of income, shareholder's equity, and cash flows for each of
the years in the three-year period ended December 31, 1998, and the statement of
assets and liabilities of the Separate Account as of December 31, 1998, and the
related statement of operations for the year then ended and the statements of
changes in net assets for the two years then ended, have been included herein in
reliance upon the reports of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
DISTRIBUTION
Cova Life Sales Company ("Life Sales") acts as the distributor. Prior to June 1,
1995, Cova Life Sales Company was known as Xerox Life Sales Company. Life Sales
is an affiliate of the Company. The offering is on a continuous basis.
Reduction or Elimination of the 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.
CALCULATION OF PERFORMANCE INFORMATION
Total Return
From time to time, the Company may advertise performance data. Such data will
show the percentage change in the value of an Accumulation Unit based on the
performance of an investment portfolio over a period of time, usually a calendar
year, determined by dividing the increase (decrease) in value for that unit by
the Accumulation Unit value at the beginning of the period.
Any such advertisement will include total return figures for the time periods
indicated in the advertisement. Such total return figures will reflect the
deduction of a 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
Withdrawal Charge. The deduction of any Withdrawal Charge would reduce any
percentage increase or make greater any percentage decrease.
You should note that the investment results of each investment portfolio will
fluctuate over time, and any presentation of the investment portfolio's total
return for any period should not be considered as a representation of what an
investment may earn or what your total return may be in any future period.
Historical Unit Values
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the investment
portfolios against established market indices such as the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average or other
management investment companies which have investment objectives similar to the
investment portfolio being compared. The Standard & Poor's 500 Composite Stock
Price Index is an unmanaged, unweighted average of 500 stocks, the majority of
which are listed on the New York Stock Exchange. The Dow Jones Industrial
Average is an unmanaged, weighted average of thirty blue chip industrial
corporations listed on the New York Stock Exchange. Both the Standard & Poor's
500 Composite Stock Price Index and the Dow Jones Industrial Average assume
quarterly reinvestment of dividends.
Reporting Agencies
The Company may also distribute sales literature which compares the performance
of the Accumulation Unit values of the Contracts with the unit values of
variable annuities issued by other insurance companies. Such information will be
derived from the Lipper Variable Insurance Products Performance Analysis
Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is published
by Lipper Analytical Services, Inc., a publisher of statistical data which
currently tracks the performance of almost 4,000 investment companies. The
rankings compiled by Lipper may or may not reflect the deduction of asset-based
insurance charges. The Company's sales literature utilizing these rankings will
indicate whether or not such charges have been deducted. Where the charges have
not been deducted, the sales literature will indicate that if the charges had
been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect the
deduction of asset-based insurance charges. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparison, such as
CDA/Weisenberger.
Morningstar rates a variable annuity against its peers with similar investment
objectives. Morningstar does not rate any variable annuity that has less than
three years of performance data.
Performance Information
Certain Portfolios have been in existence for some time and consequently have an
investment performance history. In order to demonstrate how investment
experience of certain portfolios affect Accumulation Unit values, performance
information was developed. The information is based upon the historical
experience of the portfolios and is for the periods shown. The prospectus
contains 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 of the portfolios 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.
FEDERAL TAX STATUS
General
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. The Company does not guarantee the tax status of the contracts.
Purchasers bear the complete risk that the contracts may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described herein may be applicable in certain situations. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs
taxation of annuities in general. An Owner is not taxed on increases in the
value of a Contract until distribution occurs, either in the form of a lump sum
payment or as annuity payments under the Annuity Option selected. For a lump sum
payment received as a total withdrawal (total surrender), the recipient is taxed
on the portion of the payment that exceeds the cost basis of the Contract. For
Non-Qualified Contracts, this cost basis is generally the purchase payments,
while for Qualified Contracts there may be no cost basis. The taxable portion of
the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period or refund feature) bears
to the expected return under the Contract. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the Contract has been recovered (i.e. when the total of the
excludable amount equals the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Owners, Annuitants and Beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from
the Company, and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in the imposition of federal income
tax to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contract meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas.
Reg.1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contract. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all investment portfolios underlying the Contracts will
be managed in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owners being
retroactively determined to be the owners of the assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Owners should consult a tax adviser prior to purchasing more than one non-
qualified annuity contract in any calendar year.
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 or Transfer of Ownership
An assignment, pledge or transfer of ownership of a Contract may be a taxable
event. Owners should therefore consult competent tax advisers should they wish
to assign, pledge or transfer ownership of 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); or d) hardship withdrawals. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
Tax Treatment of Withdrawals - Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of the
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his or her Beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Qualified Plans
The Contracts offered herein are designed to be suitable for use under various
types of Qualified Plans. Taxation of participants in each Qualified Plan varies
with the type of plan and terms and conditions of each specific plan. Owners,
Annuitants and Beneficiaries are cautioned that benefits under a Qualified Plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Contracts issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. 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. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employees until the
employees receive distributions from the Contracts. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations" below.) Employee loans are not allowable under the
Contracts. Any employee should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
b. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's taxable income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as Individual Retirement Annuities should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 59 1/2, on the individual's death or disability, or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year period beginning
with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
c. Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including self-
employed individuals, to establish various types of retirement plans for
employees. These retirement plans may permit the purchase of the Contracts to
provide benefits under the Plan. Contributions to the Plan for the benefit of
employees will not be includible in the gross income of the employees until
distributed from the Plan. The tax consequences to participants may vary
depending upon the particular plan design. However, the Code places limitations
and restrictions on all Plans including on such items as: amount of allowable
contributions; form, manner and timing of distributions; transferability of
benefits; vesting and nonforfeitability of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders. (See "Tax Treatment of Withdrawals - Qualified
Contracts" below.) Purchasers of Contracts for use with Pension or Profit
Sharing Plans should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
Tax Treatment of Withdrawals - Qualified Contracts
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b) (Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been rolled over to an IRA or to another eligible Qualified Plan, no
tax penalty will be imposed. The tax penalty will not apply to the following
distributions: (a) if distribution is made on or after the date on which the
Owner or Annuitant (as applicable) reaches age 59 1/2; (b) distributions
following the death or disability of the Owner or Annuitant (as applicable) (for
this purpose disability is as defined in Section 72(m)(7) of the Code); (c)
after separation from service, distributions that are part of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the Owner or Annuitant (as applicable) or the joint lives
(or joint life expectancies) of such Owner or Annuitant (as applicable) and his
or her designated Beneficiary; (d) distributions to an Owner or Annuitant (as
applicable) who 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 or Annuitant (as applicable) to the extent
such distributions do not exceed the qualified higher education expenses (as
defined in Section 72(t)(7) of the Code) of the Owner or Annuitant (as
applicable) for the taxable year; and (i) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8) of
the Code). The exceptions stated in (d) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in (c) above applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
Generally, distributions from a qualified plan must 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 transfers between Tax-Sheltered Annuity Plans. Owners should consult
their own tax counsel or other tax adviser regarding any distributions.
ANNUITY PROVISIONS
Variable Annuity
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable investment portfolio(s) of the Separate Account. At the
Annuity Date, the Contract Value in each investment portfolio will be applied to
the applicable Annuity Tables. The Annuity Table used will depend upon the
Annuity Option chosen. 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:
(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.
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 Value
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:
(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.
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
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Contract Owners of Cova Variable Annuity Account Five, Board of
Directors and Shareholder of Cova Financial Life Insurance Company:
We have audited the accompanying statement of assets and liabilities of the
Quality Income, Money Market, Stock Index, Growth and Income, Bond
Debenture, Developing Growth, Large Cap Research, Mid-Cap Value, Quality
Bond, Small Cap Stock, Large Cap Stock, Select Equity, and International
Equity sub-accounts (investment options within the Cova Series Trust); the
Growth and Income sub-account (investment option within the Lord Abbett
Series Fund, Inc.); the Money Market sub-account (investment option within
the General American Capital Company); the Multi-Style Equity, Aggressive
Equity, Non-US, and Core Bond sub-accounts (investment options within the
Russell Insurance Funds); the AIM V.I. Value, AIM V.I. Capital
Appreciation, and AIM V.I. International Equity sub-accounts (investment
options within the AIM Variable Insurance Funds, Inc.); the Premier Growth
and Real Estate Investment sub-accounts (investment options within the
Alliance Variable Products Series Fund, Inc.); the Newport Tiger
sub-account (investment option within the Liberty Variable Investment
Trust); the Growth and Income, International Equity, and Global Income
sub-accounts (investment options within the Goldman Sachs Variable
Insurance Trust); the Kemper-Dreman High Return Equity, Kemper Small Cap
Growth, Kemper Small Cap Value, and Kemper Government Securities
sub-accounts (investment options within the Investors Fund Series); the MFS
Bond, MFS Research, MFS Growth with Income, MFS Emerging Growth,
MFS/Foreign & Colonial Emerging Markets Equity, MFS High Income, and MFS
World Governments sub-accounts (investment options within the MFS Variable
Insurance Trust); the Oppenheimer Growth, Oppenheimer Growth & Income,
Oppenheimer High Income, Oppenheimer Bond, and Oppenheimer Strategic Bond
sub-accounts (investment options within the Oppenheimer Variable Account
Funds); the Putnam Growth and Income, Putnam New Value, Putnam Vista,
Putnam International Growth, and Putnam International New Opportunities
(investment options within the Putnam Variable Trust); the Templeton
International, Templeton Developing Markets, and Mutual Shares Investments
(investment options within the Templeton Variable Products Series Fund) and
Growth, Contrafund, Growth Opportunities, Growth & Income, and
Equity-Income sub-accounts (investment options within the Variable
Insurance Products Fund, Fund II, and Fund III) of Cova Variable Annuity
Account Five of Cova Financial Life Insurance Company (the Separate
Account) as of December 31, 1998, and the related statement of operations
for the year then ended and the statements of changes in net assets for the
two years then ended. These financial statements are the responsibility of
the Separate Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with transfer agents. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the sub-accounts of
Cova Variable Annuity Account Five of Cova Financial Life Insurance Company
as of December 31, 1998, and the results of their operations and the
changes in their net assets for each of the years presented, in conformity
with generally accepted accounting principles.
Chicago, Illinois
March 1, 1999
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Assets and Liabilities
December 31, 1998
<S> <C>
Assets:
Investments:
Cova Series Trust (Trust):
Quality Income Portfolio - 70,231 shares at a net asset value of $10.99 per share (cost: $ 771,521
$752,312)
Money Market Portfolio - 267,480 shares at a net asset value of $1.00 per share (cost: 267,480
$267,480)
Stock Index Portfolio - 103,701 shares at a net asset value of $22.24 per share (cost: 2,306,502
$1,814,789)
VKAC Growth and Income Portfolio - 118,981 shares at a net asset value of $17.81 per share 2,118,735
(cost: $1,802,450)
Bond Debenture Portfolio - 743,132 shares at a net asset value of $12.38 per share (cost: 9,200,594
$8,927,195)
Developing Growth Portfolio - 69,838 shares at a net asset value of $11.24 per share (cost: 785,026
$727,393)
Large Cap Research Portfolio - 49,317 shares at a net asset value of $11.96 per share 590,045
(cost: $537,947)
Mid-Cap Value Portfolio - 84,292 shares at a net asset value of $10.58 per share (cost: 892,031
$877,515)
Quality Bond Portfolio - 541,754 shares at a net asset value of $11.02 per share (cost: 5,969,934
$5,715,813)
Small Cap Stock Portfolio - 697,228 shares at a net asset value of $11.98 per share (cost: 8,354,398
$8,357,230)
Large Cap Stock Portfolio - 1,214,540 shares at a net asset value of $18.12 per share 22,001,488
(cost: $17,283,927)
Select Equity Portfolio - 1,112,492 shares at a net asset value of $16.08 per share (cost: 17,884,756
$14,721,013)
International Equity Portfolio - 781,347 shares at a net asset value of $12.86 per share 10,045,997
(cost: $9,127,009)
Lord Abbett Series Fund, Inc. (Lord
Abbett):
Growth and Income Portfolio - 1,796,658 shares at a net asset value of $20.65 per share 37,099,191
(cost: $34,316,395)
General American Capital Company
(GACC):
Money Market Portfolio - 74,779 shares at a net asset value of $19.25 per share (cost: 1,439,559
$1,430,813)
Russell Insurance Funds
(Russell):
Multi-Style Equity Fund - 38,483 shares at a net asset value of $16.02 per share (cost: 616,495
$579,110)
Aggressive Equity Fund - 6,813 shares at a net asset value of $12.70 per share (cost: 86,528
$88,281)
Non-US Fund - 18,412 shares at a net asset value of $11.09 per share 204,193
(cost: $202,349)
Core Bond Fund - 61,219 shares at a net asset value of $10.68 per share 653,821
(cost: $650,278)
AIM Variable Insurance Funds, Inc.
(AIM):
AIM V.I. Value Fund - 1,427 shares at a net asset value of $26.25 per share (cost: $36,084) 37,460
AIM V.I. Capital Appreciation Fund - 2,608 shares at a net asset value of $25.20 per share 65,734
(cost: $60,348)
AIM V.I. International Equity Fund - 8,880 shares at a net asset value of $19.62 per share 174,220
(cost: $180,444)
Alliance Variable Products Series Fund, Inc.
