Registration Statement for a Separate Account (Unit Investment Trust) — Form N-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: N-4 EL Registration Statement for a Separate Account 82± 349K
(Unit Investment Trust)
5: EX-99.B14 Miscellaneous Exhibit 1 4K
2: EX-99.B4(I) Miscellaneous Exhibit 20± 89K
3: EX-99.B4(II) Miscellaneous Exhibit 2± 9K
4: EX-99.B4(III) Miscellaneous Exhibit 3± 10K
N-4 EL — Registration Statement for a Separate Account (Unit Investment Trust)
Document Table of Contents
File Nos. 333-_____
811-7060
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 6 [X]
(Check appropriate box or boxes.)
COVA VARIABLE ANNUITY ACCOUNT FIVE
___________________________________
(Exact Name of Registrant)
COVA FINANCIAL LIFE INSURANCE COMPANY
______________________________________
(Name of Depositor)
535 Anton Boulevard, Costa Mesa, California 92626
___________________________________________ _____
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (800) 831-5433
______________
Name and Address of Agent for Service
Lorry J. Stensrud, President
Cova Financial Life Insurance Company
One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644
(800) 831-5433
Copies to:
Judith A. Hasenauer and Frances S. Cook
Blazzard, Grodd & Hasenauer, P.C. First Vice President and
943 Post Road East Associate Counsel
P.O. Box 5108 Cova Financial Life Insurance
Westport, CT 06881 Company
(203) 226-7866 One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Calculation of Registration Fee under the Securities Act of 1933:
Registrant is registering an indefinite number of securities under the
Securities Act of 1933 pursuant to Investment Company Act Rule 24f-2.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Registrant has declared that it has registered an indefinite number or amount of
securities in accordance with Rule 24f-2 under the Investment Company Act of
1940. Registrant filed its Rule 24f-2 Notice for the most recent fiscal year on
or about February 28, 1997.
EXPLANATORY NOTE
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This Registration Statement contains two prospectuses (Version A and Version B).
The two versions are identical except for the funding options and Version A does
not have a Profile (Version B uses a Profile instead of a Summary). The
distribution system for each version of the Prospectus is different. These
Prospectuses will be filed with the Commission pursuant to Rule 497 under the
Securities Act of 1933. The Registrant undertakes to update this Explanatory
Note, as needed, each time a Post-Effective Amendment is filed.
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CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
-------- --------
PART A
Item 1. Cover Page . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . Index of Special Terms
Item 3. Synopsis . . . . . . . . . . . . . . . Profile
Item 4. Condensed Financial Information . . . Appendix A
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies . . Other Information - Cova; The
Separate Account; Investment
Options
Item 6. Deductions and Expenses. . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts. . . . . . . . . . . The Fixed and Variable Annuity
Item 8. Annuity Period . . . . . . . . . . . . Income Phase
Item 9. Death Benefit. . . . . . . . . . . . . Death Benefit
Item 10. Purchases and Contract Value . . . . . Purchase
Item 11. Redemptions. . . . . . . . . . . . . . Access to Your Money
Item 12. Taxes. . . . . . . . . . . . . . . . . Taxes
Item 13. Legal Proceedings. . . . . . . . . . . None
Item 14. Table of Contents of the Statement of
Additional Information . . . . . . . . Table of Contents of the
Statement of Additional
Information
[Download Table]
CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
-------- --------
PART B
Item 15. Cover Page . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . Company
Item 18. Services . . . . . . . . . . . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered . Not Applicable
Item 20. Underwriters . . . . . . . . . . . . . Distribution
Item 21. Calculation of Performance Data. . . . Performance Information
Item 22. Annuity Payments . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements . . . . . . . . . Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered in Part C to this Registration Statement.
PART A - VERSION A
THE FIXED
AND VARIABLE ANNUITY
ISSUED BY
COVA VARIABLE ANNUITY ACCOUNT FIVE
AND
COVA FINANCIAL LIFE INSURANCE COMPANY
This prospectus describes the Fixed and Variable Annuity Contract offered by
Cova Financial Life Insurance Company (Cova).
The annuity contract has 32 investment choices - a fixed account which offers an
interest rate which is guaranteed by Cova, and 31 investment portfolios listed
below. You can put your money in the fixed account and/or any of these
investment portfolios. CURRENTLY, IF YOU ARE NOT PARTICIPATING IN AN ASSET
ALLOCATION PROGRAM, YOU CAN ONLY INVEST IN 15 INVESTMENT PORTFOLIOS AT ANY ONE
TIME.