(Alliance):
Premier Growth Portfolio - 29,623 shares at a net asset value of $31.03 per share (cost: 919,211
$800,697)
Real Estate Investment Portfolio - 18,061 shares at a net asset value of $9.78 per share 176,632
(cost: $193,823)
Liberty Variable Investment Trust
(Liberty):
Newport Tiger Fund, Variable Series - 14,183 shares at a net asset value of $1.57 per share 22,267
(cost: $19,524)
Goldman Sachs Variable Insurance Trust
(Goldman Sachs):
Growth and Income Fund - 12,433 shares at a net asset value of $10.45 per share (cost: 129,922
$141,135)
International Equity Fund - 15,202 shares at a net asset value of $11.91 per share (cost: 181,060
$178,340)
Global Income Fund - 3,147 shares at a net asset value of $10.32 per 32,473
share (cost: $32,660)
Investors Fund Series
(Kemper):
Kemper Dreman High Return Equity Portfolio - 102 shares at a net asset value of $1.03 per 105
share (cost: $100)
Kemper Small Cap Growth Portfolio - 22,750 shares at a net asset value of $1.97 per share 44,868
(cost: $40,879)
Kemper Small Cap Value Portfolio - 137,341 shares at a net asset value of $1.07 per share 146,329
(cost: $160,309)
Kemper Government Securities Portfolio - 22,204 shares at a net asset value of $1.21 per 26,826
share (cost: $26,620)
MFS Variable Insurance Trust (MFS):
MFS Bond Series - 9 shares at a net asset value of $11.38 per share 105
(cost: $100)
MFS Research Series - 16,619 shares at a net asset value of $19.05 per share (cost: 316,596
$292,024)
MFS Growth with Income Series - 38,905 shares at a net asset value of $20.11 per share 782,388
(cost: $727,399)
MFS Emerging Growth Series - 29,432 shares at a net asset value of $21.47 per share (cost: 631,907
$544,333)
MFS / Foreign & Colonial Emerging
Markets Equity Series - 4,723 shares at a net asset value of $5.90 per share (cost: 27,866
$35,551)
MFS High Income Series - 11,190 shares at a net asset value of $11.53 per share (cost: 129,019
$131,644)
MFS World Governments Series - 377 shares at a net asset value of $10.88 per share (cost: 4,100
$3,911)
Oppenheimer Variable Account Funds
(Oppenheimer):
Oppenheimer Growth Fund - 1,682 shares at a net asset value of $36.67 per share (cost: 61,672
$52,315)
Oppenheimer Growth & Income Fund - 7,514 shares at a net asset value of $20.48 per share 153,890
(cost: $154,661)
Oppenheimer High Income Fund - 9,471 shares at a net asset value of $11.02 per share (cost: 104,368
$106,439)
Oppenheimer Bond Fund - 39,722 shares at a net asset value of $12.32 per share (cost: 489,369
$476,866)
Oppenheimer Strategic Bond Fund - 5,328 shares at a net asset value of $5.12 per share 27,280
(cost: $27,409)
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Assets and Liabilities
December 31, 1998
<S> <C>
Assets, continued:
Investments,
continued:
Putnam Variable Trust
(Putnam):
Putnam Growth and Income Fund - 31,755 shares at a net asset value of $28.77 per share $ 913,589
(cost: $868,940)
Putnam New Value Fund - 1,922 shares at a net asset value of $12.03 per share (cost: 23,120
$22,260)
Putnam Vista Fund - 5,452 shares at a net asset value of $14.72 per 80,256
share (cost: $72,441)
Putnam International Growth Fund - 49,076 shares at a net asset value of $13.52 per share 663,511
(cost: $665,808)
Putnam International New
Opportunities
Fund - 4,754 shares at a net asset value of $11.49 per share 54,628
(cost: $54,329)
Templeton Variable Products Series Fund
(Templeton):
Templeton International Fund - 2,937 shares at a net asset value of $20.69 per share (cost: 60,769
$56,058)
Templeton Developing Markets Fund - 10,379 shares at a net asset value of $5.13 per share 53,242
(cost: $49,672)
Mutual Shares Investments Fund - 937 shares at a net asset value of $9.72 per share (cost: 9,108
$8,845)
Variable Insurance Products Fund, Fund II, and Fund
III (Fidelity):
Growth Portfolio - 148 shares at a net asset value of $44.87 per share 6,637
(cost: $5,519)
Contrafund Portfolio - 40 shares at a net asset value of $24.44 per 976
share (cost: $877)
Growth Opportunities Portfolio - 59 shares at a net asset value of $22.88 per share (cost: 1,345
$1,326)
Growth & Income Portfolio - 1,584 shares at a net asset value of $16.15 per share (cost: 25,582
$21,798)
Equity-Income Portfolio - 325 shares at a net asset value of $25.42 per 8,251
share (cost: $7,616)
----------
Total $ 127,874,975
assets
==========
Liabilities:
Trust Quality Income $ 30
Trust Money Market 10
Trust Stock 89
Index
Trust VKAC Growth and Income 81
Trust Bond Debenture 352
Trust Developing 29
Growth
Trust Large Cap 23
Research
Trust Mid-Cap Value 34
Trust Quality 229
Bond
Trust Small Cap Stock 312
Trust Large Cap Stock 843
Trust Select 683
Equity
Trust International 385
Equity
Lord Abbett Growth and Income 1,423
GACC Money Market 54
Russell Multi-Style 22
Equity
Russell Aggressive 3
Equity
Russell Non-US 7
Russell Core 23
Bond
AIM Value 1
AIM Capital 2
Appreciation
AIM International 7
Equity
Alliance Premier 35
Growth
Alliance Real Estate 7
Investment
Liberty Newport Tiger 25
Goldman Sachs Growth and 5
Income
Goldman Sachs International 7
Equity
Goldman Sachs Global Income 1
Kemper Small Cap 111
Growth
Kemper Small Cap 386
Value
Kemper Government Securities 40
MFS Research 12
MFS Growth with 30
Income
MFS Emerging Growth 24
MFS / F&C Emerging Markets Equity 1
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Assets and Liabilities
December 31, 1998
<S> <C>
Liabilities,
continued:
MFS High Income $ 5
Oppenheimer Growth 2
Oppenheimer Growth & Income 6
Oppenheimer High 4
Income
Oppenheimer 19
Bond
Oppenheimer Strategic Bond 1
Putnam Growth and Income 35
Putnam New 1
Value
Putnam Vista 3
Putnam International Growth 25
Putnam International New Opportunities 2
Templeton 138
International
Templeton Developing Markets 93
Templeton Mutual Shares Investments 3
Fidelity VIP 14
Growth
Fidelity VIP II 1
Contrafund
Fidelity VIP III Growth & 58
Income
Fidelity VIP 12
Equity-Income
----------
Total $ 5,748
liabilities
==========
Net
assets:
Trust Quality Income - 43,985 accumulation units at $17.539867 $ 771,491
per unit
Trust Money Market - 20,763 accumulation units at $12.882157 per 267,470
unit
Trust Stock Index - 73,167 accumulation units at 2,306,413
$31.522519 per unit
Trust VKAC Growth and Income - 86,842 accumulation units at 2,118,654
$24.396679 per unit
Trust Bond Debenture - 681,676 accumulation units at $13.496510 9,200,242
per unit
Trust Developing Growth - 70,926 accumulation units at $11.067868 784,997
per unit
Trust Large Cap Research - 49,894 accumulation units at 590,022
$11.825638 per unit
Trust Mid-Cap Value - 85,457 accumulation units at $10.437956 per 891,997
unit
Trust Quality Bond - 501,045 accumulation units at 5,969,705
$11.914509 per unit
Trust Small Cap Stock - 663,925 accumulation units at $12.582885 8,354,086
per unit
Trust Large Cap Stock - 1,132,390 accumulation units at 22,000,645
$19.428505 per unit
Trust Select Equity - 1,052,797 accumulation units at $16.987203 17,884,073
per unit
Trust International Equity - 779,375 accumulation units at 10,045,612
$12.889314 per unit
Lord Abbett Growth and Income - 1,080,766 accumulation units at $34.325431 37,097,768
per unit
GACC Money Market - 129,569 accumulation units at $11.109949 per 1,439,505
unit
Russell Multi-Style Equity - 48,388 accumulation units at 616,473
$12.740123 per unit
Russell Aggressive Equity - 8,651 accumulation units at 86,525
$10.001283 per unit
Russell Non-US - 18,259 accumulation units at 204,186
$11.182808 per unit
Russell Core Bond - 61,498 accumulation units at 653,798
$10.631124 per unit
AIM Value - 2,865 accumulation units at 37,459
$13.075597 per unit
AIM Capital Appreciation - 5,570 accumulation units at $11.800084 65,732
per unit
AIM International Equity - 15,257 accumulation units at 174,213
$11.418467 per unit
Alliance Premier Growth - 62,869 accumulation units at $14.620511 919,176
per unit
Alliance Real Estate Investment - 22,077 accumulation units at 176,625
$8.000583 per unit
Liberty Newport Tiger - 2,397 accumulation units at 22,242
$9.278784 per unit
Goldman Sachs Growth and Income - 13,107 accumulation units at $9.911702 129,917
per unit
Goldman Sachs International Equity - 15,859 accumulation units at 181,053
$11.416783 per unit
Goldman Sachs Global Income - 3,002 accumulation units at 32,472
$10.815310 per unit
Kemper Dreman High Return Equity - 10 accumulation units at 105
$10.489000 per unit
Kemper Small Cap Growth - 3,829 accumulation units at $11.687795 44,757
per unit
Kemper Small Cap Value - 16,641 accumulation units at $8.770360 145,943
per unit
Kemper Government Securities - 2,519 accumulation units at 26,786
$10.634608 per unit
MFS Bond - 10 accumulation units at $10.509000 105
per unit
MFS Research - 25,994 accumulation units at $12.179142 316,584
per unit
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Assets and Liabilities
December 31, 1998
<S> <C>
Net assets,
continued:
MFS Growth with Income - 64,791 accumulation units at $12.075079 $ 782,358
per unit
MFS Emerging Growth - 47,710 accumulation units at $13.244101 per 631,883
unit
MFS / F&C Emerging Markets Equity - 4,234 accumulation units at $6.581757 27,865
per unit
MFS High Income - 13,080 accumulation units at 129,014
$9.863111 per unit
MFS World Governments - 385 accumulation units at $10.663503 per 4,100
unit
Oppenheimer Growth - 5,037 accumulation units at $12.244057 per 61,670
unit
Oppenheimer Growth & Income - 14,882 accumulation units at 153,884
$10.340279 per unit
Oppenheimer High Income - 10,533 accumulation units at $9.907918 104,364
per unit
Oppenheimer Bond - 46,377 accumulation units at 489,350
$10.551643 per unit
Oppenheimer Strategic Bond - 2,684 accumulation units at 27,279
$10.164797 per unit
Putnam Growth and Income - 80,114 accumulation units at 913,554
$11.403244 per unit
Putnam New Value - 2,202 accumulation units at 23,119
$10.498075 per unit
Putnam Vista - 6,799 accumulation units at $11.804097 80,253
per unit
Putnam International Growth - 56,566 accumulation units at 663,486
$11.729428 per unit
Putnam International New Opportunities - 4,783 accumulation units at 54,626
$11.420772 per unit
Templeton International - 6,626 accumulation units at $9.149729 60,631
per unit
Templeton Developing Markets - 7,033 accumulation units at 53,149
$7.557531 per unit
Templeton Mutual Shares Investments - 944 accumulation units at $9.646506 9,105
per unit
Fidelity VIP Growth - 505 accumulation units at 6,623
$13.115493 per unit
Fidelity VIP II Contrafund - 78 accumulation units at $12.429344 975
per unit
Fidelity VIP III Growth Opportunities - 114 accumulation units at 1,345
$11.814000 per unit
Fidelity VIP III Growth & Income - 2,082 accumulation units at 25,524
$12.259160 per unit
Fidelity VIP Equity-Income - 772 accumulation units at $10.674283 8,239
per unit
----------
Total net $ 127,869,227
assets
==========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Operations
Year ended December 31, 1998
TRUST
-------------------------------------------------------------------------------
VKAC
QUALITY MONEY STOCK GROWTH AND BOND DEVELOPING LARGE CAP
INCOME MARKET INDEX INCOME DEBENTURE GROWTH RESEARCH
-------- -------- --------- ------------ -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income -
dividends $ 42,140 15,998 11,040 11,939 189,684 -- 384
-------- -------- --------- ------------ ----------- ------------ --------
Expenses:
Mortality and expense risk fee 9,698 3,687 25,580 24,244 86,643 4,541 2,202
Administrative fee 1,164 443 3,070 2,909 10,397 545 264
-------- -------- --------- ------------ ----------- ------------ --------
Total expenses 10,862 4,130 28,650 27,153 97,040 5,086 2,466
-------- -------- --------- ------------ ----------- ------------ --------
Net investment income (loss) 31,278 11,868 (17,610) (15,214) 92,644 (5,086) (2,082)
-------- -------- --------- ------------ ----------- ------------ --------
Realized gain (loss) on investments:
Realized gain (loss) on sale of
fund shares 1,603 -- 18,221 15,618 13,448 (1,554) 25
Realized gain distributions -- -- 372,780 222,030 73,764 221 --
-------- -------- --------- ------------ ----------- ------------ --------
Net realized gain (loss) 1,603 -- 391,001 237,648 87,212 (1,333) 25
-------- -------- --------- ---------- --------- ------------ --------
Change in unrealized appreciation
during the year 4,531 -- 98,370 64,902 110,064 57,229 52,098
-------- -------- --------- ------------ ----------- ------------ --------
Net increase (decrease)
in net assets from operations $ 37,412 11,868 471,761 287,336 289,920 50,810 50,041
======== ======== ========= =========== =========== ============ ========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Operations
Year ended December 31, 1998
TRUST LORD ABBETT GACC
------------------------------------------------------------- ------------- ----------
GROWTH
MID-CAP QUALITY SMALL CAP LARGE CAP SELECT INTERNATIONAL AND MONEY
VALUE BOND STOCK STOCK EQUITY EQUITY INCOME MARKET
-------- --------- --------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income -
dividends $ 591 84,774 10,505 42,974 42,555 153,341 546,511 --
-------- --------- --------- ---------- ---------- ----------- ------------- ----------
Expenses:
Mortality and expense risk fee 5,492 49,714 94,997 196,151 173,752 106,326 389,208 6,233
Administrative fee 659 5,965 11,399 23,538 20,850 12,759 46,705 748
-------- --------- --------- ---------- ---------- ----------- ------------- ----------
Total expenses 6,151 55,679 106,396 219,689 194,602 119,085 435,913 6,981
-------- --------- --------- ---------- ---------- ----------- ------------- ----------
Net investment income (loss) (5,560) 29,095 (95,891) (176,715) (152,047) 34,256 110,598 (6,981)
-------- --------- --------- ---------- ---------- ----------- ------------- ----------
Realized gain (loss) on investments:
Realized gain (loss) on sale of
fund shares (4,501) 10,751 11,830 210,894 150,352 23,377 90,218 18,462
Realized gain distributions -- -- 268,696 141,495 849,129 1,945 1,757,243 --
-------- --------- --------- ---------- ---------- ----------- ------------- ----------
Net realized gain (loss) (4,501) 10,751 280,526 352,389 999,481 25,322 1,847,461 18,462
-------- --------- --------- ---------- ---------- ----------- ----------- ----------
Change in unrealized appreciation
during the year 11,980 212,005 (768,604) 4,086,693 1,878,770 827,333 1,268,706 8,306
-------- --------- --------- ---------- ---------- ----------- ------------- ----------
Net increase (decrease)
in net assets from operations $ 1,919 251,851 (583,969) 4,262,367 2,726,204 886,911 3,226,765 19,787
======== ========= ========= ========== ========== =========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Operations
Year ended December 31, 1998
RUSSELL AIM
-------------------------------------------- -----------------------------------
MULTI-STYLE AGGRESSIVE CORE CAPITAL INTERNATIONAL
EQUITY EQUITY NON-US BOND VALUE APPRECIATION EQUITY
------------ ----------- -------- ------- ------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income -
dividends $ 714 22 2 3,287 174 72 1,368
------------ ----------- -------- ------- ------- ------------- -----------
Expenses:
Mortality and expense risk fee 2,550 346 791 1,166 181 224 1,054
Administrative fee 306 41 95 140 22 27 127
------------ ----------- -------- ------- ------- ------------- -----------
Total expenses 2,856 387 886 1,306 203 251 1,181
------------ ----------- -------- ------- ------- ------------- -----------
Net investment income (loss) (2,142) (365) (884) 1,981 (29) (179) 187
------------ ----------- -------- ------- ------- ------------- -----------
Realized gain (loss) on investments:
Realized gain (loss) on sale of
fund shares 200 (52) (79) 2 (1,586) (22) (5,943)
Realized gain distributions 2 7 1 -- 1,539 1,278 --
------------ ----------- -------- ------- ------- ------------- -----------
Net realized gain (loss) 202 (45) (78) 2 (47) 1,256 (5,943)
------------ ----------- -------- ------- ------- ------------- ---------
Change in unrealized appreciation
during the year 37,385 (1,753) 1,844 3,543 1,376 5,386 (6,224)
------------ ----------- -------- ------- ------- ------------- -----------
Net increase (decrease)
in net assets from operations $ 35,445 (2,163) 882 5,526 1,300 6,463 (11,980)
============ =========== ======== ======= ======= ============= ===========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Operations
Year ended December 31, 1998
ALLIANCE LIBERTY GOLDMAN SACHS KEMPER
-------------------- -------- ------------------------------- -----------------------
GROWTH
PREMIER REAL ESTATE NEWPORT AND INTERNATIONAL GLOBAL DREMAN HIGH SMALL CAP
GROWTH INVESTMENT TIGER INCOME EQUITY INCOME RETURN EQUITY GROWTH
--------- ---------- -------- --------- ------------ ------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income -
dividends $ 149 505 418 1,162 -- 1,211 -- --
--------- ---------- -------- --------- ------------ ------- --------- ------
Expenses:
Mortality and expense risk fee 4,043 933 56 926 938 163 -- 236
Administrative fee 485 112 7 111 113 19 -- 29
--------- ---------- -------- --------- ------------ ------- --------- --------
Total expenses 4,528 1,045 63 1,037 1,051 182 -- 265
--------- ---------- -------- --------- ------------ ------- --------- --------
Net investment income (loss) (4,379) (540) 355 125 (1,051) 1,029 -- (265)
--------- ---------- -------- --------- ------------ ------- --------- --------
Realized gain (loss) on investments:
Realized gain (loss) on sale of
fund shares (6,634) (2,987) 4 (4,119) (124) 5 -- (256)
Realized gain distributions -- 220 -- -- 1,326 325 -- 447
--------- ---------- -------- --------- ------------ ------- --------- --------
Net realized gain (loss) (6,634) (2,767) 4 (4,119) 1,202 330 -- 191
--------- ---------- -------- --------- ------------ ------- --------- --------
Change in unrealized appreciation
during the year 118,514 (17,191) 2,743 (11,213) 2,720 (187) 5 3,989
--------- ---------- -------- --------- ------------ ------- --------- ---------
Net increase (decrease)
in net assets from operations $ 107,501 (20,498) 3,102 (15,207) 2,871 1,172 5 3,915
========= ========== ======== ========= ============ ======= ========= =========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Operations
Year ended December 31, 1998
KEMPER MFS
----------------------- -------------------------------------------------------
GROWTH F&C EMERGING
SMALL CAP GOVERNMENT WITH EMERGING MARKETS
VALUE SECURITIES BOND RESEARCH INCOME GROWTH EQUITY
-------- ------------ ----- ----------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income -
dividends $ -- 7 -- 18 -- -- 449
-------- ------------ ----- ----------- -------- ----------- ---------------
Expenses:
Mortality and expense risk fee 794 44 -- 1,355 4,299 3,162 290
Administrative fee 95 5 -- 163 516 379 35
-------- ------------ ----- ----------- -------- ----------- ---------------
Total expenses 889 49 -- 1,518 4,815 3,541 325
-------- ------------ ----- ----------- -------- ----------- ---------------
Net investment income (loss) (889) (42) -- (1,500) (4,815) (3,541) 124
-------- ------------ ----- ----------- -------- ----------- ---------------
Realized gain (loss) on investments:
Realized gain (loss) on sale of
fund shares (6,424) -- -- (91) (4,972) (2,781) (10,435)
Realized gain distributions 2 -- -- 236 -- 75 --
-------- ------------ ----- ----------- -------- ----------- ---------------
Net realized gain (loss) (6,422) -- -- 145 (4,972) (2,706) (10,435)
-------- ------------ ----- ----------- -------- ----------- ---------------
Change in unrealized appreciation
during the year (13,980) 206 5 24,572 54,989 87,574 (7,685)
-------- ------------ ----- ----------- -------- ----------- ---------------
Net increase (decrease)
in net assets from operations $ (21,291) 164 5 23,217 45,202 81,327 (17,996)
======== ============ ===== =========== ======== =========== ===============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Operations
Year ended December 31, 1998
MFS OPPENHEIMER PUTNAM
------------------- -------------------------------------------- -----------------
GROWTH GROWTH
HIGH WORLD AND HIGH STRATEGIC AND NEW
INCOME GOVERNMENTS GROWTH INCOME INCOME BOND BOND INCOME VALUE
------- ----------- -------- -------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income -
dividends $ 234 26 87 -- 49 2 2 263 248
------- ---------- -------- -------- ------- ------- -------- -------- -------
Expenses:
Mortality and expense risk fee 692 31 333 668 543 2,348 150 4,870 131
Administrative fee 83 3 40 80 65 282 18 584 16
------- ----------- -------- -------- ------- ------- -------- -------- -------
Total expenses 775 34 373 748 608 2,630 168 5,454 147
------- ----------- -------- -------- ------- ------- -------- -------- -------
Net investment income (loss) (541) (8) (286) (748) (559) (2,628) (166) (5,191) 101
------- ---------- -------- -------- ------- ------- -------- -------- -------
Realized gain (loss) on investments:
Realized gain (loss) on sale of
fund shares (1,166) 1 (25) (163) (198) 236 (5) (6,532) 12
Realized gain distributions 80 -- 1,053 6 59 2 1 1,717 67
------- ---------- -------- -------- ------- ------- -------- -------- -------
Net realized gain (loss) (1,086) 1 1,028 (157) (139) 238 (4) (4,815) 79
------- ---------- -------- -------- ------- ------- -------- -------- -------
Change in unrealized appreciation
during the year (2,625) 189 9,357 (771) (2,071) 12,503 (129) 44,649 860
------- ---------- -------- -------- ------- ------- -------- -------- -------
Net increase (decrease)
in net assets from operations $ (4,252) 182 10,099 (1,676) (2,769) 10,113 (299) 34,643 1,040
======= ========== ======== ======== ======= ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Operations
Year ended December 31, 1998
PUTNAM TEMPLETON
--------------------------------------------------------------- ---------------
INTERNATIONAL
INTERNATIONAL NEW DEVELOPING
VISTA GROWTH OPPORTUNITIES INTERNATIONAL MARKETS
--------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Income -
dividends $ -- 2,161 5 -- --
--------- ---------------- ---------------- ---------------- --------------
Expenses:
Mortality and expense risk fee 389 3,701 242 124 83
Administrative fee 47 444 29 15 10
--------- ---------------- ---------------- ---------------- --------------
Total expenses 436 4,145 271 139 93
--------- ---------------- ---------------- ---------------- --------------
Net investment income (loss) (436) (1,984) (266) (139) (93)
--------- ---------------- ---------------- ---------------- --------------
Realized gain (loss) on investments:
Realized gain (loss) on sale of
fund shares (12) (8,326) (27) 9 8
Realized gain distributions -- -- -- -- --
--------- ---------------- ---------------- ---------------- --------------
Net realized gain (loss) (12) (8,326) (27) 9 8
--------- ---------------- ---------------- ---------------- --------------
Change in unrealized appreciation
during the year 7,815 (2,297) 299 4,711 3,570
--------- ---------------- ---------------- ---------------- --------------
Net increase (decrease)
in net assets from operations $ 7,367 (12,607) 6 4,581 3,485
========= ================ ================ ================ ==============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Operations
Year ended December 31, 1998
TEMPLETON FIDELITY
---------- -------------------------------------------------------------
MUTUAL
SHARES GROWTH GROWTH & EQUITY-
INVESTMENTS GROWTH CONTRAFUND OPPORTUNITIES INCOME INCOME TOTAL
---------- --------- ----------- ------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income -
dividends $ -- -- -- -- -- -- 1,165,071
---------- --------- ----------- ------------- ------------ ---------- -------------