AIM VARIABLE INSURANCE FUNDS, INC.:
MANAGED A I M ADVISORS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
Premier Growth Portfolio
Real Estate Investment Portfolio
LIBERTY VARIABLE INVESTMENT TRUST:
MANAGED BY NEWPORT FUND MANAGEMENT INC.
Newport Tiger, Variable Series
GENERAL AMERICAN CAPITAL COMPANY:
MANAGED BY CONNING ASSET MANAGEMENT COMPANY
Money Market Fund
COVA SERIES TRUST:
MANAGED BY J. P. MORGAN INVESTMENT MANAGEMENT INC.
Small Cap Stock Portfolio
Large Cap Stock Portfolio
Select Equity Portfolio
International Equity Portfolio
Quality Bond Portfolio
MANAGED BY LORD, ABBETT & CO.
Bond Debenture Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Mid Cap Value Portfolio
Lord Abbett Growth & Income Portfolio
INVESTORS FUND SERIES:
MANAGED BY ZURICH KEMPER VALUE ADVISORS, INC.
Kemper Small Cap Value Portfolio
MANAGED BY ZURICH KEMPER INVESTMENTS, INC.
Kemper Government Securities Portfolio
Kemper Small Cap Growth Portfolio
LORD ABBETT SERIES FUND, INC.
MANAGED BY LORD, ABBETT & CO.
Growth and Income Portfolio
MFS VARIABLE INSURANCE TRUST:
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS High Income Series
MFS World Governments Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
MANAGED BY OPPENHEIMERFUNDS, INC.
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the Cova Fixed and Variable
Annuity Contract.
To learn more about the Cova Fixed and Variable Annuity Contract, you can obtain
a copy of the Statement of Additional Information (SAI) dated _____, 1997. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
legally a part of the prospectus. The Table of Contents of the SAI is on Page __
of this prospectus. For a free copy of the SAI, call us at (800) 831-5433 or
write us at : One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_____________, 1997.
TABLE OF CONTENTS
Page
INDEX OF SPECIAL TERMS
SUMMARY
FEE TABLE
EXAMPLES
1. THE ANNUITY CONTRACT
2. ANNUITY PAYMENTS (THE INCOME PHASE)
3. PURCHASE
Purchase Payments
Allocation of Purchase Payments
Accumulation Units
4. INVESTMENT OPTIONS
AIM Variable Insurance Funds, Inc.
Alliance Variable Products Series Fund, Inc.
Liberty Variable Investment Trust
General American Capital Company
Cova Series Trust
Investors Fund Series
Lord Abbett Series Fund, Inc.
MFS Variable Insurance Trust
Oppenheimer Variable Account Funds
Transfers
Dollar Cost Averaging Program
Automatic Rebalancing Program
Approved Asset Allocation Programs
Voting Rights
Substitution
5. EXPENSES
Insurance Charges
Contract Maintenance Charge
Withdrawal Charge
Reduction or Elimination of the
Withdrawal Charge
Premium Taxes
Transfer Fee
Income Taxes
Investment Portfolio Expenses
6. TAXES
Annuity Contracts in General
Qualified and Non-Qualified Contracts
Withdrawals - Non-Qualified Contracts
Withdrawals - Qualified Contracts
Withdrawals - Tax-Sheltered Annuities
Diversification
7. ACCESS TO YOUR MONEY
Systematic Withdrawal Program
8. PERFORMANCE
9. DEATH BENEFIT
Upon Your Death
Death of Annuitant
10. OTHER INFORMATION
Cova
The Separate Account
Distributor
Ownership
Beneficiary
Assignment
Suspension of Payments or Transfers
Financial Statements
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
APPENDIX - PERFORMANCE INFORMATION
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the contract, however, certain technical words
or terms are unavoidable. We have identified the following as some of these
words or terms. They are identified in the text in italic and the page that is
indicated here is where we believe you will find the best explanation for the
word or term.
Page
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Date
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Fixed Account
Income Phase
Investment Portfolios
Joint Owner
Non-Qualified
Owner
Purchase Payment
Qualified
Tax Deferral
SUMMARY
The sections in this Summary correspond to sections in this prospectus which
discuss the topics in more detail.
1. THE ANNUITY CONTRACT. The fixed and variable annuity contract offered by Cova
is a contract between you, the owner, and Cova, an insurance company. The
Contract provides a means for investing on a tax-deferred basis in a fixed
account of Cova and 31 investment portfolios. The Contract is intended for
retirement savings or other long-term investment purposes and provides for a
death benefit and guaranteed income options.
The fixed account offers an interest rate that is guaranteed by the insurance
company, Cova. While your money is in the fixed account, the interest your money
will earn as well as your principal is guaranteed by Cova.
This Contract also offers 31 investment portfolios which are listed in Section
4. These portfolios are designed to offer a potentially better return than the
fixed account. However, this is NOT guaranteed. You can also lose your money.
You can put money into any or all of the investment portfolios and the fixed
account. You can transfer between accounts up to 12 times a year without charge
or tax implications. After 12 transfers, the charge is $25 or 2% of the amount
transferred, whichever is less.
The Contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving regular payments
from your Contract.
The amount of money you are able to accumulate in your account during the
accumulation phase will determine the amount of income payments during the
income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE). If you want to receive regular income
from your annuity, you can choose one of three options: (1) monthly payments for
your life (assuming you are the annuitant); (2) monthly payments for your life,
but with payments continuing to the beneficiary for 5, 10 or 20 years (as you
select) if you die before the end of the selected period; and (3) monthly
payments for your life and for the life of another person (usually your spouse)
selected by you. Once you begin receiving regular payments, you cannot change
your payment plan.
During the income phase, you have the same investment choices you had during the
accumulation phase. You can choose to have payments come from the fixed account,
the investment portfolios or both. If you choose to have any part of your
payments come from the investment portfolios, the dollar amount of your payments
may go up or down.
3. PURCHASE. You can buy this Contract with $5,000 or more under most
circumstances. You can add $2,000 or more any time you like during the
accumulation phase. Your registered representative can help you fill out the
proper forms.
4. INVESTMENT OPTIONS. You can put your money in any or all of these investment
portfolios which are described in the prospectuses for the funds. Currently, if
you are not participating in an asset allocation program, you can invest in 15
investment portfolios at any one time.
AIM VARIABLE INSURANCE FUNDS, INC.:
MANAGED BY A I M ADVISORS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
Premier Growth Portfolio
Real Estate Investment Portfolio
LIBERTY VARIABLE INVESTMENT TRUST:
MANAGED BY NEWPORT FUND MANAGEMENT INC.
Newport Tiger, Variable Series
GENERAL AMERICAN CAPITAL COMPANY:
MANAGED BY CONNING ASSET MANAGEMENT COMPANY
Money Market Fund
COVA SERIES TRUST:
MANAGED BY J. P. MORGAN INVESTMENT MANAGEMENT INC.
Small Cap Stock Portfolio
Large Cap Stock Portfolio
Select Equity Portfolio
International Equity Portfolio
Quality Bond Portfolio
MANAGED BY LORD, ABBETT & CO.
Bond Debenture Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Mid Cap Value Portfolio
Lord Abbett Growth & Income Portfolio
INVESTORS FUND SERIES:
MANAGED BY ZURICH KEMPER VALUE ADVISORS, INC.
Kemper Small Cap Value Portfolio
MANAGED BY ZURICH KEMPER INVESTMENTS, INC.
Kemper Government Securities Portfolio
Kemper Small Cap Growth Portfolio
LORD ABBETT SERIES FUND, INC.
MANAGED BY LORD, ABBETT & CO.
Growth and Income Portfolio
MFS VARIABLE INSURANCE TRUST:
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS High Income Series
MFS World Governments Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
MANAGED BY OPPENHEIMERFUNDS, INC.
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
Depending upon market conditions, you can make or lose money in any of these
portfolios.
5. EXPENSES. The Contract has insurance features and investment features, and
there are costs related to each.
Each year Cova deducts a $30 contract maintenance charge from your Contract.
Cova currently waives this charge if the value of your Contract is at least
$50,000. Cova also deducts for its insurance charges which total 1.40% of the
average daily value of your Contract allocated to the investment portfolios.
There are also investment charges which range from .205% to 1.39% of the average
daily value of the investment portfolio depending upon the investment portfolio.