Expenses:
Mortality and expense risk fee 3 15 1 -- 52 11 1,216,406
Administrative fee -- 2 -- -- 6 1 145,967
---------- --------- ----------- ------------- ------------ ---------- -------------
Total expenses 3 17 1 -- 58 12 1,362,373
---------- --------- ----------- ------------- ------------ ---------- -------------
Net investment income (loss) (3) (17) (1) -- (58) (12) (197,302)
---------- --------- ----------- ------------- ------------ ---------- -------------
Realized gain (loss) on investments:
Realized gain (loss) on sale of
fund shares -- -- -- -- -- -- 496,262
Realized gain distributions -- -- -- -- -- -- 3,695,746
---------- --------- ----------- ------------- ------------ ---------- -------------
Net realized gain (loss) -- -- -- -- -- -- 4,192,008
---------- --------- ----------- ------------- ------------ ---------- -------------
Change in unrealized appreciation
during the year 263 1,118 99 19 3,784 635 8,280,979
---------- --------- ----------- ------------- ------------ ---------- -------------
Net increase (decrease)
in net assets from operations $ 260 1,101 98 19 3,726 623 12,275,685
========== ========= =========== ============= ============ ========== =============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1998
TRUST
-------------------------------------------------------------------------------------
VKAC
QUALITY MONEY STOCK GROWTH AND BOND DEVELOPING LARGE CAP
INCOME MARKET INDEX INCOME DEBENTURE GROWTH RESEARCH
--------- --------- ---------- ------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ 31,278 11,868 (17,610) (15,214) 92,644 (5,086) (2,082)
Net realized gain (loss) 1,603 -- 391,001 237,648 87,212 (1,333) 25
Change in unrealized appreciation
during the year 4,531 -- 98,370 64,902 110,064 57,229 52,098
--------- --------- ---------- ------------- ----------- ------------ ----------
Net increase (decrease) in
net assets from operations 37,412 11,868 471,761 287,336 289,920 50,810 50,041
--------- --------- ---------- ------------- ----------- ------------ ----------
Contract transactions:
Cova payments -- -- -- -- -- -- --
Cova transfers -- -- -- -- -- -- --
Payments received from contract
owners -- -- -- 1,000 1,051,661 334,325 237,270
Transfers between sub-accounts
(including fixed account), net 11,714 (111,191) 138,069 202,862 3,726,785 337,360 303,087
Transfers for contract benefits
and terminations (8,629) (3,863) (40,936) (52,497) (343,261) (1,070) (376)
--------- --------- ---------- ------------- ----------- ------------ ----------
Net increase (decrease) in
net assets from contract
transactions 3,085 (115,054) 97,133 151,365 4,435,185 670,615 539,981
--------- --------- ---------- ------------- ----------- ------------ ----------
Net increase (decrease)
in net assets 40,497 (103,186) 568,894 438,701 4,725,105 721,425 590,022
Net assets at beginning of period 730,994 370,656 1,737,519 1,679,953 4,475,137 63,572 --
--------- --------- ---------- ------------- ----------- ------------ ----------
Net assets at end of period $ 771,491 267,470 2,306,413 2,118,654 9,200,242 784,997 590,022
========= ========= ========== ============= =========== ============ ==========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1998
TRUST
----------------------------------------------------------
MID-CAP QUALITY SMALL CAP LARGE CAP
VALUE BOND STOCK STOCK
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ (5,560) 29,095 (95,891) (176,715)
Net realized gain (loss) (4,501) 10,751 280,526 352,389
Change in unrealized appreciation
during the year 11,980 212,005 (768,604) 4,086,693
----------- ------------- ------------ --------------
Net increase (decrease) in
net assets from operations 1,919 251,851 (583,969) 4,262,367
----------- ------------- ------------ --------------
Contract transactions:
Cova payments -- -- -- --
Cova transfers -- -- -- --
Payments received from contract
owners 593,364 828,237 664,035 1,433,747
Transfers between sub-accounts
(including fixed account), net 210,332 2,485,711 2,154,230 6,772,257
Transfers for contract benefits
and terminations (2,706) (213,576) (458,393) (691,973)
----------- ------------- ------------ --------------
Net increase (decrease) in
net assets from contract
transactions 800,990 3,100,372 2,359,872 7,514,031
----------- ------------- ------------ --------------
Net increase (decrease)
in net assets 802,909 3,352,223 1,775,903 11,776,398
Net assets at beginning of period 89,088 2,617,482 6,578,183 10,224,247
----------- ------------- ------------ --------------
Net assets at end of period $ 891,997 5,969,705 8,354,086 22,000,645
=========== ============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1998
TRUST LORD ABBETT GACC
--------------------------------- --------------- -------------
GROWTH
SELECT INTERNATIONAL AND MONEY
EQUITY EQUITY INCOME MARKET
-------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ (152,047) 34,256 110,598 (6,981)
Net realized gain (loss) 999,481 25,322 1,847,461 18,462
Change in unrealized appreciation
during the year 1,878,770 827,333 1,268,706 8,306
-------------- ---------------- --------------- -------------
Net increase (decrease) in
net assets from operations 2,726,204 886,911 3,226,765 19,787
-------------- ---------------- --------------- -------------
Contract transactions:
Cova payments -- -- -- --
Cova transfers -- -- -- --
Payments received from contract
owners 1,284,829 470,560 2,282,528 1,894,032
Transfers between sub-accounts
(including fixed account), net 4,674,806 2,712,309 8,659,268 (358,103)
Transfers for contract benefits
and terminations (646,951) (375,560) (1,472,455) (266,514)
-------------- ---------------- --------------- -------------
Net increase (decrease) in
net assets from contract
transactions 5,312,684 2,807,309 9,469,341 1,269,415
-------------- ---------------- --------------- -------------
Net increase (decrease)
in net assets 8,038,888 3,694,220 12,696,106 1,289,202
Net assets at beginning of period 9,845,185 6,351,392 24,401,662 150,303
-------------- ---------------- --------------- -------------
Net assets at end of period $ 17,884,073 10,045,612 37,097,768 1,439,505
============== ================ =============== =============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1998
RUSSELL AIM
------------------------------------------------ -------------------------
MULTI-STYLE AGGRESSIVE CORE CAPITAL
EQUITY EQUITY NON-US BOND VALUE APPRECIATION
------------ ------------- --------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (2,142) (365) (884) 1,981 (29) (179)
Net realized gain (loss) 202 (45) (78) 2 (47) 1,256
Change in unrealized appreciation
during the year 37,385 (1,753) 1,844 3,543 1,376 5,386
------------ ------------- --------- --------- -------- ---------------
Net increase (decrease) in
net assets from operations 35,445 (2,163) 882 5,526 1,300 6,463
------------ ------------- --------- --------- -------- ---------------
Contract transactions:
Cova payments 100 100 100 100 100 100
Cova transfers (127) (95) (93) (103) -- --
Payments received from contract
owners 550,062 80,621 187,582 578,539 33,651 57,937
Transfers between sub-accounts
(including fixed account), net 31,554 8,298 15,688 70,898 2,043 1,227
Transfers for contract benefits
and terminations (561) (236) 27 (1,162) 365 5
------------ ------------- --------- --------- -------- ---------------
Net increase (decrease) in
net assets from contract
transactions 581,028 88,688 203,304 648,272 36,159 59,269
------------ ------------- --------- --------- -------- ---------------
Net increase (decrease)
in net assets 616,473 86,525 204,186 653,798 37,459 65,732
Net assets at beginning of period -- -- -- -- -- --
------------ ----------- --------- --------- -------- ---------------
Net assets at end of period $ 616,473 86,525 204,186 653,798 37,459 65,732
============ ============= ========= ========= ======== ===============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1998
AIM ALLIANCE LIBERTY
----------------- ----------------------------- -----------
INTERNATIONAL PREMIER REAL ESTATE NEWPORT
EQUITY GROWTH INVESTMENT TIGER
----------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ 187 (4,379) (540) 355
Net realized gain (loss) (5,943) (6,634) (2,767) 4
Change in unrealized appreciation
during the year (6,224) 118,514 (17,191) 2,743
----------------- ----------- --------------- -----------
Net increase (decrease) in
net assets from operations (11,980) 107,501 (20,498) 3,102
----------------- ----------- --------------- -----------
Contract transactions:
Cova payments 100 100 100 100
Cova transfers (100) (138) (81) --
Payments received from contract
owners 184,408 794,977 178,563 19,040
Transfers between sub-accounts
(including fixed account), net 3,073 20,139 19,454 --
Transfers for contract benefits
and terminations (1,288) (3,403) (913) --
----------------- ----------- --------------- -----------
Net increase (decrease) in
net assets from contract
transactions 186,193 811,675 197,123 19,140
----------------- ----------- --------------- -----------
Net increase (decrease)
in net assets 174,213 919,176 176,625 22,242
Net assets at beginning of period -- -- -- --
----------------- ----------- --------------- -----------
Net assets at end of period $ 174,213 919,176 176,625 22,242
================= =========== =============== ===========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1998
GOLDMAN SACHS KEMPER
------------------------------------------ ----------------------------
GROWTH
AND INTERNATIONAL GLOBAL DREMAN HIGH SMALL CAP
INCOME EQUITY INCOME RETURN EQUITY GROWTH
------------ -------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ 125 (1,051) 1,029 -- (265)
Net realized gain (loss) (4,119) 1,202 330 -- 191
Change in unrealized appreciation
during the year (11,213) 2,720 (187) 5 3,989
------------ -------------- ---------- ------------- ------------
Net increase (decrease) in
net assets from operations (15,207) 2,871 1,172 5 3,915
------------ -------------- ---------- ------------- ------------
Contract transactions:
Cova payments 100 100 100 100 100
Cova transfers (97) (86) -- -- (108)
Payments received from contract
owners 128,899 154,193 31,200 -- 35,374
Transfers between sub-accounts
(including fixed account), net 16,047 23,975 -- -- 5,487
Transfers for contract benefits
and terminations 175 -- -- -- (11)
------------ -------------- ---------- ------------- ------------
Net increase (decrease) in
net assets from contract
transactions 145,124 178,182 31,300 100 40,842
------------ -------------- ---------- ------------- ------------
Net increase (decrease)
in net assets 129,917 181,053 32,472 105 44,757
Net assets at beginning of period -- -- -- -- --
------------ -------------- ---------- ------------- ------------
Net assets at end of period $ 129,917 181,053 32,472 105 44,757
============ ============== ========== ============= ============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1998
KEMPER MFS
------------------------- ----------------------------------------
GROWTH
SMALL CAP GOVERNMENT WITH EMERGING
VALUE SECURITIES BOND RESEARCH INCOME GROWTH
--------- ------------- ------ --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (889) (42) -- (1,500) (4,815) (3,541)
Net realized gain (loss) (6,422) -- -- 145 (4,972) (2,706)
Change in unrealized appreciation
during the year (13,980) 206 5 24,572 54,989 87,574
--------- ------------- ------ --------- --------- ----------
Net increase (decrease) in
net assets from operations (21,291) 164 5 23,217 45,202 81,327
--------- ------------- ------ --------- --------- ----------
Contract transactions:
Cova payments 100 100 100 100 100 100
Cova transfers (78) -- -- (123) (120) (126)
Payments received from contract
owners 184,026 23,032 -- 252,002 692,249 527,982
Transfers between sub-accounts
(including fixed account), net (15,831) 3,490 -- 42,134 48,220 24,659
Transfers for contract benefits
and terminations (983) -- -- (746) (3,293) (2,059)
--------- ------------- ------ --------- --------- ----------
Net increase (decrease) in
net assets from contract
transactions 167,234 26,622 100 293,367 737,156 550,556
--------- ------------- ------ --------- --------- ----------
Net increase (decrease)
in net assets 145,943 26,786 105 316,584 782,358 631,883
Net assets at beginning of period -- -- -- -- -- --
--------- ------------- ------ --------- --------- ----------
Net assets at end of period $ 145,943 26,786 105 316,584 782,358 631,883
========= ============= ====== ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1998
MFS OPPENHEIMER
------------------------------------------- ---------------------
F&C EMERGING GROWTH
MARKETS HIGH WORLD AND
EQUITY INCOME GOVERNMENTS GROWTH INCOME
---------------- ---------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ 124 (541) (8) (286) (748)
Net realized gain (loss) (10,435) (1,086) 1 1,028 (157)
Change in unrealized appreciation
during the year (7,685) (2,625) 189 9,357 (771)
---------------- ---------- --------------- --------- ---------
Net increase (decrease) in
net assets from operations (17,996) (4,252) 182 10,099 (1,676)
---------------- ---------- --------------- --------- ---------
Contract transactions:
Cova payments 100 100 100 100 100
Cova transfers (65) (93) -- -- (89)
Payments received from contract
owners 71,508 125,820 3,193 42,486 144,121
Transfers between sub-accounts
(including fixed account), net (25,211) 8,401 625 9,440 11,637
Transfers for contract benefits
and terminations (471) (962) -- (455) (209)
---------------- ---------- --------------- --------- ---------
Net increase (decrease) in
net assets from contract
transactions 45,861 133,266 3,918 51,571 155,560
---------------- ---------- --------------- --------- ---------
Net increase (decrease)
in net assets 27,865 129,014 4,100 61,670 153,884
Net assets at beginning of period -- -- -- -- --
---------------- ---------- --------------- --------- ---------
Net assets at end of period $ 27,865 129,014 4,100 61,670 153,884
================ ========== =============== ========= =========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1998
OPPENHEIMER PUTNAM
----------------------------------------- ----------------------
GROWTH
HIGH STRATEGIC AND NEW
INCOME BOND BOND INCOME VALUE
----------- ------------ -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ (559) (2,628) (166) (5,191) 101
Net realized gain (loss) (139) 238 (4) (4,815) 79
Change in unrealized appreciation
during the year (2,071) 12,503 (129) 44,649 860
----------- ------------ -------------- ----------- ---------
Net increase (decrease) in
net assets from operations (2,769) 10,113 (299) 34,643 1,040
----------- ------------ -------------- ----------- ---------
Contract transactions:
Cova payments 100 100 100 100 100
Cova transfers (93) (105) -- (113) --
Payments received from contract
owners 93,367 407,896 22,655 787,874 4,669
Transfers between sub-accounts
(including fixed account), net 14,033 73,891 4,823 94,763 17,311
Transfers for contract benefits
and terminations (274) (2,545) -- (3,713) (1)
----------- ------------ -------------- ----------- ---------
Net increase (decrease) in
net assets from contract
transactions 107,133 479,237 27,578 878,911 22,079
----------- ------------ -------------- ----------- ---------
Net increase (decrease)
in net assets 104,364 489,350 27,279 913,554 23,119
Net assets at beginning of period -- -- -- -- --
----------- ------------ ---------- ----------- ---------
Net assets at end of period $ 104,364 489,350 27,279 913,554 23,119
=========== ============ ============== =========== =========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1998
PUTNAM TEMPLETON
---------------------------------------- ----------------------------------------
INTERNATIONAL MUTUAL
INTERNATIONAL NEW DEVELOPING SHARES
VISTA GROWTH OPPORTUNITIES INTERNATIONAL MARKETS INVESTMENTS
--------- ------------ -------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (436) (1,984) (266) (139) (93) (3)
Net realized gain (loss) (12) (8,326) (27) 9 8 --
Change in unrealized appreciation
during the year 7,815 (2,297) 299 4,711 3,570 263
--------- ------------ -------------- ------------- ------------ ----------
Net increase (decrease) in
net assets from operations 7,367 (12,607) 6 4,581 3,485 260
--------- ------------ -------------- ------------- ------------ ----------
Contract transactions:
Cova payments 100 100 100 100 100 100
Cova transfers (109) (127) (109) -- (133) --
Payments received from contract
owners 46,531 674,756 50,740 54,930 25,540 8,079
Transfers between sub-accounts
(including fixed account), net 26,352 5,031 3,797 1,153 24,157 666
Transfers for contract benefits
and terminations 12 (3,667) 92 (133) -- --
--------- ------------ -------------- ------------- ------------ ----------
Net increase (decrease) in
net assets from contract
transactions 72,886 676,093 54,620 56,050 49,664 8,845
--------- ------------ -------------- ------------- ------------ ----------
Net increase (decrease)
in net assets 80,253 663,486 54,626 60,631 53,149 9,105
Net assets at beginning of period -- -- -- -- -- --
--------- ------------ -------------- ------------- ------------ ----------
Net assets at end of period $ 80,253 663,486 54,626 60,631 53,149 9,105
========= ============ ============== ============= ============ ==========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1998
Fidelity
----------------------------------------------------------
Growth Growth & Equity-
Growth Contrafund Opportunities Income Income Total
------- ------------- --------------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ (17) (1) - (58) (12) (197,302)
Net realized gain (loss) - - - - - 4,192,008
Change in unrealized appreciation
during the year 1,118 99 19 3,784 635 8,280,979
------- ----------- -------------- --------- -------- -------------
Net increase (decrease) in
net assets from operations 1,101 98 19 3,726 623 12,275,685
------- ----------- -------------- --------- -------- -------------
Contract transactions:
Cova payments 100 100 100 100 100 4,200
Cova transfers - - - - - (2,511)
Payments received from contract
owners 990 777 - 3,746 2,968 18,342,571
Transfers between sub-accounts
(including fixed account), net 4,427 - 1,226 17,428 4,427 32,538,428
Transfers for contract benefits
and terminations 5 - - 524 121 (4,604,519)
------- ----------- -------------- --------- -------- -------------
Net increase (decrease) in
net assets from contract
transactions 5,522 877 1,326 21,798 7,616 46,278,169
------- ----------- -------------- --------- -------- -------------
Net increase (decrease)
in net assets 6,623 975 1,345 25,524 8,239 58,553,854
Net assets at beginning of period - - - - - 69,315,373
------- ----------- -------------- --------- -------- -------------
Net assets at end of period $ 6,623 975 1,345 25,524 8,239 127,869,227
======= =========== ============== ========= ======== =============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1997
TRUST
---------------------------------------------------------------------------
VKAC
QUALITY MONEY STOCK GROWTH AND BOND DEVELOPING
INCOME MARKET INDEX INCOME DEBENTURE GROWTH
--------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income (loss) $ 21,228 33,229 1,305 917 120,111 (65)
Net realized gain (loss) (265) -- 24,202 17,990 6,426 (15)
Change in unrealized appreciation
during the year 14,231 -- 311,158 213,640 154,943 404
--------- ----------- ----------- ----------- ----------- ------------
Net increase in net
assets from operations 35,194 33,229 336,665 232,547 281,480 324
--------- ----------- ----------- ----------- ----------- ------------
Contract transactions:
Payments received from contract
owners 5,588 5,425,271 21,617 145,535 986,444 15,000
Transfers between sub-accounts
(including fixed account), net 437,402 (5,336,710) 444,691 627,885 2,836,964 48,082
Transfers for contract benefits
and terminations (46,134) (73,008) (25,416) (12,290) (76,410) 166
--------- ----------- ----------- ----------- ----------- ------------
Net increase in net assets
from contract transactions 396,856 15,553 440,892 761,130 3,746,998 63,248
--------- ----------- ----------- ----------- ----------- ------------
Net increase in net assets 432,050 48,782 777,557 993,677 4,028,478 63,572
Net assets at beginning of period 298,944 321,874 959,962 686,276 446,659 --
--------- ----------- ----------- ----------- ----------- ------------
Net assets at end of period $ 730,994 370,656 1,737,519 1,679,953 4,475,137 63,572
========= =========== =========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1997
-----------------------------------------------------------------------------
MID-CAP QUALITY SMALL CAP LARGE CAP SELECT
VALUE BOND STOCK STOCK EQUITY
----------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income (loss) $ (17) 76,826 (29,973) (14,663) (32,802)
Net realized gain (loss) 50 12,743 19,329 566,223 50,103
Change in unrealized appreciation
during the year 2,536 39,803 731,752 574,012 1,183,581
----------- ------------- ------------- -------------- -------------
Net increase in net
assets from operations 2,569 129,372 721,108 1,125,572 1,200,882
----------- ------------- ------------- -------------- -------------
Contract transactions:
Payments received from contract
owners 32,249 283,752 965,134 1,764,924 1,672,740
Transfers between sub-accounts
(including fixed account), net 54,202 1,563,687 3,732,024 6,016,134 5,100,198
Transfers for contract benefits
and terminations 68 (28,465) (119,268) (113,206) (139,188)
----------- ------------- ------------- -------------- -------------
Net increase in net assets
from contract transactions 86,519 1,818,974 4,577,890 7,667,852 6,633,750
----------- ------------- ------------- -------------- -------------
Net increase in net assets 89,088 1,948,346 5,298,998 8,793,424 7,834,632
Net assets at beginning of period -- 669,136 1,279,185 1,430,823 2,010,553
----------- ------------- ------------- -------------- -------------
Net assets at end of period $ 89,088 2,617,482 6,578,183 10,224,247 9,845,185
=========== ============= ============= ============== =============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Statement of Changes in Net Assets
Year ended December 31, 1997
TRUST LORD ABBETT GACC
---------------- ---------------- -----------
GROWTH
INTERNATIONAL AND MONEY
EQUITY INCOME MARKET TOTAL
---------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income (loss) $ (1,201) 165,930 (119) 340,706
Net realized gain (loss) 6,340 1,595,470 74 2,298,670
Change in unrealized appreciation
during the year 24,972 1,139,321 440 4,390,793
---------------- ---------------- ----------- ---------------
Net increase in net
assets from operations 30,111 2,900,721 395 7,030,169
---------------- ---------------- ----------- ---------------
Contract transactions:
Payments received from contract
owners 1,161,490 1,887,670 178,947 14,546,361
Transfers between sub-accounts
(including fixed account), net 3,891,923 10,712,632 (29,039) 30,100,075
Transfers for contract benefits
and terminations (92,391) (515,567) -- (1,241,109)
---------------- ---------------- ----------- ---------------
Net increase in net assets
from contract transactions 4,961,022 12,084,735 149,908 43,405,327
---------------- ---------------- ----------- ---------------
Net increase in net assets 4,991,133 14,985,456 150,303 50,435,496
Net assets at beginning of period 1,360,259 9,416,206 -- 18,879,877
---------------- ---------------- ----------- ---------------
Net assets at end of period $ 6,351,392 24,401,662 150,303 69,315,373
================ ================ =========== ===============
</TABLE>
See accompanying notes to financial statements.