If you take your money out, Cova may assess a withdrawal charge which is equal
to 5% of the purchase payment you withdraw. When you begin receiving regular
income payments from your annuity, Cova will assess a state premium tax charge,
if applicable, which ranges from 0-4% depending upon the state.
6. TAXES. Your earnings are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty on the earnings. Payments during the income
phase are considered partly a return of your original investment. That part of
each payment is not taxable as income.
7. ACCESS TO YOUR MONEY. You can take money out at any time during the
accumulation phase. After the first year, you can take up to 10% of your total
purchase payments each year without charge from Cova. Withdrawals in excess of
that will be charged 5% of each payment you take out. Each purchase payment you
add to your Contract has its own 5 year withdrawal charge period. After Cova has
had a payment for 5 years, there is no charge for withdrawing that payment. Of
course, you may also have to pay income tax and a tax penalty on any money you
take out.
8. PERFORMANCE. The value of the Contract will vary up or down depending upon
the investment performance of the Portfolio(s) you choose. Cova may provide
total return figures for each investment portfolio.
9. DEATH BENEFIT. If you die before moving to the income phase, the person you
have chosen as your beneficiary will receive a death benefit. This death benefit
will be the greater of three amounts: 1) the money you've put in less any money
you've taken out, and the related withdrawal charges, or 2) the value of your
contract at the time the death benefit is to be paid, or 3) the value of your
contract at the most recent 5th-year-anniversary before the date of death plus
any money you've added since that anniversary minus any money you've taken out
since that anniversary, and the related withdrawal charges. If you die after age
80, slightly different rules apply.
10. OTHER INFORMATION.
Free Look. If you cancel the Contract within 10 days after receiving it (or
within 30 days if you are 60 years or older when we issue the contract), we will
send your money back without assessing a withdrawal charge. You will receive
whatever your contract is worth on the day we receive your request. This may be
more or less than your original payment. If we're required by law to return your
original payment, we will put your money in the Money Market Fund during the
free-look period.
No Probate. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
Who should purchase the Contract? The contract is designed for people
seeking long-term tax-deferred accumulation of assets, generally for retirement
or other long-term purposes. The tax-deferred feature is most attractive to
people in high federal and state tax brackets. You should not buy this Contract
if you are looking for a short-term investment or if you cannot take the risk of
getting back less money than you put in.
Additional Features. This contract has additional features you might be
interested in. These include:
You can arrange to have money automatically sent to you each month while
your contract is still in the accumulation phase. Of course, you'll have to pay
taxes on money you receive. We call this feature the Systematic Withdrawal
Program.
You can arrange to have a regular amount of money automatically invested in
investment portfolios each month, theoretically giving you a lower average cost
per unit over time than a single one time purchase. We call this feature Dollar
Cost Averaging.
You can arrange to automatically readjust the money between investment
portfolios periodically to keep the blend you select. We call this feature
Automatic Rebalancing.
Under certain circumstances, Cova will give you your money without a
withdrawal charge if you need it while you're in a nursing home. We call this
feature the Nursing Home Waiver.
These features may not be suitable for your particular situation.
11. INQUIRIES. If you need more information, please contact us at:
Cova Life Sales Company
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181
800-523-1661
COVA VARIABLE ANNUITY ACCOUNT FIVE FEE TABLE
[Download Table]
OWNER TRANSACTION EXPENSES
Withdrawal Charge (see Note 2 below) 5% of purchase payment withdrawn
Transfer Fee (see Note 3 below)
No charge for first 12 transfers in a contract year; thereafter, the fee
is $25 per transfer or, if less, 2% of the amount transferred.
[Download Table]
Contract Maintenance Charge (see Note 4 below) $30 per contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
[Download Table]
Mortality and Expense Risk Premium 1.25%
Administrative Expense Charge .15%
TOTAL SEPARATE ACCOUNT -----
ANNUAL EXPENSES 1.40%
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INVESTMENT PORTFOLIO EXPENSES
(as a percentage of the average daily net assets of an investment portfolio)
AIM VARIABLE INSURANCE FUNDS, INC.
Management Total Annual
Fees Other Expenses Portfolio Expenses
---- -------------- ------------------
Managed by A I M Advisors, Inc.
AIM V.I. Capital Appreciation Fund .64% .09% .73%
AIM V.I. International Equity Fund .75% .21% .96%
AIM V.I. Value Fund .64% .09% .73%
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ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Total Annual
Other Expenses Portfolio Expenses
Management (after expense (after expense
Fees reimbursement) reimbursement)*
---- -------------- ---------------
Managed by Alliance Capital
Management L.P.
Premier Growth Portfolio .72% .23% .95%
Real Estate Investment Portfolio** 0% .95% .95%
<FN>
*The expenses are net of voluntary reimbursements. Expenses have been capped at
.95% annually for each of the portfolios listed above. The adviser to the Fund
intends to continue such reimbursements for the foreseeable future. Absent such
reimbursement, the management fees would have been 1.00% and the other expenses
would have been .23% for the Premier Growth Portfolio. The estimated expenses
for the Real Estate Investment Portfolio, before reimbursement, are: .90%
management fees and 5.10% for other expenses.
**Annualized.
</FN>
[Download Table]
LIBERTY VARIABLE INVESTMENT TRUST
Management Total Annual
Fees Other Expenses Portfolio Expenses
---- -------------- ------------------
Managed by Newport Fund
Management Inc.
Newport Tiger, Variable Series .90% .37% 1.27%
GENERAL AMERICAN CAPITAL COMPANY
Management Total Annual
Fees Other Expenses Portfolio Expenses
---- -------------- ------------------
Managed by Conning Asset
Management Company
Money Market Fund .205% .00% .205%
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COVA SERIES TRUST
Total Annual
Other Expenses Portfolio
Management (after expense (after expense
Fees reimbursement)(1) reimbursement)(1)
---- ----------------- -----------------
Managed by J.P. Morgan
Investment Management Inc.
Select Equity Portfolio* .75% .10% .85%
Small Cap Stock Portfolio* .85% .10% .95%
International Equity Portfolio* .85% .10% .95%
Quality Bond Portfolio* .55% .10% .65%
Large Cap Stock Portfolio* .65% .10% .75%
Managed by Lord, Abbett & Co.
Bond Debenture Portfolio* .75% .10% .85%
Mid-Cap Value Portfolio** 1.00% .10% 1.10%
Large Cap Research Portfolio** 1.00% .10% 1.10%
Developing Growth Portfolio** .90% .10% 1.00%
Lord Abbett Growth and Income
Portfolio** .65% .10% .75%
<FN>
(1) Since August 20, 1990, Cova has been reimbursing the investment portfolios
of Cova Series Trust for all operating expenses (exclusive of the management
fees) in excess of approximately .10%. Absent the expense reimbursement, the
percentages shown for total annual portfolio expenses (on an annualized basis)
for the year or period ended December 31, 1996 would have been 1.70% for the
Select Equity Portfolio, 2.68% for the Small Cap Stock Portfolio, 3.80% for the
International Equity Portfolio, 1.52% for the Quality Bond Portfolio, 1.23% for
the Large Cap Stock Portfolio and 2.05% for the Bond Debenture Portfolio.
*Annualized. The Portfolio commenced regular investment operations on April 2,
1996.
**Estimated. The Portfolio commenced regular investment operations on
______________, 1997.
</FN>
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INVESTORS FUND SERIES
Management Total Annual
Fees Other Expenses Portfolio Expenses
---- -------------- ------------------
Managed by Zurich Kemper Value
Advisors, Inc.
Kemper Small Cap Value Portfolio .75% .20%(*) .95%
Managed by Zurich Kemper
Investments, Inc.
Kemper Government Securities Portfolio .55% .11% .66%
Kemper Small Cap Growth Portfolio .65% .10% .75%
*Estimated first year expenses
LORD ABBETT SERIES FUND, INC.
Management 12b-1 Total Annual
Fees Fees Other Expenses Portfolio Expenses
---- ---- -------------- ------------------
Managed by Lord, Abbett & Co.
Growth and Income Portfolio* .50% .07% .02% .59%
*The Growth and Income Portfolio of Lord Abbett Series Fund, Inc. has a 12b-1
plan which provides for payments to Lord, Abbett & Co. for remittance to a life
insurance company for certain distribution expenses (see the Fund Prospectus).