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
(1) ORGANIZATION
Cova Variable Annuity Account Five (the Separate Account), a unit
investment trust registered under the Investment Company Act of 1940 as
amended, was established by Cova Financial Life Insurance Company (Cova)
and exists in accordance with the regulations of the California
Department of Insurance. The Separate Account is a funding vehicle for
variable annuity contracts issued by Cova.
<TABLE>
<CAPTION>
The Separate Account is divided into sub-accounts with the assets of
each sub-account invested in the corresponding portfolios of the
following investment companies:
<S> <C>
Cova Series Trust (Trust) 13 portfolios
Lord Abbett Series Fund, Inc. (Lord Abbett) 1 portfolio
General American Capital Company (GACC) 1 portfolio
Russell Insurance Funds (Russell) 4 portfolios
AIM Variable Insurance Funds, Inc. (AIM) 3 portfolios
Alliance Variable Products Series Funds, Inc. (Alliance) 2 portfolios
Liberty Variable Investment Trust (Liberty) 1 portfolio
Goldman Sachs Variable Insurance Trust (Goldman Sachs) 3 portfolios
Investors Fund Series (Kemper) 4 portfolios
MFS Variable Insurance Trust (MFS) 7 portfolios
Oppenheimer Variable Account Funds (Oppenheimer) 5 portfolios
Putnam Variable Trust (Putnam) 5 portfolios
Templeton Variable Products Series Fund (Templeton) 3 portfolios
Variable Insurance Products Fund, Fund II, and Fund III (Fidelity) 5 portfolios
</TABLE>
Each investment company is a diversified, open-end, management
investment company registered under the Investment Company Act of 1940
as amended. Not all sub-accounts are available for investment depending
upon the terms of the variable annuity contracts offered for sale by
Cova.
(2) SIGNIFICANT ACCOUNTING POLICIES
(A) INVESTMENT VALUATION
Investments made in the portfolios of the investment companies are
valued at the reported net asset value of such portfolios, which
value their investment securities at fair value. The average cost
method is used to compute the realized gains and losses on the
sale of portfolio shares owned by the sub-accounts. Income from
dividends and gains from realized gain distributions are recorded
on the ex-distribution date.
(B) REINVESTMENT OF DISTRIBUTIONS
With the exception of the GACC Money Market Fund, dividends and
gains from realized gain distributions are reinvested in
additional shares of the portfolio.
GACC follows the Federal income tax practice known as consent
dividending, whereby substantially all of its net investment
income and realized capital gains are deemed to pass through to
the Separate Account. As a result, GACC does not distribute
dividends and realized gains. During December of each year, the
accumulated net investment income and realized capital gains of
the GACC Money Market Fund are allocated to the Separate Account
by increasing the cost basis and recognizing a capital gain in the
Separate Account.
(C) FEDERAL INCOME TAXES
The operations of the Separate Account are included in the Federal
income tax return of Cova, which is taxed as a Life Insurance
Company under the provisions of the Internal Revenue Code (IRC).
Under current IRC provisions, Cova believes it will be treated as
the owner of the Separate Account assets for Federal income tax
purposes and does not expect to incur Federal income taxes on the
earnings of the Separate Account to the extent the earnings are
credited to the variable annuity contracts. Based on this, no
charge is being made currently to the Separate Account for Federal
income taxes. A charge may be made in future years for any Federal
income taxes that would be attributable to the contracts.
(3) SEPARATE ACCOUNT EXPENSES
Cova deducts a daily charge from the net assets of the Separate Account
equivalent to an annual rate of 1.25% for the assumption of mortality
and expense risks and 0.15% for administrative expenses. The mortality
risks assumed by 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 fee in the event of the death of the
contract owner. The administrative fees cover the cost of establishing
and maintaining the variable annuity contracts and the Separate Account.
(4) CONTRACT FEES
There are no deductions made from purchase payments for sales fees at
the time a variable annuity contract is purchased. However, if all or a
portion of the contract value is withdrawn, a withdrawal fee may be
assessed and deducted from the contract value or payment to the contract
owner. The withdrawal fee is imposed on withdrawals of contract values
attributable to purchase payments within five years after receipt and is
equal to 5% of the purchase payment withdrawn. After the first contract
anniversary, provided the contract value exceeds $5,000, the contract
owner may make one withdrawal each contract year of up to 10% of the
aggregate purchase payments (on deposit for more than one year) without
incurring a surrender fee. In 1998, surrender fees of $60,272 were
deducted from the contract values in the Separate Account.
An annual contract maintenance fee of $30 is imposed on all variable
annuity contracts with contract values less than $50,000 on their policy
anniversary. This fee covers the cost of contract administration for the
previous year and is prorated between the sub-accounts and the fixed
rate account to which the contract value is allocated.
Subject to certain restrictions, the contract owner may transfer all or
a part of the accumulated value of the contract among the available
sub-accounts of the Separate Account and the fixed rate account offered
by 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 amount
transferred, will be deducted from the contract account value. Transfers
made in the Dollar Cost Averaging program are not subject to the
transfer fee.
In 1998, contract maintenance and transfer fees of $27,322 were deducted
from the contract values in the 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. Cova reserves the right to deduct
premium taxes when incurred.
(5) SUBSEQUENT EVENT
On January 8, 1999, the four sub-accounts investing in the Trust
portfolios managed by Van Kampen American Capital Advisory Corp. (VKAC)
- Quality Income, Money Market, Stock Index, and VKAC Growth and Income
portfolios ceased operations and their assets were transferred to one
new and three existing sub-accounts in accordance with the substitution
order issued by the Securities and Exchange Commission.
On January 8, 1999, the Lord Abbett Growth and Income sub-account ceased
operations and its assets were transferred to the Trust Lord Abbett
Growth and Income sub-account which commenced operations on January 8,
1999. The Trust Lord Abbett Growth and Income sub-account invests in the
Trust Lord Abbett Growth and Income Portfolio which commenced operations
on January 8, 1999. The Trust Lord Abbett Growth and Income Portfolio is
managed by Lord Abbett who also manages the Lord Abbett Growth and
Income Portfolio.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
(6) UNIT FAIR VALUES
A summary of accumulation unit values, net assets, total return, and
expense ratios for each sub-account follows:
COMMENCED ACCUMULATION UNIT VALUE
---------------------------------------------------
OPERATIONS 1998 1997 1996 1995
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Trust Quality Income* 08/16/95 $ 17.539867 16.716340 15.540286 15.331980
Trust Money Market* 06/19/95 12.882157 12.375227 11.879722 11.425132
Trust Stock Index* 07/20/95 31.522519 24.963612 19.036955 15.773909
Trust VKAC Growth and Income* 07/19/95 24.396679 20.978338 17.008156 14.608910
Trust Bond Debenture 05/20/96 13.496510 12.881799 11.294929 --
Trust Developing Growth 11/07/97 11.067868 10.527555 -- --
Trust Large Cap Research 02/17/98 11.825638 -- -- --
Trust Mid-Cap Value 11/07/97 10.437956 10.467957 -- --
Trust Quality Bond 05/20/96 11.914509 11.155144 10.368767 --
Trust Small Cap Stock 05/15/96 12.582885 13.491493 11.308427 --
Trust Large Cap Stock 05/16/96 19.428505 14.889464 11.334982 --
Trust Select Equity 05/15/96 16.987203 14.053503 10.838053 --
Trust International Equity 05/14/96 12.889314 11.462436 10.967004 --
Lord Abbett Growth and Income* 07/20/95 34.325431 30.837057 25.089540 21.306278
GACC Money Market 12/04/97 11.109949 10.667017 -- --
Russell Multi-Style Equity 12/31/97 12.740123 10.000000 -- --
Russell Aggressive Equity 12/31/97 10.001283 10.000000 -- --
Russell Non-US 12/31/97 11.182808 10.000000 -- --
Russell Core Bond 12/31/97 10.631124 10.000000 -- --
AIM Value 12/31/97 13.075597 10.000000 -- --
AIM Capital Appreciation 12/31/97 11.800084 10.000000 -- --
AIM International Equity 12/31/97 11.418467 10.000000 -- --
Alliance Premier Growth 12/31/97 14.620511 10.000000 -- --
Alliance Real Estate Investment 12/31/97 8.000583 10.000000 -- --
Liberty Newport Tiger 12/31/97 9.278784 10.000000 -- --
Goldman Sachs Growth and Income 03/31/98 9.911702 -- -- --
Goldman Sachs International Equity 03/31/98 11.416783 -- -- --
Goldman Sachs Global Income 03/31/98 10.815310 -- -- --
Kemper Dreman High Return Equity 05/15/98 10.489000 -- -- --
Kemper Small Cap Growth 12/31/97 11.687795 10.000000 -- --
Kemper Small Cap Value 12/31/97 8.770360 10.000000 -- --
Kemper Government Securities 12/31/97 10.634608 10.000000 -- --
MFS Bond 05/15/98 10.509000 -- -- --
MFS Research 12/31/97 12.179142 10.000000 -- --
MFS Growth with Income 12/31/97 12.075079 10.000000 -- --
MFS Emerging Growth 12/31/97 13.244101 10.000000 -- --
MFS / F&C Emerging Markets Equity 12/31/97 6.581757 10.000000 -- --
MFS High Income 12/31/97 9.863111 10.000000 -- --
MFS World Governments 12/31/97 10.663503 10.000000 -- --
Oppenheimer Growth 12/31/97 12.244057 10.000000 -- --
Oppenheimer Growth & Income 12/31/97 10.340279 10.000000 -- --
Oppenheimer High Income 12/31/97 9.907918 10.000000 -- --
Oppenheimer Bond 12/31/97 10.551643 10.000000 -- --
Oppenheimer Strategic Bond 12/31/97 10.164797 10.000000 -- --
Putnam Growth and Income 12/31/97 11.403244 10.000000 -- --
Putnam New Value 12/31/97 10.498075 10.000000 -- --
Putnam Vista 12/31/97 11.804097 10.000000 -- --
Putnam International Growth 12/31/97 11.729428 10.000000 -- --
Putnam International New Opportunities 12/31/97 11.420772 10.000000 -- --
Templeton International 09/21/98 9.149729 -- -- --
Templeton Developing Markets 09/21/98 7.557531 -- -- --
Templeton Mutual Shares Investments 09/21/98 9.646506 -- -- --
Fidelity VIP Growth 02/17/98 13.115493 -- -- --
Fidelity VIP II Contrafund 02/17/98 12.429344 -- -- --
Fidelity VIP III Growth Opportunities 02/17/98 11.814000 -- -- --
Fidelity VIP III Growth & Income 02/17/98 12.259160 -- -- --
Fidelity VIP Equity-Income 02/17/98 10.674283 -- -- --
=========== =========== ============ ============
</TABLE>
* Sub-account ceased operations on January 8, 1999.
** Performance returns for sub-accounts that commenced operations during the
year are not annualized. Expense ratios for sub-accounts that commenced
operations during the year are annualized.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
(6) UNIT FAIR VALUES
A summary of accumulation unit values, net assets, total return, and
expense ratios for each sub-account follows:
COMMENCED NET ASSETS (IN 000'S)
------------------------------------------
OPERATIONS 1998 1997 1996 1995
------------ -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Trust Quality Income* 08/16/95 $ 771 731 299 133
Trust Money Market* 06/19/95 267 371 322 326
Trust Stock Index* 07/20/95 2,306 1,738 960 211
Trust VKAC Growth and Income* 07/19/95 2,119 1,680 686 105
Trust Bond Debenture 05/20/96 9,200 4,475 447 --
Trust Developing Growth 11/07/97 785 64 -- --
Trust Large Cap Research 02/17/98 590 -- -- --
Trust Mid-Cap Value 11/07/97 892 89 -- --
Trust Quality Bond 05/20/96 5,970 2,617 669 --
Trust Small Cap Stock 05/15/96 8,354 6,578 1,279 --
Trust Large Cap Stock 05/16/96 22,001 10,224 1,431 --
Trust Select Equity 05/15/96 17,884 9,845 2,011 --
Trust International Equity 05/14/96 10,046 6,351 1,360 --
Lord Abbett Growth and Income* 07/20/95 37,098 24,402 9,416 2,675
GACC Money Market 12/04/97 1,440 150 -- --
Russell Multi-Style Equity 12/31/97 616 -- -- --
Russell Aggressive Equity 12/31/97 87 -- -- --
Russell Non-US 12/31/97 204 -- -- --
Russell Core Bond 12/31/97 654 -- -- --
AIM Value 12/31/97 37 -- -- --
AIM Capital Appreciation 12/31/97 66 -- -- --
AIM International Equity 12/31/97 174 -- -- --
Alliance Premier Growth 12/31/97 919 -- -- --
Alliance Real Estate Investment 12/31/97 177 -- -- --
Liberty Newport Tiger 12/31/97 22 -- -- --
Goldman Sachs Growth and Income 03/31/98 130 -- -- --
Goldman Sachs International Equity 03/31/98 181 -- -- --
Goldman Sachs Global Income 03/31/98 32 -- -- --
Kemper Dreman High Return Equity 05/15/98 -- -- -- --
Kemper Small Cap Growth 12/31/97 45 -- -- --
Kemper Small Cap Value 12/31/97 146 -- -- --
Kemper Government Securities 12/31/97 27 -- -- --
MFS Bond 05/15/98 -- -- -- --
MFS Research 12/31/97 317 -- -- --
MFS Growth with Income 12/31/97 782 -- -- --
MFS Emerging Growth 12/31/97 632 -- -- --
MFS / F&C Emerging Markets Equity 12/31/97 28 -- -- --
MFS High Income 12/31/97 129 -- -- --
MFS World Governments 12/31/97 4 -- -- --
Oppenheimer Growth 12/31/97 62 -- -- --
Oppenheimer Growth & Income 12/31/97 154 -- -- --
Oppenheimer High Income 12/31/97 104 -- -- --
Oppenheimer Bond 12/31/97 489 -- -- --
Oppenheimer Strategic Bond 12/31/97 27 -- -- --
Putnam Growth and Income 12/31/97 914 -- -- --
Putnam New Value 12/31/97 23 -- -- --
Putnam Vista 12/31/97 80 -- -- --
Putnam International Growth 12/31/97 663 -- -- --
Putnam International New Opportunities 12/31/97 55 -- -- --
Templeton International 09/21/98 61 -- -- --
Templeton Developing Markets 09/21/98 53 -- -- --
Templeton Mutual Shares Investments 09/21/98 9 -- -- --
Fidelity VIP Growth 02/17/98 7 -- -- --
Fidelity VIP II Contrafund 02/17/98 1 -- -- --
Fidelity VIP III Growth Opportunities 02/17/98 1 -- -- --
Fidelity VIP III Growth & Income 02/17/98 26 -- -- --
Fidelity VIP Equity-Income 02/17/98 8 -- -- --
======== ======== ======= =======
</TABLE>
* Sub-account ceased operations on January 8, 1999.
** Performance returns for sub-accounts that commenced operations during the
year are not annualized. Expense ratios for sub-accounts that commenced
operations during the year are annualized.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
(6) UNIT FAIR VALUES
A summary of accumulation unit values, net assets, total return, and
expense ratios for each sub-account follows:
COMMENCED TOTAL RETURN**
---------------------------------------------
OPERATIONS 1998 1997 1996 1995
------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Trust Quality Income* 08/16/95 4.93 % 7.57 1.36 6.30
Trust Money Market* 06/19/95 4.10 4.17 3.98 2.61
Trust Stock Index* 07/20/95 26.27 31.13 20.69 11.65
Trust VKAC Growth and Income* 07/19/95 16.30 23.34 16.42 11.93
Trust Bond Debenture 05/20/96 4.77 14.05 11.32 --
Trust Developing Growth 11/07/97 5.13 (2.80) -- --
Trust Large Cap Research 02/17/98 9.94 -- -- --
Trust Mid-Cap Value 11/07/97 (.29) 4.17 -- --
Trust Quality Bond 05/20/96 6.81 7.58 4.20 --
Trust Small Cap Stock 05/15/96 (6.74) 19.31 3.69 --
Trust Large Cap Stock 05/16/96 30.49 31.36 11.62 --
Trust Select Equity 05/15/96 20.88 29.67 6.76 --
Trust International Equity 05/14/96 12.45 4.52 8.60 --
Lord Abbett Growth and Income* 07/20/95 11.31 22.91 17.76 9.05
GACC Money Market 12/04/97 4.15 .34 -- --
Russell Multi-Style Equity 12/31/97 27.40 -- -- --
Russell Aggressive Equity 12/31/97 .01 -- -- --
Russell Non-US 12/31/97 11.83 -- -- --
Russell Core Bond 12/31/97 6.31 -- -- --
AIM Value 12/31/97 30.76 -- -- --
AIM Capital Appreciation 12/31/97 18.00 -- -- --
AIM International Equity 12/31/97 14.19 -- -- --
Alliance Premier Growth 12/31/97 46.21 -- -- --
Alliance Real Estate Investment 12/31/97 (19.99) -- -- --
Liberty Newport Tiger 12/31/97 (7.21) -- -- --
Goldman Sachs Growth and Income 03/31/98 (11.60) -- -- --
Goldman Sachs International Equity 03/31/98 1.94 -- -- --
Goldman Sachs Global Income 03/31/98 6.53 -- -- --
Kemper Dreman High Return Equity 05/15/98 4.89 -- -- --
Kemper Small Cap Growth 12/31/97 16.88 -- -- --
Kemper Small Cap Value 12/31/97 (12.30) -- -- --
Kemper Government Securities 12/31/97 6.35 -- -- --
MFS Bond 05/15/98 5.09 -- -- --
MFS Research 12/31/97 21.79 -- -- --
MFS Growth with Income 12/31/97 20.75 -- -- --
MFS Emerging Growth 12/31/97 32.44 -- -- --
MFS / F&C Emerging Markets Equity 12/31/97 (34.18) -- -- --
MFS High Income 12/31/97 (1.37) -- -- --
MFS World Governments 12/31/97 6.63 -- -- --
Oppenheimer Growth 12/31/97 22.44 -- -- --
Oppenheimer Growth & Income 12/31/97 3.40 -- -- --
Oppenheimer High Income 12/31/97 (0.92) -- -- --
Oppenheimer Bond 12/31/97 5.52 -- -- --
Oppenheimer Strategic Bond 12/31/97 1.65 -- -- --
Putnam Growth and Income 12/31/97 14.03 -- -- --
Putnam New Value 12/31/97 4.98 -- -- --
Putnam Vista 12/31/97 18.04 -- -- --
Putnam International Growth 12/31/97 17.29 -- -- --
Putnam International New Opportunities 12/31/97 14.21 -- -- --
Templeton International 09/21/98 15.92 -- -- --
Templeton Developing Markets 09/21/98 33.87 -- -- --
Templeton Mutual Shares Investments 09/21/98 11.61 -- -- --
Fidelity VIP Growth 02/17/98 31.16 -- -- --
Fidelity VIP II Contrafund 02/17/98 24.29 -- -- --
Fidelity VIP III Growth Opportunities 02/17/98 18.14 -- -- --
Fidelity VIP III Growth & Income 02/17/98 22.59 -- -- --
Fidelity VIP Equity-Income 02/17/98 6.74 -- -- --
======= ======= ======= =======
</TABLE>
* Sub-account ceased operations on January 8, 1999.
** Performance returns for sub-accounts that commenced operations during the
year are not annualized. Expense ratios for sub-accounts that commenced
operations during the year are annualized.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
(6) UNIT FAIR VALUES
A summary of accumulation unit values, net assets, total return, and
expense ratios for each sub-account follows:
SEPARATE ACCOUNT EXPENSES
COMMENCED TO AVERAGE NET ASSETS**
-----------------------------------------
OPERATIONS 1998 1997 1996 1995
------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Trust Quality Income* 08/16/95 1.40 1.40 1.40 1.40
Trust Money Market* 06/19/95 1.40 1.40 1.40 1.40
Trust Stock Index* 07/20/95 1.40 1.40 1.40 1.40
Trust VKAC Growth and Income* 07/19/95 1.40 1.40 1.40 1.40
Trust Bond Debenture 05/20/96 1.40 1.40 1.40 --
Trust Developing Growth 11/07/97 1.40 1.40 -- --
Trust Large Cap Research 02/17/98 1.40 -- -- --
Trust Mid-Cap Value 11/07/97 1.40 1.40 -- --
Trust Quality Bond 05/20/96 1.40 1.40 1.40 --
Trust Small Cap Stock 05/15/96 1.40 1.40 1.40 --
Trust Large Cap Stock 05/16/96 1.40 1.40 1.40 --
Trust Select Equity 05/15/96 1.40 1.40 1.40 --
Trust International Equity 05/14/96 1.40 1.40 1.40 --
Lord Abbett Growth and Income* 07/20/95 1.40 1.40 1.40 1.40
GACC Money Market 12/04/97 1.40 1.40 -- --
Russell Multi-Style Equity 12/31/97 1.40 -- -- --
Russell Aggressive Equity 12/31/97 1.40 -- -- --
Russell Non-US 12/31/97 1.40 -- -- --
Russell Core Bond 12/31/97 1.40 -- -- --
AIM Value 12/31/97 1.40 -- -- --
AIM Capital Appreciation 12/31/97 1.40 -- -- --
AIM International Equity 12/31/97 1.40 -- -- --
Alliance Premier Growth 12/31/97 1.40 -- -- --
Alliance Real Estate Investment 12/31/97 1.40 -- -- --
Liberty Newport Tiger 12/31/97 1.39 -- -- --
Goldman Sachs Growth and Income 03/31/98 1.40 -- -- --
Goldman Sachs International Equity 03/31/98 1.40 -- -- --
Goldman Sachs Global Income 03/31/98 1.40 -- -- --
Kemper Dreman High Return Equity 05/15/98 .55 -- -- --
Kemper Small Cap Growth 12/31/97 1.40 -- -- --
Kemper Small Cap Value 12/31/97 1.40 -- -- --
Kemper Government Securities 12/31/97 1.38 -- -- --
MFS Bond 05/15/98 .52 -- -- --
MFS Research 12/31/97 1.40 -- -- --
MFS Growth with Income 12/31/97 1.40 -- -- --
MFS Emerging Growth 12/31/97 1.40 -- -- --
MFS / F&C Emerging Markets Equity 12/31/97 1.40 -- -- --
MFS High Income 12/31/97 1.40 -- -- --
MFS World Governments 12/31/97 1.37 -- -- --
Oppenheimer Growth 12/31/97 1.40 -- -- --
Oppenheimer Growth & Income 12/31/97 1.40 -- -- --
Oppenheimer High Income 12/31/97 1.40 -- -- --
Oppenheimer Bond 12/31/97 1.40 -- -- --
Oppenheimer Strategic Bond 12/31/97 1.40 -- -- --
Putnam Growth and Income 12/31/97 1.40 -- -- --
Putnam New Value 12/31/97 1.40 -- -- --
Putnam Vista 12/31/97 1.40 -- -- --
Putnam International Growth 12/31/97 1.40 -- -- --
Putnam International New Opportunities 12/31/97 1.40 -- -- --
Templeton International 09/21/98 1.40 -- -- --
Templeton Developing Markets 09/21/98 1.40 -- -- --
Templeton Mutual Shares Investments 09/21/98 1.32 -- -- --
Fidelity VIP Growth 02/17/98 1.35 -- -- --
Fidelity VIP II Contrafund 02/17/98 .75 -- -- --
Fidelity VIP III Growth Opportunities 02/17/98 .52 -- -- --
Fidelity VIP III Growth & Income 02/17/98 1.39 -- -- --
Fidelity VIP Equity-Income 02/17/98 1.34 -- -- --
======= ======= ======= =======
</TABLE>
* Sub-account ceased operations on January 8, 1999.
** Performance returns for sub-accounts that commenced operations during the
year are not annualized. Expense ratios for sub-accounts that commenced
operations during the year are annualized.
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
(7) REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION
The table below summarizes the realized gain (loss) on the sale of fund
shares and the change in unrealized appreciation for each sub-account
during the year.
1998 1997
------------- -------------
<S> <C> <C>
Realized gain (loss) on sale of fund shares:
Trust Quality Income:
Aggregate proceeds from sales of fund shares $ 68,255 78,042
Aggregate cost of fund shares redeemed 66,652 78,307
------------- -------------
Realized gain (loss) $ 1,603 (265)
============= =============
Trust Money Market:
Aggregate proceeds from sales of fund shares $ 127,698 5,031,278
Aggregate cost of fund shares redeemed 127,698 5,031,278
------------- -------------
Realized gain (loss) $ -- --
============= =============
Trust Stock Index:
Aggregate proceeds from sales of fund shares $ 135,751 100,563
Aggregate cost of fund shares redeemed 117,530 81,687
------------- -------------
Realized gain (loss) $ 18,221 18,876
============= =============
Trust VKAC Growth and Income:
Aggregate proceeds from sales of fund shares $ 104,628 21,278
Aggregate cost of fund shares redeemed 89,010 18,280
------------- -------------
Realized gain (loss) $ 15,618 2,998
============= =============
Trust Bond Debenture:
Aggregate proceeds from sales of fund shares $ 670,935 109,027
Aggregate cost of fund shares redeemed 657,487 103,526
------------- -------------
Realized gain (loss) $ 13,448 5,501
============= =============
Trust Developing Growth:
Aggregate proceeds from sales of fund shares $ 59,769 15,035
Aggregate cost of fund shares redeemed 61,323 15,050
------------- -------------
Realized gain (loss) $ (1,554) (15)
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Realized gain (loss) on sale of fund shares, continued:
Trust Large Cap Research:
Aggregate proceeds from sales of fund shares $ 1,318 --
Aggregate cost of fund shares redeemed 1,293 --
------------- -------------
Realized gain (loss) $ 25 --
============= =============
Trust Mid-Cap Value:
Aggregate proceeds from sales of fund shares $ 121,779 5,141
Aggregate cost of fund shares redeemed 126,280 5,091
------------- -------------
Realized gain (loss) $ (4,501) 50
============= =============
Trust Quality Bond:
Aggregate proceeds from sales of fund shares $ 319,864 149,426
Aggregate cost of fund shares redeemed 309,113 147,472
------------- -------------
Realized gain (loss) $ 10,751 1,954
============= =============
Trust Small Cap Stock:
Aggregate proceeds from sales of fund shares $ 986,220 91,131
Aggregate cost of fund shares redeemed 974,390 81,824
------------- -------------
Realized gain (loss) $ 11,830 9,307
============= =============
Trust Large Cap Stock:
Aggregate proceeds from sales of fund shares $ 1,700,678 121,132
Aggregate cost of fund shares redeemed 1,489,784 106,386
------------- -------------
Realized gain (loss) $ 210,894 14,746
============= =============
Trust Select Equity:
Aggregate proceeds from sales of fund shares $ 1,190,393 150,731
Aggregate cost of fund shares redeemed 1,040,041 130,262
------------- -------------
Realized gain (loss) $ 150,352 20,469
============= =============
Trust International Equity:
Aggregate proceeds from sales of fund shares $ 652,667 185,858
Aggregate cost of fund shares redeemed 629,290 182,972
------------- -------------
Realized gain (loss) $ 23,377 2,886
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Realized gain (loss) on sale of fund shares, continued:
Lord Abbett Growth and Income:
Aggregate proceeds from sales of fund shares $ 1,839,293 585,935
Aggregate cost of fund shares redeemed 1,749,075 507,692
------------- -------------
Realized gain (loss) $ 90,218 78,243
============= =============
GACC Money Market:
Aggregate proceeds from sales of fund shares $ 2,053,922 29,146
Aggregate cost of fund shares redeemed 2,035,460 29,072
------------- -------------
Realized gain (loss) $ 18,462 74
============= =============
Russell Multi-Style Equity:
Aggregate proceeds from sales of fund shares $ 7,462 --
Aggregate cost of fund shares redeemed 7,262 --
------------- -------------
Realized gain (loss) $ 200 --
============= =============
Russell Aggressive Equity:
Aggregate proceeds from sales of fund shares $ 416 --
Aggregate cost of fund shares redeemed 468 --
------------- -------------
Realized gain (loss) $ (52) --
============= =============
Russell Non-US:
Aggregate proceeds from sales of fund shares $ 821 --
Aggregate cost of fund shares redeemed 900 --
------------- -------------
Realized gain (loss) $ (79) --
============= =============
Russell Core Bond:
Aggregate proceeds from sales of fund shares $ 1,162 --
Aggregate cost of fund shares redeemed 1,160 --
------------- -------------
Realized gain (loss) $ 2 --
============= =============
AIM Value:
Aggregate proceeds from sales of fund shares $ 26,188 --
Aggregate cost of fund shares redeemed 27,774 --
------------- -------------
Realized gain (loss) $ (1,586) --
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Realized gain (loss) on sale of fund shares, continued:
AIM Capital Appreciation:
Aggregate proceeds from sales of fund shares $ 236 --
Aggregate cost of fund shares redeemed 258 --
------------- -------------
Realized gain (loss) $ (22) --
============= =============
AIM International Equity:
Aggregate proceeds from sales of fund shares $ 40,160 --
Aggregate cost of fund shares redeemed 46,103 --
------------- -------------
Realized gain (loss) $ (5,943) --
============= =============
Alliance Premier Growth:
Aggregate proceeds from sales of fund shares $ 67,438 --
Aggregate cost of fund shares redeemed 74,072 --
------------- -------------
Realized gain (loss) $ (6,634) --
============= =============
Alliance Real Estate:
Aggregate proceeds from sales of fund shares $ 14,746 --
Aggregate cost of fund shares redeemed 17,733 --
------------- -------------
Realized gain (loss) $ (2,987) --
============= =============
Liberty Newport Tiger:
Aggregate proceeds from sales of fund shares $ 37 --
Aggregate cost of fund shares redeemed 33 --
------------- -------------
Realized gain (loss) $ 4 --
============= =============
Goldman Sachs Growth and Income:
Aggregate proceeds from sales of fund shares $ 23,582 --
Aggregate cost of fund shares redeemed 27,701 --
------------- -------------
Realized gain (loss) $ (4,119) --
============= =============
Goldman Sachs International Equity:
Aggregate proceeds from sales of fund shares $ 999 --
Aggregate cost of fund shares redeemed 1,123 --
------------- -------------
Realized gain (loss) $ (124) --
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Realized gain (loss) on sale of fund shares, continued:
Goldman Sachs Global Income:
Aggregate proceeds from sales of fund shares $ 181 --
Aggregate cost of fund shares redeemed 176 --
------------- -------------
Realized gain (loss) $ 5 --
============= =============
Kemper-Dreman High Return Equity:
Aggregate proceeds from sales of fund shares $ -- --
Aggregate cost of fund shares redeemed -- --
------------- -------------
Realized gain (loss) $ -- --
============= =============
Kemper Small Cap Growth:
Aggregate proceeds from sales of fund shares $ 7,419 --
Aggregate cost of fund shares redeemed 7,675 --
------------- -------------
Realized gain (loss) $ (256) --
============= =============
Kemper Small Cap Value:
Aggregate proceeds from sales of fund shares $ 21,781 --
Aggregate cost of fund shares redeemed 28,205 --
------------- -------------
Realized gain (loss) $ (6,424) --
============= =============
Kemper Government Securities:
Aggregate proceeds from sales of fund shares $ 9 --
Aggregate cost of fund shares redeemed 9 --
------------- -------------
Realized gain (loss) $ -- --
============= =============
MFS Bond:
Aggregate proceeds from sales of fund shares $ -- --
Aggregate cost of fund shares redeemed -- --
------------- -------------
Realized gain (loss) $ -- --
============= =============
MFS Research:
Aggregate proceeds from sales of fund shares $ 1,823 --
Aggregate cost of fund shares redeemed 1,914 --
------------- -------------
Realized gain (loss) $ (91) --
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Realized gain (loss) on sale of fund shares, continued:
MFS Growth with Income:
Aggregate proceeds from sales of fund shares $ 40,854 --
Aggregate cost of fund shares redeemed 45,826 --
------------- -------------
Realized gain (loss) $ (4,972) --
============= =============
MFS Emerging Growth:
Aggregate proceeds from sales of fund shares $ 31,963 --
Aggregate cost of fund shares redeemed 34,744 --
------------- -------------
Realized gain (loss) $ (2,781) --
============= =============
MFS / F&C Emerging Markets Equity:
Aggregate proceeds from sales of fund shares $ 32,580 --
Aggregate cost of fund shares redeemed 43,015 --
------------- -------------
Realized gain (loss) $ (10,435) --
============= =============
MFS High Income:
Aggregate proceeds from sales of fund shares $ 18,006 --
Aggregate cost of fund shares redeemed 19,172 --
------------- -------------
Realized gain (loss) $ (1,166) --
============= =============
MFS World Governments:
Aggregate proceeds from sales of fund shares $ 34 --
Aggregate cost of fund shares redeemed 33 --
------------- -------------
Realized gain (loss) $ 1 --
============= =============
Oppenheimer Growth:
Aggregate proceeds from sales of fund shares $ 731 --
Aggregate cost of fund shares redeemed 756 --
------------- -------------
Realized gain (loss) $ (25) --
============= =============
Oppenheimer Growth & Income:
Aggregate proceeds from sales of fund shares $ 1,004 --
Aggregate cost of fund shares redeemed 1,167 --
------------- -------------
Realized gain (loss) $ (163) --
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Realized gain (loss) on sale of fund shares, continued:
Oppenheimer High Income:
Aggregate proceeds from sales of fund shares $ 2,657 --
Aggregate cost of fund shares redeemed 2,855 --
------------- -------------
Realized gain (loss) $ (198) --
============= =============
Oppenheimer Bond:
Aggregate proceeds from sales of fund shares $ 17,891 --
Aggregate cost of fund shares redeemed 17,655 --
------------- -------------
Realized gain (loss) $ 236 --
============= =============
Oppenheimer Strategic Bond:
Aggregate proceeds from sales of fund shares $ 160 --
Aggregate cost of fund shares redeemed 165 --
------------- -------------
Realized gain (loss) $ (5) --
============= =============
Putnam Growth and Income:
Aggregate proceeds from sales of fund shares $ 45,339 --
Aggregate cost of fund shares redeemed 51,871 --
------------- -------------
Realized gain (loss) $ (6,532) --
============= =============
Putnam New Value:
Aggregate proceeds from sales of fund shares $ 6,880 --
Aggregate cost of fund shares redeemed 6,868 --
------------- -------------
Realized gain (loss) $ 12 --
============= =============
Putnam Vista:
Aggregate proceeds from sales of fund shares $ 376 --
Aggregate cost of fund shares redeemed 388 --
------------- -------------
Realized gain (loss) $ (12) --
============= =============
Putnam International Growth:
Aggregate proceeds from sales of fund shares $ 64,381 --
Aggregate cost of fund shares redeemed 72,707 --
------------- -------------
Realized gain (loss) $ (8,326) --
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Realized gain (loss) on sale of fund shares, continued:
Putnam International New Opportunities:
Aggregate proceeds from sales of fund shares $ 378 --
Aggregate cost of fund shares redeemed 405 --
------------- -------------
Realized gain (loss) $ (27) --
============= =============
Templeton International:
Aggregate proceeds from sales of fund shares $ 133 --
Aggregate cost of fund shares redeemed 124 --
------------- -------------
Realized gain (loss) $ 9 --
============= =============
Templeton Developing Markets:
Aggregate proceeds from sales of fund shares $ 133 --
Aggregate cost of fund shares redeemed 125 --
------------- -------------
Realized gain (loss) $ 8 --
============= =============
Templeton Mutual Shares Investments:
Aggregate proceeds from sales of fund shares $ -- --
Aggregate cost of fund shares redeemed -- --
------------- -------------
Realized gain (loss) $ -- --
============= =============
Fidelity Growth:
Aggregate proceeds from sales of fund shares $ 3 --
Aggregate cost of fund shares redeemed 3 --
------------- -------------
Realized gain (loss) $ -- --
============= =============
Fidelity Contrafund:
Aggregate proceeds from sales of fund shares $ -- --
Aggregate cost of fund shares redeemed -- --
------------- -------------
Realized gain (loss) $ -- --
============= =============
Fidelity Growth Opportunities:
Aggregate proceeds from sales of fund shares $ -- --
Aggregate cost of fund shares redeemed -- --
------------- -------------
Realized gain (loss) $ -- --
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Realized gain (loss) on sale of fund shares, continued:
Fidelity Growth & Income:
Aggregate proceeds from sales of fund shares $ -- --
Aggregate cost of fund shares redeemed -- --
------------- -------------
Realized gain (loss) $ -- --
============= =============
Fidelity Equity-Income:
Aggregate proceeds from sales of fund shares $ -- --
Aggregate cost of fund shares redeemed -- --
------------- -------------
Realized gain (loss) $ -- --
============= =============
Unrealized appreciation (depreciation):
Trust Quality Income:
Appreciation (Depreciation), end of period $ 19,209 14,678