The 12b-1 plan provides that such remittances, in the aggregate, will not exceed
.15%, on an annual basis, of the daily net asset value of shares of the Growth
and Income Portfolio. As of May 1, 1997, no payments had been made under the
12b-1 plan. For the year ending December 31, 1997, the 12b-1 fees are estimated
to be .07%. The examples below for this Portfolio reflect the estimated 12b-1
fees.
MFS VARIABLE INSURANCE TRUST
Total Annual
Other Expenses Portfolio Expenses
Management (after expense (after expense
Fees reimbursement)* reimbursement)*
---- --------------- ---------------
Managed by Massachusetts Financial
Services Company
MFS Emerging Growth Series .75% .25% 1.00%
MFS Research Series .75% .25% 1.00%
MFS Growth With Income Series .75% .25% 1.00%
MFS High Income Series .75% .25% 1.00%
MFS World Governments Series .75% .25% 1.00%
<FN>
*The adviser has agreed to bear expenses for each Series, subject to
reimbursement by each Series, so that each Series' "Other Expenses" do not
exceed .25% annually for each Series listed above. Absent such reimbursement,
"Total Annual Portfolio Expenses" would be: 1.16% for the MFS Emerging Growth
Series; 1.48% for the MFS Research Series; 2.07% for the MFS Growth With Income
Series; 1.62% for the MFS High Income Series; and 2.03% for the MFS World
Governments Series.
</FN>
[Enlarge/Download Table]
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Total Annual
Other Expenses Portfolio Expenses
Management (after expense (after expense
Fees reimbursement) reimbursement)
---- -------------- --------------
Managed by OppenheimerFunds, Inc.
Oppenheimer High Income Fund .75% .06% .81%
Oppenheimer Bond Fund .74% .04% .78%
Oppenheimer Growth Fund* .75% .04% .79%
Oppenheimer Growth & Income Fund .75% .25% 1.00%
Oppenheimer Strategic Bond Fund .75% .10% .85%
<FN>
*Total Annual Portfolio Expenses would have been .81% in the absence of a
voluntary one-time fee reimbursement.
</FN>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
(a) upon surrender at the end of each time period;
(b) if the contract is not surrendered or is annuitized.
Time Periods
1 year 3 years
--------- ----------
AIM VARIABLE INSURANCE FUNDS, INC.
Managed by A I M Advisors, Inc.
AIM V.I. Capital Appreciation Fund (a)$ (a)$
(b)$ (b)$
AIM V.I. International Equity Fund (a)$ (a)$
(b)$ (b)$
AIM V.I. Value Fund (a)$ (a)$
(b)$ (b)$
ALLIANCE VARIABLE PRODUCTS SERIES FUND,
INC.
Managed by Alliance Capital
Management L.P.
Premier Growth Portfolio (a)$ (a)$
(b)$ (b)$
Real Estate Investment Portfolio (a)$ (a)$
(b)$ (b)$
LIBERTY VARIABLE INVESTMENT TRUST
Managed by Newport Fund Management Inc.
Newport Tiger, Variable Series (a)$ (a)$
(b)$ (b)$
GENERAL AMERICAN CAPITAL COMPANY
Managed by Conning Asset Management
Company
Money Market Fund (a)$ (a)$
(b)$ (b)$
COVA SERIES TRUST
Managed by J.P. Morgan Investment
Management Inc.
Small Cap Stock Portfolio (a)$ (a)$
(b)$ (b)$
Large Cap Stock Portfolio (a)$ (a)$
(b)$ (b)$
Select Equity Portfolio (a)$ (a)$
(b)$ (b)$
International Equity Portfolio (a)$ (a)$
(b)$ (b)$
Quality Bond Portfolio (a)$ (a)$
(b)$ (b)$
Managed by Lord, Abbett & Co.
Bond Debenture Portfolio (a)$ (a)$
(b)$ (b)$
Large Cap Research Portfolio (a)$ (a)$
(b)$ (b)$
Developing Growth Portfolio (a)$ (a)$
(b)$ (b)$
Mid Cap Value Portfolio (a)$ (b)$
(b)$ (b)$
Lord Abbett Growth & Income Portfolio (a)$ (a)$
(b)$ (b)$
INVESTORS FUND SERIES
Managed by Zurich Kemper Value Advisors, Inc.
Kemper Small Cap Value Portfolio (a)$ (a)$
(b)$ (b)$
Managed by Zurich Kemper Investments,
Inc.
Kemper Government Securities Portfolio (a)$ (a)$
(b)$ (b)$
Kemper Small Cap Growth Portfolio (a)$ (a)$
(b)$ (b)$
LORD ABBETT SERIES FUND, INC.
Managed by Lord, Abbett & Co.
Growth and Income Portfolio (a)$ (a)$
(b)$ (b)$
MFS VARIABLE INSURANCE TRUST
Managed by Massachusetts Financial
Services Company
MFS Emerging Growth Series (a)$ (a)$
(b)$ (b)$
MFS Research Series (a)$ (a)$
(b)$ (b)$
MFS Growth With Income Series (a)$ (a)$
(b)$ (b)$
MFS High Income Series (a)$ (a)$
(b)$ (b)$
MFS World Governments Series (a)$ (a)$
(b)$ (b)$
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Managed by OppenheimerFunds, Inc.
Oppenheimer High Income Fund (a)$ (a)$
(b)$ (b)$
Oppenheimer Bond Fund (a)$ (a)$
(b)$ (b)$
Oppenheimer Growth Fund (a)$ (a)$
(b)$ (b)$
Oppenheimer Growth & Income Fund (a)$ (a)$
(b)$ (b)$
Oppenheimer Strategic Bond Fund (a)$ (a)$
(b)$ (b)$
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the Fee Table is to show you the various expenses you will
incur directly or indirectly with the contract. The Fee Table reflects
expenses of the Separate Account as well as of the investment portfolios.
2. The withdrawal charge is 5% of the purchase payments you withdraw. After
Cova has had a purchase payment for 5 years, there is no charge by Cova for
a withdrawal of that purchase payment. You may also have to pay income tax
and a tax penalty on any money you take out. After the first year, you can
take up to 10% of your total purchase payments each year without a charge
from Cova.
3. Cova will not charge you the transfer fee even if there are more than 12
transfers in a year if the transfer is for the Dollar Cost Averaging,
Automatic Rebalancing or approved Asset Allocation Programs.
4. Cova will not charge the contract maintenance charge if the value of your
contract is $50,000 or more, although, if you make a complete withdrawal,
Cova will charge the contract maintenance charge.
5. Premium taxes are not reflected. Premium taxes may apply depending on the
state where you live.
6. The assumed average contract size is $30,000.
7. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1. THE ANNUITY CONTRACT
This Prospectus describes the Fixed and Variable Annuity Contract offered by
Cova.
An annuity is a contract between you, the owner, and an insurance company (in
this case Cova), where the insurance company promises to pay you an income, in
the form of annuity payments, beginning on a designated date that's at least 30
days in the future. Until you decide to begin receiving annuity payments, your
annuity is in the accumulation phase. Once you begin receiving annuity payments,
your contract switches to the income phase. The contract benefits from tax
deferral.
Tax deferral means that you are not taxed on earnings or appreciation on the
assets in your contract until you take money out of your contract.
The contract is called a variable annuity because you can choose among 31
investment portfolios, and, depending upon market conditions, you can make or
lose money in any of these portfolios. If you select the variable annuity
portion of the contract, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the investment performance
of the investment portfolio(s) you select. The amount of the annuity payments
you receive during the income phase from the variable annuity portion of the
contract also depends upon the investment performance of the investment
portfolios you select for the income phase.
The contract also contains a fixed account. The fixed account offers an interest
rate that is guaranteed by Cova. Cova guarantees that the interest credited to
the fixed account will not be less than 3% per year. If you select the fixed
account, your money will be placed with the other general assets of Cova. If you
select the fixed account, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the total interest credited
to your contract. The amount of the annuity payments you receive during the
income phase from the fixed account portion of the contract will remain level
for the entire income phase.
As owner of the contract, you exercise all rights under the contract. You can
change the owner at any time by notifying Cova in writing. You and your spouse
can be named joint owners. We have described more information on this in Section
10 - Other Information.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
Under the contract you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the annuity
date. Your annuity date must be the first day of a calendar month. You can also
choose among income plans. We call those annuity options.
We ask you to choose your annuity date and annuity option when you purchase the
contract. You can change either at any time before the annuity date with 30 days
notice to us. Your annuity date cannot be any earlier than one month after you
buy the contract. Annuity payments must begin by the annuitant's 85th birthday
or 10 years from the date the contract was issued, whichever is later. The
annuitant is the person whose life we look to when we make annuity payments.