Appreciation (Depreciation), beginning of period 14,678 447
------------- -------------
Unrealized appreciation (depreciation) $ 4,531 14,231
============= =============
Trust Money Market:
Appreciation (Depreciation), end of period $ -- --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ -- --
============= =============
Trust Stock Index:
Appreciation (Depreciation), end of period $ 491,713 393,343
Appreciation (Depreciation), beginning of period 393,343 82,185
------------- -------------
Unrealized appreciation (depreciation) $ 98,370 311,158
============= =============
Trust VKAC Growth & Income:
Appreciation (Depreciation), end of period $ 316,285 251,383
Appreciation (Depreciation), beginning of period 251,383 37,743
------------- -------------
Unrealized appreciation (depreciation) $ 64,902 213,640
============= =============
Trust Bond Debenture:
Appreciation (Depreciation), end of period $ 273,399 163,335
Appreciation (Depreciation), beginning of period 163,335 8,392
------------- -------------
Unrealized appreciation (depreciation) $ 110,064 154,943
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Unrealized appreciation (depreciation), continued:
Trust Developing Growth:
Appreciation (Depreciation), end of period $ 57,633 404
Appreciation (Depreciation), beginning of period 404 --
------------- -------------
Unrealized appreciation (depreciation) $ 57,229 404
============= =============
Trust Large Cap Research:
Appreciation (Depreciation), end of period $ 52,098 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 52,098 --
============= =============
Trust Mid-Cap Value:
Appreciation (Depreciation), end of period $ 14,516 2,536
Appreciation (Depreciation), beginning of period 2,536 --
------------- -------------
Unrealized appreciation (depreciation) $ 11,980 2,536
============= =============
Trust Quality Bond:
Appreciation (Depreciation), end of period $ 254,121 42,116
Appreciation (Depreciation), beginning of period 42,116 2,313
------------- -------------
Unrealized appreciation (depreciation) $ 212,005 39,803
============= =============
Trust Small Cap Stock:
Appreciation (Depreciation), end of period $ (2,832) 765,772
Appreciation (Depreciation), beginning of period 765,772 34,020
------------- -------------
Unrealized appreciation (depreciation) $ (768,604) 731,752
============= =============
Trust Large Cap Stock:
Appreciation (Depreciation), end of period $ 4,717,561 630,868
Appreciation (Depreciation), beginning of period 630,868 56,856
------------- -------------
Unrealized appreciation (depreciation) $ 4,086,693 574,012
============= =============
Trust Select Equity:
Appreciation (Depreciation), end of period $ 3,163,743 1,284,973
Appreciation (Depreciation), beginning of period 1,284,973 101,392
------------- -------------
Unrealized appreciation (depreciation) $ 1,878,770 1,183,581
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Unrealized appreciation (depreciation), continued:
Trust International Equity:
Appreciation (Depreciation), end of period $ 918,988 91,655
Appreciation (Depreciation), beginning of period 91,655 66,683
------------- -------------
Unrealized appreciation (depreciation) $ 827,333 24,972
============= =============
Lord Abbett Growth and Income:
Appreciation (Depreciation), end of period $ 2,782,796 1,514,090
Appreciation (Depreciation), beginning of period 1,514,090 374,769
------------- -------------
Unrealized appreciation (depreciation) $ 1,268,706 1,139,321
============= =============
GACC Money Market:
Appreciation (Depreciation), end of period $ 8,746 440
Appreciation (Depreciation), beginning of period 440 --
------------- -------------
Unrealized appreciation (depreciation) $ 8,306 440
============= =============
Russell Multi-Style Equity:
Appreciation (Depreciation), end of period $ 37,385 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 37,385 --
============= =============
Russell Aggressive Equity:
Appreciation (Depreciation), end of period $ (1,753) --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ (1,753) --
============= =============
Russell Non-US:
Appreciation (Depreciation), end of period $ 1,844 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 1,844 --
============= =============
Russell Core Bond:
Appreciation (Depreciation), end of period $ 3,543 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 3,543 --
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Unrealized appreciation (depreciation), continued:
AIM Value:
Appreciation (Depreciation), end of period $ 1,376 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 1,376 --
============= =============
AIM Capital Appreciation:
Appreciation (Depreciation), end of period $ 5,386 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 5,386 --
============= =============
AIM International Equity:
Appreciation (Depreciation), end of period $ (6,224) --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ (6,224) --
============= =============
Alliance Premier Growth:
Appreciation (Depreciation), end of period $ 118,514 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 118,514 --
============= =============
Alliance Real Estate Investment:
Appreciation (Depreciation), end of period $ (17,191) --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ (17,191) --
============= =============
Liberty Newport Tiger:
Appreciation (Depreciation), end of period $ 2,743 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 2,743 --
============= =============
Goldman Sachs Growth and Income:
Appreciation (Depreciation), end of period $ (11,213) --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ (11,213) --
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Unrealized appreciation (depreciation), continued:
Goldman Sachs International Equity:
Appreciation (Depreciation), end of period $ 2,720 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 2,720 --
============= =============
Goldman Sachs Global Income:
Appreciation (Depreciation), end of period $ (187) --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ (187) --
============= =============
Kemper-Dreman High Return Equity:
Appreciation (Depreciation), end of period $ 5 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 5 --
============= =============
Kemper Small Cap Growth:
Appreciation (Depreciation), end of period $ 3,989 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 3,989 --
============= =============
Kemper Small Cap Value:
Appreciation (Depreciation), end of period $ (13,980) --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ (13,980) --
============= =============
Kemper Government Securities:
Appreciation (Depreciation), end of period $ 206 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 206 --
============= =============
MFS Bond:
Appreciation (Depreciation), end of period $ 5 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 5 --
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Unrealized appreciation (depreciation), continued:
MFS Research:
Appreciation (Depreciation), end of period $ 24,572 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 24,572 --
============= =============
MFS Growth with Income:
Appreciation (Depreciation), end of period $ 54,989 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 54,989 --
============= =============
MFS Emerging Growth:
Appreciation (Depreciation), end of period $ 87,574 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 87,574 --
============= =============
MFS / F&C Emerging Markets Equity:
Appreciation (Depreciation), end of period $ (7,685) --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ (7,685) --
============= =============
MFS High Income:
Appreciation (Depreciation), end of period $ (2,625) --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ (2,625) --
============= =============
MFS World Governments:
Appreciation (Depreciation), end of period $ 189 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 189 --
============= =============
Oppenheimer Growth:
Appreciation (Depreciation), end of period $ 9,357 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 9,357 --
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Unrealized appreciation (depreciation), continued:
Oppenheimer Growth & Income:
Appreciation (Depreciation), end of period $ (771) --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ (771) --
============= =============
Oppenheimer High Income:
Appreciation (Depreciation), end of period $ (2,071) --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ (2,071) --
============= =============
Oppenheimer Bond:
Appreciation (Depreciation), end of period $ 12,503 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 12,503 --
============= =============
Oppenheimer Strategic Bond:
Appreciation (Depreciation), end of period $ (129) --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ (129) --
============= =============
Putnam Growth and Income:
Appreciation (Depreciation), end of period $ 44,649 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 44,649 --
============= =============
Putnam New Value:
Appreciation (Depreciation), end of period $ 860 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 860 --
============= =============
Putnam Vista:
Appreciation (Depreciation), end of period $ 7,815 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 7,815 --
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Unrealized appreciation (depreciation), continued:
Putnam International Growth:
Appreciation (Depreciation), end of period $ (2,297) --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ (2,297) --
============= =============
Putnam International New Opportunities:
Appreciation (Depreciation), end of period $ 299 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 299 --
============= =============
Templeton International:
Appreciation (Depreciation), end of period $ 4,711 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 4,711 --
============= =============
Templeton Developing Markets:
Appreciation (Depreciation), end of period $ 3,570 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 3,570 --
============= =============
Templeton Mutual Shares Investments:
Appreciation (Depreciation), end of period $ 263 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 263 --
============= =============
Fidelity Growth:
Appreciation (Depreciation), end of period $ 1,118 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 1,118 --
============= =============
Fidelity Contrafund:
Appreciation (Depreciation), end of period $ 99 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 99 --
============= =============
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997
------------- -------------
Unrealized appreciation (depreciation), continued:
Fidelity Growth Opportunities:
Appreciation (Depreciation), end of period $ 19 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 19 --
============= =============
Fidelity Growth & Income:
Appreciation (Depreciation), end of period $ 3,784 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 3,784 --
============= =============
Fidelity Equity-Income:
Appreciation (Depreciation), end of period $ 635 --
Appreciation (Depreciation), beginning of period -- --
------------- -------------
Unrealized appreciation (depreciation) $ 635 --
============= =============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
(8) UNIT TRANSACTIONS
The change in the number of accumulation units is as follows:
TRUST
----------------------------------------------------------------------
VKAC
QUALITY MONEY STOCK GROWTH AND BOND
INCOME MARKET INDEX INCOME DEBENTURE
----------- ------------ ---------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Unit balance at December 31, 1996 19,237 27,094 50,426 40,350 39,545
Contract units purchased 339 449,124 927 8,266 82,546
Contract units transferred, net 27,138 (440,275) 19,361 32,087 231,381
Contract units redeemed (2,985) (5,992) (1,112) (623) (6,072)
----------- ------------ ---------- --------------- -------------
Unit balance at December 31, 1997 43,729 29,951 69,602 80,080 347,400
Contract units purchased -- -- -- 48 83,877
Contract units transferred, net 763 (8,882) 5,039 9,020 280,852
Contract units redeemed (507) (306) (1,474) (2,306) (30,453)
----------- ------------ ---------- --------------- -------------
Unit balance at December 31, 1998 43,985 20,763 73,167 86,842 681,676
=========== ============ ========== =============== =============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
(8) UNIT TRANSACTIONS
The change in the number of accumulation units is as follows:
TRUST
-----------------------------------------------------------------------------
DEVELOPING LARGE CAP MID-CAP QUALITY SMALL CAP
GROWTH RESEARCH VALUE BOND STOCK
----------------------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Unit balance at December 31, 1996 -- -- -- 64,534 113,118
Contract units purchased 1,385 -- 3,163 26,745 81,088
Contract units transferred, net 4,654 -- 5,347 146,007 302,653
Contract units redeemed -- -- -- (2,643) (9,279)
----------------------------- ----------- ------------- -------------
Unit balance at December 31, 1997 6,039 -- 8,510 234,643 487,580
Contract units purchased 31,649 21,971 56,591 71,796 55,831
Contract units transferred, net 33,339 27,982 20,523 212,881 162,174
Contract units redeemed (101) (59) (167) (18,275) (41,660)
----------------------------- ----------- ------------- -------------
Unit balance at December 31, 1998 70,926 49,894 85,457 501,045 663,925
============================= =========== ============= =============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
(8) UNIT TRANSACTIONS
The change in the number of accumulation units is as follows:
LORD ABBETT GACC
--------------------------------------------------- --------------- -------------
GROWTH
LARGE CAP SELECT INTERNATIONAL AND MONEY
STOCK EQUITY EQUITY INCOME MARKET
----------------- -------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Unit balance at December 31, 1996 126,231 185,509 124,032 375,304 --
Contract units purchased 131,724 133,310 100,609 66,936 16,814
Contract units transferred, net 436,729 392,067 337,714 366,957 (2,723)
Contract units redeemed (8,007) (10,336) (8,250) (17,887) --
----------------- -------------- ---------------- --------------- -------------
Unit balance at December 31, 1997 686,677 700,550 554,105 791,310 14,091
Contract units purchased 86,312 93,645 39,068 70,041 175,697
Contract units transferred, net 401,442 309,696 218,017 266,026 (33,948)
Contract units redeemed (42,041) (51,094) (31,815) (46,611) (26,271)
----------------- -------------- ---------------- --------------- -------------
Unit balance at December 31, 1998 1,132,390 1,052,797 779,375 1,080,766 129,569
================= ============== ================ =============== =============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
RUSSELL AIM
----------------------------------------------- -------------------------------------
MULTI-STYLE AGGRESSIVE CORE CAPITAL INTERNATIONAL
EQUITY EQUITY NON-US BOND VALUE APPRECIATION EQUITY
------------ ------------ --------- --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit balance at December 31, 1996 -- -- -- -- -- -- --
Contract units purchased -- -- -- -- -- -- --
Contract units transferred, net -- -- -- -- -- -- --
Contract units redeemed -- -- -- -- -- -- --
------------ ------------ --------- --------- -------- --------------- ------------
Unit balance at December 31, 1997 -- -- -- -- -- -- --
Contract units purchased 45,702 7,795 16,824 54,877 2,811 5,456 15,482
Contract units transferred, net 2,780 887 1,475 6,720 44 104 (97)
Contract units redeemed (94) (31) (40) (99) -- -- (128)
------------ ------------ --------- --------- -------- --------------- ------------
Unit balance at December 31, 1998 48,388 8,651 18,259 61,498 2,855 5,560 15,257
============ ============ ========= ========= ======== =============== ============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
ALLIANCE LIBERTY GOLDMAN SACHS
----------------------------- --------- -------------------------------------------
GROWTH
PREMIER REAL ESTATE NEWPORT AND INTERNATIONAL GLOBAL
GROWTH INVESTMENT TIGER INCOME EQUITY INCOME
------------ -------------- --------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Unit balance at December 31, 1996 -- -- -- -- -- --
Contract units purchased -- -- -- -- -- --
Contract units transferred, net -- -- -- -- -- --
Contract units redeemed -- -- -- -- -- --
------------ -------------- --------- ----------- ---------------- ----------
Unit balance at December 31, 1997 -- -- -- -- -- --
Contract units purchased 61,989 20,016 2,387 11,978 13,558 2,992
Contract units transferred, net 1,056 2,144 -- 1,129 2,301 --
Contract units redeemed (176) (83) -- -- -- --
------------ -------------- --------- ----------- ---------------- ----------
Unit balance at December 31, 1998 62,869 22,077 2,387 13,107 15,859 2,992
============ ============== ========= =========== ================ ==========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
KEMPER
---------------------------------
DREMAN HIGH SMALL CAP
RETURN EQUITY GROWTH
----------------- -------------
<S> <C> <C>
Unit balance at December 31, 1996 -- --
Contract units purchased -- --
Contract units transferred, net -- --
Contract units redeemed -- --
----------------- -------------
Unit balance at December 31, 1997 -- --
Contract units purchased -- 3,287
Contract units transferred, net -- 542
Contract units redeemed -- --
----------------- -------------
Unit balance at December 31, 1998 -- 3,829
================= =============
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
KEMPER MFS
---------------------------- ----------------------------------------------------
GROWTH
SMALL CAP GOVERNMENT WITH EMERGING
VALUE SECURITIES BOND RESEARCH INCOME GROWTH
---------- --------------- ------ ----------- ------------------------------
<S> <C> <C> <C> <C> <C>
Unit balance at December 31, 1996 -- -- -- -- -- --
Contract units purchased -- -- -- -- -- --
Contract units transferred, net -- -- -- -- -- --
Contract units redeemed -- -- -- -- -- --
---------- --------------- ------ ----------- ------------------------------
Unit balance at December 31, 1997 -- -- -- -- -- --
Contract units purchased 18,879 2,180 -- 22,166 60,871 45,740
Contract units transferred, net (2,152) 329 -- 3,870 4,170 2,112
Contract units redeemed (86) -- -- (42) (250) (142)
---------- --------------- ------ ----------- ------------------------------
Unit balance at December 31, 1998 16,641 2,509 -- 25,994 64,791 47,710
========== =============== ====== =========== ==============================
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
MFS OPPENHEIMER
----------------------------------------------------- ------------------------------------
F&C EMERGING GROWTH
MARKETS HIGH WORLD AND HIGH
EQUITY INCOME GOVERNMENTS GROWTH INCOME INCOME
-------------------- ----------- ------------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Unit balance at December 31, 1996 -- -- -- -- -- --
Contract units purchased -- -- -- -- -- --
Contract units transferred, net -- -- -- -- -- --
Contract units redeemed -- -- -- -- -- --
-------------------- ----------- ------------------ ---------- ----------- -----------
Unit balance at December 31, 1997 -- -- -- -- -- --
Contract units purchased 8,277 12,308 316 4,131 13,701 9,108
Contract units transferred, net (3,990) 826 59 938 1,202 1,436
Contract units redeemed (53) (54) -- (42) (21) (11)
-------------------- ----------- ------------------------------ ----------- -----------
Unit balance at December 31, 1998 4,234 13,080 375 5,027 14,882 10,533
==================== =========== ================== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
OPPENHEIMER PUTNAM
------------------------ -----------------------
GROWTH
STRATEGIC AND NEW
BOND BOND INCOME VALUE
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Unit balance at December 31, 1996 -- -- -- --
Contract units purchased -- -- -- --
Contract units transferred, net -- -- -- --
Contract units redeemed -- -- -- --
----------- ----------- ----------- ----------
Unit balance at December 31, 1997 -- -- -- --
Contract units purchased 39,444 2,196 72,178 487
Contract units transferred, net 7,160 478 8,219 1,705
Contract units redeemed (227) -- (283) --
----------- ----------- ----------- ----------
Unit balance at December 31, 1998 46,377 2,674 80,114 2,192
=========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
PUTNAM TEMPLETON
----------------------------- ---------------------------------------------------------
INTERNATIONAL
INTERNATIONAL NEW DEVELOPING
VISTA GROWTH OPPORTUNITIES INTERNATIONAL MARKETS
---------- ---------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unit balance at December 31, 1996 -- -- -- -- --
Contract units purchased -- -- -- -- --
Contract units transferred, net -- -- -- -- --
Contract units redeemed -- -- -- -- --
---------- ---------------- ----------------------------------- ----------------
Unit balance at December 31, 1997 -- -- -- -- --
Contract units purchased 4,298 56,707 4,416 6,502 3,871
Contract units transferred, net 2,501 107 367 126 3,162
Contract units redeemed -- (248) -- (15) --
---------- ---------------- ----------------------------------- ----------------
Unit balance at December 31, 1998 6,799 56,566 4,783 6,613 7,033
========== ================ =================================== ================
</TABLE>
<TABLE>
<CAPTION>
COVA VARIABLE ANNUITY ACCOUNT FIVE
Notes to Financial Statements
December 31, 1998 and 1997
TEMPLETON FIDELITY
-------------- --------------------------------------------------------------------
MUTUAL
SHARES GROWTH GROWTH & EQUITY-
INVESTMENTS GROWTH CONTRAFUND OPPORTUNITIES INCOME INCOME
-------------- -------- ----------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Unit balance at December 31, 1996 -- -- -- -- -- --
Contract units purchased -- -- -- -- -- --
Contract units transferred, net -- -- -- -- -- --
Contract units redeemed -- -- -- -- -- --
-------------- -------- ----------- ----------------- --------- ----------
Unit balance at December 31, 1997 -- -- -- -- -- --
Contract units purchased 863 89 68 -- 325 296
Contract units transferred, net 69 406 -- 104 1,747 466
Contract units redeemed -- -- -- -- -- --
-------------- -------- ----------- ----------------- --------- ----------
Unit balance at December 31, 1998 932 495 68 104 2,072 762
============== ======== =========== ================= ========= ==========
</TABLE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services
Life Insurance Company)
Financial Statements
December 31, 1998, 1997, and 1996
(With Independent Auditors' Report Thereon)
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) (the Company) as of December 31, 1998 and 1997, and
the related statements of income, shareholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 1998. 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 audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cova Financial Life
Insurance Company as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
March 4, 1999
<TABLE>
<CAPTION>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services
Life Insurance Company)
Balance Sheets
December 31, 1998 and 1997
ASSETS 1998 1997
----------- -----------
(in thousands)
<S> <C> <C>
Investments:
Debt securities available-for-sale, at fair value
(cost of $99,228 in 1998 and $96,884 in 1997) $ 100,658 97,520
Mortgage loans, net of allowance for potential loan
loss of $10 in 1998 and $-0- in 1997 5,245 1,786
Policy loans 1,223 1,083
----------- -----------
Total investments 107,126 100,389
Cash and cash equivalents - interest-bearing 5,789 756
Cash - noninterest-bearing 1,200 1,392
Accrued investment income 1,641 1,826
Deferred policy acquisition costs 9,142 6,774
Present value of future profits 854 900
Goodwill 1,813 1,923
Deferred tax asset, net 585 1,042
Receivable from OakRe 35,312 68,533
Reinsurance receivables 118 114
Other assets 398 14
Separate account assets 127,873 69,318
----------- -----------
Total assets $ 291,851 252,981
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services
Life Insurance Company)
Balance Sheets, Continued
December 31, 1998 and 1997
LIABILITIES AND SHAREHOLDER'S EQUITY 1998 1997
----------- -----------
(in thousands)
<S> <C> <C>
Policyholder deposits $ 135,106 157,566
Future policy benefits 6,191 5,381
Payable on purchase of securities 27 92
Accounts payable and other liabilities 1,653 1,462
Federal and state income taxes payable 172 106
Future purchase price payable to OakRe 342 565
Guaranty fund assessments 1,000 1,000
Separate account liabilities 127,871 69,318
----------- -----------
Total liabilities 272,362 235,490
----------- -----------
Shareholder's equity:
Common stock, $233.34 par value. (Authorized
30,000 shares; issued and outstanding
12,000 shares in 1998 and 1997) 2,800 2,800
Additional paid-in capital 14,523 13,523
Retained earnings 1,833 1,023
Accumulated other comprehensive income,
net of tax 333 145
----------- -----------
Total shareholder's equity 19,489 17,491
----------- -----------
Total liabilities and shareholder's equity $ 291,851 252,981
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services
Life Insurance Company)
Statements of Income
Years ended December 31, 1998, 1997, and 1996
1998 1997 1996
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Revenues:
Premiums $ 1,308 1,191 488
Net investment income 7,516 6,761 4,176
Net realized gains (losses) on sales of
investments 178 158 (28)
Separate account fees 1,392 599 134
Other income 66 45 35
---------- ---------- ----------
Total revenues 10,460 8,754 4,805
---------- ---------- ----------
Benefits and expenses:
Interest on policyholder deposits 5,486 4,837 2,563
Current and future policy benefits 1,549 1,481 722
Operating and other expenses 1,614 1,203 570
Amortization of purchased intangible
assets 194 165 66
Amortization of deferred policy
acquisition costs 530 320 187
---------- ---------- ----------
Total benefits and expenses 9,373 8,006 4,108
---------- ---------- ----------
Income before income taxes 1,087 748 697
---------- ---------- ----------
Income tax expense (benefit):
Current (80) 310 351
Deferred 357 (5) (66)
---------- ---------- ----------
Total income tax expense 277 305 285
---------- ---------- ----------
Net income $ 810 443 412
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services
Life Insurance Company)
Statements of Shareholder's Equity
Years ended December 31, 1998, 1997, and 1996
1998 1997 1996
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Common stock, at beginning
and end of period $ 2,800 2,800 2,800
---------- ---------- ----------
Additional paid-in capital:
Balance at beginning of period 13,523 13,523 13,523
Capital contribution 1,000 -- --
---------- ---------- ----------
Balance at end of period 14,523 13,523 13,523
---------- ---------- ----------
Retained earnings:
Balance at beginning of period 1,023 580 168
Net income 810 443 412
---------- ---------- ----------
Balance at end of period 1,833 1,023 580
---------- ---------- ----------
Accumulated other comprehensive income:
Balance at beginning of period 145 1 192
Change in unrealized appreciation (depreciation)
of debt and equity securities 794 630 (840)
Deferred federal income tax impact (101) (77) 103
Change in deferred policy acquisition costs
attributable to unrealized appreciation (513) (144) (69)
Change in present value of future profits
attributable to unrealized depreciation (appreciation) 8 (265) 615
---------- ---------- ----------
Balance at end of period 333 145 1
---------- ---------- ----------
Total shareholder's equity $ 19,489 17,491 16,904
========== ========== ==========
Total comprehensive income:
Net income $ 810 443 412
Other comprehensive income (change in net unrealized
appreciation (depreciation) of debt and equity securities) 188 144 (191)
---------- ---------- ----------
Total comprehensive income $ 998 587 221
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services
Life Insurance Company)
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------ ------------ -----------
(in thousands)
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by (used in) operating
activities:
Net income $ 810 443 412
Adjustments to reconcile net
income (loss) to net cash provided by
(used in) operating activities:
Increase in future policy benefits 810 820 192
Increase in payables and
accrued liabilities 191 82 95
Decrease (increase) in accrued
investment income 185 (704) (556)
Amortization of intangible assets and
deferred policy acquisition costs 724 485 253
Amortization and accretion of
securities, premiums, and discounts (87) (10) 73
Net realized (gain) loss on sale of investments (178) (158) 28
Interest on policyholder deposits 5,486 4,837 2,563
Increase (decrease) in current and
deferred federal income taxes 523 91 (66)
Recapture commissions paid to OakRe (223) (159) (273)
Commissions and expenses deferred (3,411) (3,917) (2,413)
Due to/from affiliates -- -- 44
Other 219 (498) (452)
------------ ------------ -----------
Net cash provided by (used in) operating activities 5,049 1,312 (100)
------------ ------------ -----------
Cash flows from investing activities:
Cash used in the purchase of
investment securities (56,673) (53,534) (42,655)
Proceeds from investment securities
sold and matured 50,661 25,379 10,635
Other (121) (81) (90)
------------ ------------ -----------
Net cash used in investing activities (6,133) (28,236) (32,110)
------------ ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
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, 1998, 1997, and 1996
1998 1997 1996
------------ ------------ -----------
(in thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Policyholder deposits $ 69,459 81,788 38,348
Transfers from OakRe 35,590 25,060 36,553
Transfer to separate accounts (60,181) (56,144) (13,669)
Return of policyholder deposits (39,943) (28,267) (28,521)
Capital contributions received 1,000 -- --
------------ ------------ -----------
Net cash provided by financing activities 5,925 22,437 32,711
------------ ------------ -----------
Increase (decrease) in cash and cash equivalents 4,841 (4,487) 501
Cash and cash equivalents - beginning of period 2,148 6,635 6,134
------------ ------------ -----------
Cash and cash equivalents - end of period $ 6,989 2,148 6,635
============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services
Life Insurance Company)
Notes to Financial Statements
December 31, 1998, 1997, and 1996
(1) NATURE OF BUSINESS AND ORGANIZATION
NATURE OF THE BUSINESS
Cova Financial Life Insurance Company (the Company) markets and
services single premium deferred annuities, immediate annuities,
variable annuities, term life, single premium variable universal
life, and single premium whole life insurance policies. The
Company is licensed to conduct business in the state of
California. Most of the policies issued present no significant
mortality or 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 fixed annuity contracts, interest rates
credited to policyholder deposits are guaranteed. The Company may
assess surrender fees against amounts withdrawn prior to scheduled
rate reset and adjust account values based on current crediting
rates. Policyholders also may incur certain federal income tax
penalties on withdrawals.
Under the variable annuity contracts, policyholder deposits are
allocated to various separate account sub-accounts or the general
account. A sub-account is valued at the sum of market values of
the securities in its underlying investment portfolio. The
contract value allocated to a sub-account will fluctuate based on
the performance of the sub-accounts. The contract value allocated
to the general account is credited with a fixed interest rate for
a specified period. The Company may assess surrender fees against
amounts withdrawn prior to the end of the withdrawal charge
period. Policyholders may also incur certain federal income tax
penalties on withdrawals.
Under the single premium variable life contracts, policyholder
deposits are allocated to various separate account sub-accounts.
The account value allocated to a sub-account will fluctuate based
on the performance of the sub-accounts. The Company guarantees a
minimum death benefit to be paid to the beneficiaries upon the
death of the insured. The Company may assess surrender fees
against amounts withdrawn prior to the end of the surrender charge
period. A deferred premium tax may also be assessed against
amounts withdrawn in the first ten years. Policyholders may also
incur certain federal income tax penalties on withdrawals.
Under the term life insurance policies, policyholders pay a level
premium over a certain period of time to guarantee a death benefit
will be paid to the beneficiaries upon the death of the insured.
This policy has no cash accumulation available to the
policyholder.
Although the Company markets its products through numerous
distributors, including regional brokerage firms, national
brokerage firms, and banks, approximately 97%, 85%, and 81% of the
Company's sales have been through two specific brokerage firms, A.
G. Edwards & Sons, Incorporated, and Edward Jones & Company,
Incorporated, in 1998, 1997, and 1996, respectively.
ORGANIZATION
The Company, formerly Xerox Financial Life Insurance Company
(XFLIC), 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.
Cova Corporation purchased the Company from Xerox Financial
Services, Inc. (XFSI), a wholly owned subsidiary of Xerox
Corporation, on June 1, 1995. In conjunction with the purchase,
Cova Corporation entered into a financing reinsurance transaction
with OakRe Life Insurance Company (OakRe), a subsidiary of XFSI,
to assume the economic benefits and risks of the existing single
premium deferred annuity deposits (SPDAs) of the Company. 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 end of
the year 2000, from 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, 1998 and 1997.
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) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEBT SECURITIES
Investments in all debt securities with readily determinable fair
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, 1998 and
1997 were classified as available-for-sale. Securities
available-for-sale are carried at fair value, with unrealized
holding gains and losses reported as accumulated other
comprehensive income of shareholder's equity, net of deferred
effects of income tax and related effects on deferred acquisition
costs and present value of future profits.
Amortization of the discount or premium from the purchase of
mortgage-backed bonds is recognized using a level-yield method
which considers the estimated timing and amount of prepayments of
the underlying mortgage loans. Actual prepayment experience is
periodically reviewed and effective yields are recalculated when
differences arise between the prepayments previously anticipated
and the actual prepayments received and currently anticipated.
When such a difference occurs, the net investment in the
mortgage-backed bond is adjusted to the amount that would have
existed had the new effective yield been applied since the
acquisition of the bond, with a corresponding charge or credit to
interest income (the "retrospective method").
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.
MORTGAGE LOANS AND POLICY LOANS
Mortgage loans and policy loans are carried at their unpaid
principal balances. An allowance for mortgage loan losses is
established based on an evaluation of the mortgage loan portfolio,
past credit loss experience, and current economic conditions.
Reserves for loans are established when the Company determines
that collection of all amounts due under the contractual terms is
doubtful and are calculated in conformity with Statement of
Financial Accounting Standards (SFAS) No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures.
The Company had no impaired loans, and the valuation allowance for
potential losses on mortgage loans was $10,000 and $319, at
December 31, 1998 and 1997, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include currency and demand deposits in
banks, U.S. Treasury bills, money market accounts, and commercial
paper with maturities under 90 days, which are not otherwise
restricted.
SEPARATE ACCOUNT ASSETS
Separate accounts contain segregated assets of the Company that
are specifically assigned to variable annuity 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.
In order to provide for optimum policyholder returns and to allow
for the replication of the investment performance of existing
"cloned" mutual funds, the Company has periodically transferred
capital to the separate accounts to provide for the initial
purchase of investments in new portfolios. As additional funds
have been received through policyholder deposits, the Company has
periodically reduced its capital investment in the separate
accounts. The Company's capital investment in the separate
accounts as of December 31, 1998 and 1997, are presented in note
3.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business which vary with and are
directly related to the production of new business, principally
commissions, premium taxes, sales costs, and certain policy
issuance and underwriting costs, are deferred. 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 policy acquisition costs is adjusted to the amount
that would have existed had the actual experience and revised
estimates been known and applied from the inception of the
policies and contracts. The amortization and adjustments resulting
from unrealized gains and losses are not recognized currently in
income but as an offset to the accumulated other comprehensive
income of shareholder's equity. The amortization period is the
remaining life of the policies, which is approximately 20 years
from the date of original policy issue.
<TABLE>
<CAPTION>
The components of deferred policy acquisition costs are shown
below:
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred policy acquisition costs, beginning of period $ 6,774 3,321 1,164
Commissions and expenses deferred 3,411 3,917 2,413
Amortization (530) (320) (187)
Deferred policy acquisition costs attributable to
unrealized appreciation (513) (144) (69)
------------ ------------ ------------
Deferred policy acquisition costs, end of period $ 9,142 6,774 3,321
============ ============ ============
</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
The Company established an intangible asset which represents
the present value of future profits (PVFP) to be derived from
both the purchased and transferred blocks of business. Certain
estimates were utilized in the computation of this asset,
including estimates of future policy retention, investment
income, interest credited to policyholders, surrender fees,
mortality costs, and policy maintenance costs discounted at a
pretax rate of 18% (12% net after tax).
In addition, as the Company has the option of retaining its
SPDA policies after they reach their next interest rate reset
date and are recaptured from OakRe, a component of this asset
represents estimates of future profits on recaptured business.
This asset will be amortized in proportion to estimated future
gross profits derived from investment income, realized gains
and losses on sales of securities, unrealized securities
appreciation and depreciation, interest credited to accounts,
surrender fees, mortality costs, and policy maintenance
expenses. The estimated gross profit streams are periodically
reevaluated and the unamortized balance of PVFP will be
adjusted to the amount that would have existed had the actual
experience and revised estimates been known and applied from
the inception. The amortization and adjustments resulting from
unrealized appreciation and depreciation is not recognized
currently in income but as an offset to the accumulated other
comprehensive income of shareholder's equity. The amortization
period is the remaining life of the policies, which is
estimated to be 20 years from the date of original policy
issue.
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 4.9%, 7.2%, 7.8%, 7.7%, and
7.2% for the years ended December 31, 1999 through 2003,
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
reallocation of the net purchased intangible asset between
PVFP, 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.
<TABLE>
<CAPTION>
The components of PVFP are shown below:
1998 1997 1996
-------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
PVFP - beginning of period $ 900 1,178 576
Net amortization (54) (13) 78
Adjustment due to revised push-down purchase
accounting -- -- (91)
PVFP attributable to unrealized
depreciation (appreciation) 8 (265) 615
-------- ---------- ---------
PVFP - end of period $ 854 900 1,178
======== ========== =========
</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.
<TABLE>
<CAPTION>
The components of goodwill are shown below:
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill - beginning of period $ 1,923 2,034 2,306
Amortization (110) (111) (105)
Adjustment due to revised push-down purchase
accounting -- -- (167)
------------ ------------ ------------
Future payable - end of period $ 1,813 1,923 2,034
============ ============ ============
</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 rate 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 a commission to OakRe of
0.50%.
The Company has recorded a future payable that represents the
present value of the anticipated future commission payments
payable to OakRe over the remaining life of the financial
reinsurance agreement discounted at an estimated borrowing
rate of 6.5%. 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 end of
the year 2000.
<TABLE>
<CAPTION>
The components of this future payable are shown below:
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Future payable - beginning of period $ 565 683 1,265
Interest added 29 41 39
Payments to OakRe (252) (159) (273)
Adjustment due to revised push-down purchase
accounting -- -- (348)
---------- ---------- ----------
Future payable - end of period $ 342 565 683
========== ========== ==========
</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 Company's assets as of the date of
acquisition was 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 Company's policyholder
deposits as of December 31, 1998 was 6.05%.
FUTURE POLICY BENEFITS
Reserves are held for policy 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. Amounts
collected on annuity policies not subject to longevity risk are
recorded as increases in the policyholder deposits liability. For
term and single premium variable life products, premiums are
recognized as revenue when due.
FEDERAL INCOME TAXES
Beginning in 1997, the Company files a consolidated income tax
return with its immediate parent, CFSLIC. Allocations of federal
income taxes are based upon separate return calculations.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amount of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
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 valuation
- Amortization of deferred policy acquisition costs
- Amortization of present value of future profits
- Recoverability of goodwill
The fair value of the Company's investments is subject to the risk
that interest rates will change and cause a temporary increase or
decrease in the liquidation value of debt securities. To the
extent that fluctuations in interest rates cause the cash flows of
assets and liabilities to change, the Company might have to
liquidate assets prior to their maturity and recognize a gain or
loss. Interest rate exposure for the investment portfolio is
managed through asset/liability management techniques which
attempt to control the risks presented by differences in the
probable cash flows and reinvestment of assets with the timing of
crediting rate changes in the Company's policies and contracts.
Changes in the estimated prepayments of mortgage-backed securities
also may cause retrospective changes in the amortization period of
securities and the related recognition of income.
The amortization of deferred acquisition costs is based on
estimates of long-term future gross profits from existing
policies. These gross profits are dependent upon policy retention
and lapses, the spread between investment earnings and crediting
rates, and the level of maintenance expenses. Changes in
circumstances or estimates may cause retrospective adjustment to
the periodic amortization expense and the carrying value of the
deferred expense.
In a similar manner, the amortization of PVFP is based on
estimates of long-term future profits from existing 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.
The Company has considered the recoverability of goodwill and has
concluded that no circumstances have occurred which would give
rise to impairment of goodwill at December 31, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial
Instruments, applies fair value disclosure practices with regard
to financial instruments, both assets and liabilities, for which
it is practical to estimate fair value. In cases where quoted
market prices are not readily available, fair values are based on
estimates that use present value or other valuation techniques.
These techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash
flows. Although fair value estimates are calculated using
assumptions that management believes are appropriate, changes in
assumptions could cause these estimates to vary materially. In
that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many
cases, might not be realized in the immediate settlement of the
instruments. SFAS No. 107 excludes certain financial instruments
and all nonfinancial instruments from its disclosure requirements.
Because of this, and further because 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 value 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.
Investments Securities and Mortgage Loans
(Including Mortgage-backed Securities)
Fair values of debt securities are based on quoted market
prices, where available. For debt securities not actively
traded, fair value estimates are obtained from independent
pricing services. In some cases, such as private placements,
certain mortgage-backed securities, and mortgage loans, fair
values are estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit
quality, and maturity of the investments (see note 3 for fair
value disclosures).
Policy Loans
Fair values of policy loans approximate carrying value as the
interest rates on the majority of policy loans are reset
periodically and therefore approximate current interest rates.
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 contracts 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, 1998 and 1997, the cash
surrender value of policyholder deposits was $4,707,689 and
$7,204,647, respectively, less than their stated carrying
value. Of the contracts permitting surrender, substantially
all provide the option to surrender without fee or adjustment
during the 30 days following reset of guaranteed crediting
rates. The Company has not determined a practical method to
determine the present value of this option.
All of the Company's deposit obligations are fully guaranteed
by its ultimate parent, 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, 1998 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.
RECENTLY ADOPTED ACCOUNTING STANDARDS
On June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes
standards for the reporting and display of comprehensive income
and its components in the financial statements. SFAS No. 130 is
effective for the fiscal year beginning after December 15, 1997.
Reclassification of financial statements for earlier periods
provided is required for comparative purposes. The Company has
elected to adopt SFAS No. 130 in 1998. The adoption of SFAS No.
130 has no impact on the Company's net income or shareholder's
equity. The Company's only component of accumulated other
comprehensive income relates to unrealized appreciation and
depreciation on debt securities.
RECENTLY ISSUED ACCOUNTING STANDARD
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998. SFAS No. 133 requires all
derivative instruments to be recorded on the balance sheet at
estimated fair value. The Company's present accounting policies
would apply such accounting treatment only to marketable
securities as defined under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, and to off-balance
sheet derivative instruments. SFAS No. 133 will broaden the
definition of derivative instruments to include all classes of
financial assets and liabilities. It also will require separate
disclosure of identifiable derivative instruments embedded in
hybrid securities. Change in the fair value of derivative
instruments is to be recorded each period either in current
earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and, if it
is, on the type of hedge transaction.
SFAS No. 133 is effective for the Company beginning January 1,
2000. The Company's management is currently evaluating the impact
of SFAS No. 133; at present, the management does not believe it
will have a material effect on the Company's financial position or
results of operations.
OTHER
Certain 1997 and 1996 amounts have been reclassified to conform to
the 1998 presentation.
<TABLE>
<CAPTION>
(3) 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 shareholder's equity. The amortized
cost, estimated fair value, and carrying value of investments at
December 31, 1998 and 1997, are as follows:
1998
-------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
--------------- -------------- -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government
treasuries $ 100 1 -- 101 101
Collateralized
mortgage obligations 15,260 161 (32) 15,389 15,389
Corporate, state,
municipalities, and
political subdivisions 83,868 1,733 (433) 85,168 85,168
--------------- -------------- -------------- -------------- --------------
Total debt
securities 99,228 1,895 (465) 100,658 100,658
Mortgage loans (net) 5,245 204 -- 5,449 5,245
Policy loans 1,223 -- -- 1,223 1,223
--------------- -------------- -------------- -------------- --------------
Total investments $ 105,696 2,099 (465) 107,330 107,126
=============== ============== ============== ============== ==============
Company's beneficial
interest in separate
accounts $ 2 -- -- 2 2
=============== ============== ============== ============== ==============
</TABLE>
<TABLE>
1997
-------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
--------------- -------------- -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government
treasuries $ 100 1 -- 101 101
Collateralized
mortgage obligations 24,018 305 (64) 24,259 24,259
Corporate, state,
municipalities, and
political subdivisions 72,766 1,500 (1,106) 73,160 73,160
--------------- -------------- -------------- -------------- --------------
Total debt
securities 96,884 1,806 (1,170) 97,520 97,520
Mortgage loans (net) 1,786 143 -- 1,929 1,786
Policy loans 1,083 -- -- 1,083 1,083
--------------- -------------- -------------- -------------- --------------
$ 99,753 1,949 (1,170) 100,532 100,389
=============== ============== ============== ============== ==============
Company's beneficial
interest in separate
accounts $ -- -- -- -- --
=============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
The amortized cost and estimated fair value of debt securities at
December 31, 1998, 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.
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Less than one year $ 2,341 2,362
Due after one year through five years 34,579 35,067
Due after five years through ten years 32,584 33,321
Due after ten years 14,464 14,519
Mortgage-backed securities 15,260 15,389
--------------- ---------------
Total $ 99,228 100,658
=============== ===============
</TABLE>
At December 31, 1998, approximately 95.1% of the Company's debt
securities are investment grade or are nonrated but considered to be of
investment grade. Of the 4.9% noninvestment grade debt securities, 4.3%
are rated as BB or its equivalent, and 0.6% are rated B or its
equivalent.
All debt securities were income producing during the years ended
December 31, 1998 and 1997. As of December 31, 1998 and 1997, the
Company had no impaired investments.
<TABLE>
<CAPTION>
The components of investment income, realized gains (losses), and
unrealized appreciation are as follows:
1998 1997 1996
------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income on debt securities $ 6,928 6,575 3,926
Income on short-term investments 305 186 243
Income on policy loans 92 83 86
Interest on mortgage loans 308 32 --
Miscellaneous interest 2 -- 8
------------ ------------- ------------
Total investment income 7,635 6,876 4,263
Investment expenses (119) (115) (87)
------------ ------------- ------------
Net investment income $ 7,516 6,761 4,176
============ ============= ============
Net realized capital gains (losses) -
debt securities $ 178 158 (28)
============ ============= ============
Unrealized appreciation
is as follows:
Debt securities $ 1,430 633 6
Short-term investments -- 3 --
Effects on deferred acquisition
costs amortization (726) (213) (69)
Effects on PVFP amortization (192) (200) 65
------------ ------------- ------------
Unrealized appreciation before income taxes 512 223 2
Unrealized income tax expenses (179) (78) (1)
------------ ------------- ------------
Net unrealized appreciation on
investments $ 333 145 1
============ ============= ============
</TABLE>
Proceeds from sales, redemptions, and paydowns of investments in debt
securities during 1998 were $50,660,583. Gross gains of $591,755 and
gross losses of $413,588 were realized on those sales. Included in these
amounts were $133,138 of gross gains and $106,165 of gross losses
realized on the sale of noninvestment grade securities.
Proceeds from sales, redemptions, and paydowns for investments in debt
securities during 1997 were $25,379,783. Gross gains of $166,335 and
gross losses of $8,658 were realized on those sales. Included in these
amounts were $47,391 of gross gains and $7,300 of gross losses realized
on the sale of noninvestment grade securities.
Proceeds from sales, redemptions, and paydowns for 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 noninvestment
grade securities.
<TABLE>
<CAPTION>
(4) SECURITY GREATER THAN 10% OF SHAREHOLDER'S EQUITY
As of December 31, 1998 and 1997, the Company held the following
individual security which exceeded 10% of shareholder's equity:
1998 1997
--------------- ---------------
<S> <C> <C>
Colonial Realty, at carrying value $ 1,997,287 2,017,400
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
(5) COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income $ 810 443 412
------------ ------------ ------------
Other comprehensive income (loss), before tax -
unrealized appreciation (depreciation) on
investments arising during period:
Unrealized appreciation (depreciation)
on investments 616 472 (812)
Adjustment to deferred acquisition
costs attributable to unrealized
(appreciation) depreciation (398) (108) (67)
Adjustment to PVFP attributable to
unrealized (appreciation) depreciation 6 (198) 594
------------ ------------ ------------
Total unrealized appreciation (depreciation) on
investments arising during period 224 166 (285)
------------ ------------ ------------
Less reclassification adjustments for realized (gains) losses included
in net income:
Adjustment for (gains) losses included in
net realized gains (losses) on sales
of investments (178) (158) 28
Adjustment for (gains) losses included in
amortization of PVFP 115 36 2
Adjustment for (gains) losses included in
amortization of deferred acquisition costs (2) 67 (21)
------------ ------------ ------------
Total reclassification adjustments for (gains) losses
included in net income (65) (55) 9
------------ ------------ ------------
Other comprehensive income (loss), before related income tax
expense (benefits) 289 221 (294)
Related income tax expense (benefit) 101 77 (103)
------------ ------------ ------------
Other comprehensive income (loss), net of tax 188 144 (191)
------------ ------------ ------------
Comprehensive income $ 998 587 221
============ ============ ============
</TABLE>
(6) POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company has no direct employees and no retired employees. All
personnel used to support the operations of the Company are supplied 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 1998, 1997, and 1996, the Company was allocated a
portion of benefit costs including severance pay, accumulated vacations,
and disability benefits. At December 31, 1998, 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 allocations is not material.
<TABLE>
<CAPTION>
(7) INCOME TAXES
The Company will file a consolidated federal income tax return with its
immediate parent, CFSLIC. Income taxes are recorded in the statements of
income and directly in certain shareholder's equity accounts. Income
tax expense for the years ended December 31 was allocated as follows:
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Statements of income:
Operating income (excluding realized investment gains and losses) $ 215 250 295
Realized investment gains (losses) 62 55 (10)
--------- --------- ---------
Income tax expense included in the statements of
income 277 305 285
Shareholder's equity - change in deferred federal income taxes
related to unrealized appreciation (depreciation) on securities 101 77 (103)
--------- --------- ---------
Total income tax expense $ 378 382 182
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
The actual federal income tax expense differed from the expected tax
expense computed by applying the U.S. federal statutory rate to income
before taxes on income as follows:
1998 1997 1996
-------------------- -------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax expense $ 380 35.0% $ 262 35.0% $ 244 35.0%
Dividends received deduction - separate
account (150) (13.9) -- -- -- --
Amortization of intangible assets 39 3.6 39 5.2 37 5.3
Other 8 0.8 4 0.5 4 0.6
-------- ---------- -------- ---------- -------- ---------
Total $ 277 25.5% $ 305 40.7% $ 285 40.9%
======== ========== ======== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are as follows:
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Tax basis of intangible assets purchased $ 624 679
Liability for commission on recaptures 120 198
Policy reserves 2,477 1,898
DAC "Proxy Tax" 1,252 977
Other deferred tax assets (359) --
------------ ------------
Total deferred tax assets 4,114 3,752
------------ ------------
Deferred tax liabilities:
Unrealized gains in investments 179 78
PVFP 150 144
Deferred acquisition costs 3,200 2,371
Other deferred tax liabilities -- 117
------------ ------------
Total deferred tax liabilities 3,529 2,710
------------ ------------
Net deferred tax asset $ 585 1,042
============ ============
</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 was established at
December 31, 1998 or 1997.
(8) RELATED-PARTY TRANSACTIONS
On December 31, 1997, CLMC and Navisys Incorporated, affiliated
companies, purchased certain assets of Johnson & Higgins/Kirke Van
Orsdel, Inc. (J&H/KVI), an unaffiliated Delaware corporation, for
$2,500,000. The purchased assets are the administrative and service
systems that provide the marketing, underwriting, claims, and
administrative functions for the Company's life and annuity products. On
January 1, 1998, the purchased assets of J&H/KVI were merged into Cova
Life Administrative Service Company (CLASC). Navisys Incorporated
purchased 51% of CLASC, the remaining 49% was purchased by CLMC.
The Company has entered into management, operations, and servicing
agreements with its affiliated companies. The affiliated companies are
CLMC, a Delaware Corporation, which provides management services and
the employees necessary to conduct the activities of the Company; and
Conning Asset Management, which provides investment advice.
Additionally, a portion of overhead and other corporate expenses are
allocated by the Company's ultimate parent, GALIC. CLASC provides
various services for the Company including underwriting, claims, and
administrative functions. Expenses and fees paid to affiliated
companies in 1998, 1997, and 1996 for the Company were $1,587,833,
$396,806, and $303,694 respectively.
(9) STATUTORY SURPLUS AND DIVIDEND RESTRICTION
GAAP differs in certain respects from accounting practices prescribed or
permitted by insurance regulatory authorities (statutory accounting
principles).
The major differences arise principally from the immediate expense
recognition of policy acquisition costs and intangible assets for
statutory reporting, determination of policy reserves based on different
discount rates and methods, the recognition of deferred taxes under GAAP
reporting, the nonrecognition of financial reinsurance for GAAP
reporting, 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
under statutory accounting principles. In addition, adjustments to
record the carrying values of debt securities and certain equity
securities at estimated fair value are applied only under GAAP reporting
and capital contributions in the form of notes receivable from an
affiliated company are not recognized under GAAP reporting.
Purchase accounting creates another difference as it requires the
restatement of GAAP assets and liabilities to their established fair
values, and shareholder's equity to the net purchase price. Statutory
accounting does not recognize the purchase method of accounting.
<TABLE>
<CAPTION>
As of December 31, the differences between statutory capital and surplus
and shareholder's equity determined in conformity with GAAP were as
follows:
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Statutory capital and surplus $ 10,411 10,389
Reconciling items:
Statutory asset valuation reserve 1,078 1,151
Statutory interest maintenance reserve 190 111
GAAP investment adjustments to fair value 1,430 636
GAAP deferred policy acquisition costs 9,142 6,774
GAAP basis policy reserves (4,670) (3,871)
GAAP deferred federal income taxes (net) 585 1,042
GAAP guarantee assessment adjustment (1,000) (1,000)
GAAP goodwill 1,813 1,923
GAAP present value of future profits 854 900
GAAP future purchase price payable (342) (565)
Other (2) 1
------------ ------------
GAAP shareholder's equity $ 19,489 17,491
============ ============
</TABLE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova
Financial Services Life Insurance Company)
Notes to Financial Statements
December 31, 1998, 1997, and 1996
Statutory net loss for the years ended December 31, 1998, 1997, and 1996
was $142,046, $461,118, and $113,236, 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. The maximum
dividend permissible during 1998 will be $761,109, which is 10% of the
Company's December 31, 1998 statutory surplus of $7,611,089.
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,
1998, the Company's Total Adjusted Capital and Authorized Control Level
RBC were $11,488,766 and $1,619,495, respectively. This level of
adjusted capital qualifies under all tests.
(10) GUARANTY FUND ASSESSMENTS
The Company participates with life insurance companies licensed in
California in an association formed to guaranty benefits to
policyholders of insolvent life insurance companies. Under state law, as
a condition for maintaining the Company's authority to issue new
business, the Company is contingently liable for its share of claims
covered by the guaranty association for insolvencies incurred through
1998, but for which assessments have not yet been determined or
assessed, to a maximum generally of 1% of statutory premiums per annum.
In November 1998, the National Organization of Life and Health Guaranty
Associations distributed a study of the major outstanding industry
insolvencies, with estimates of future assessments by state. Based on
this study, the Company has accrued a liability for $1.0 million in
future assessments on insolvencies that occurred before December 31,
1998. 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. The Company paid $33,505, $460,167, and $265,760 in
guaranty fund assessment in 1998, 1997, and 1996, respectively. These
payments were substantially reimbursed by OakRe.
At the same time, the Company is liable to OakRe for 80% of any future
premium tax recoveries that are realized from any such assessments and
may retain the remaining 20%. The credits to be retained for 1998 were
not material.