If you do not choose an annuity option at the time you purchase the contract, we
will assume that you selected Option 2 which provides a life annuity with 10
years of guaranteed payments.
During the income phase, you have the same investment choices you had just
before the start of the income phase. At the annuity date, you can choose
whether payments will come from the fixed account, the investment portfolio(s)
or a combination of both. If you don't tell us otherwise, your annuity payments
will be based on the investment allocations that were in place on the annuity
date.
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things: 1) the value of your contract in the investment portfolio(s) on the
annuity date, 2) the 3% assumed investment rate used in the annuity table for
the contract, and 3) the performance of the investment portfolios you selected.
If the actual performance exceeds the 3% assumed rate, your annuity payments
will increase. Similarly, if the actual rate is less than 3%, your annuity
payments will decrease.
You can choose one of the following annuity options. After annuity payments
begin, you cannot change the annuity option.
Option 1. Life Annuity. Under this option, we will make an annuity payment each
month so long as the annuitant is alive. After the annuitant dies, we stop
making annuity payments.
Option 2. Life Annuity with 5, 10 or 20 Years Guaranteed. Under this option, we
will make an annuity payment each month so long as the annuitant is alive.
However, if, when the annuitant dies, we have made annuity payments for less
than the selected guaranteed period, we will then continue to make annuity
payments for the rest of the guaranteed period to the beneficiary. If the
beneficiary does not want to receive annuity payments, he or she can ask us for
a single lump sum.
Option 3. Joint and Last Survivor Annuity. Under this option, we will make
annuity payments each month so long as the annuitant and a second person are
both alive. When either of these people dies, we will continue to make annuity
payments, so long as the survivor continues to live. The amount of the annuity
payments we will make to the survivor can be equal to 100%, 66 2/3% or 50% of
the amount that we would have paid if both were alive.
Annuity payments are made monthly unless you have less than $5,000 to apply
toward a payment. In that case, Cova may provide your annuity payment in a
single lump sum. Likewise, if your annuity payments would be less than $100 a
month, Cova has the right to change the frequency of payments so that your
annuity payments are at least $100.
3. PURCHASE
PURCHASE PAYMENTS
A purchase payment is the money you give us to buy the contract. The minimum we
will accept is $5,000 when the contract is bought as a non-qualified contract.
If you are buying the contract as part of an IRA (Individual Retirement
Annuity), 401(k) or other qualified plan, the minimum we will accept is $2,000.
The maximum we accept is $1 million without our prior approval. You can make
additional purchase payments of $2,000 or more to either type of contract.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your purchase payment to the
fixed account and/or one or more of the investment portfolios you have selected.
If you make additional purchase payments, we will allocate them in the same way
as your first purchase payment unless you tell us otherwise.
If you change your mind about owning this contract, you can cancel it within 10
days after receiving it (or within 30 days if you are 60 years or older when we
issue the contract). When you cancel the contract within this time period, Cova
will not assess a withdrawal charge. You will receive back whatever your
contract is worth on the day we receive your request. If you have purchased the
contract as an IRA, we are required to give you back your purchase payment if
you decide to cancel your contract within 10 days after receiving it (or
whatever period is required). If that is the case, we will put your purchase
payment in the Money Market Fund of General American Capital Company for 15 days
after we allocate your first purchase payment. At the end of that period, we
will re-allocate those funds as you selected.
Once we receive your purchase payment and the necessary information, we will
issue your contract and allocate your first purchase payment within 2 business
days. If you do not give us all of the information we need, we will contact you
to get it. If for some reason we are unable to complete this process within 5
business days, we will either send back your money or get your permission to
keep it until we get all of the necessary information. If you add more money to
your contract by making additional purchase payments, we will credit these
amounts to your contract within one business day. Our business day closes when
the New York Stock Exchange closes, usually 4:00 P.M. Eastern time.
ACCUMULATION UNITS
The value of the variable annuity portion of your contract will go up or down
depending upon the investment performance of the investment portfolio(s) you
choose. In order to keep track of the value of your contract, we use a unit of
measure we call an accumulation unit. (An accumulation unit works like a share
of a mutual fund.) During the income phase of the contract we call the unit an
annuity unit.
Every day we determine the value of an accumulation unit for each of the
investment portfolios. We do this by:
1. determining the total amount of money invested in the particular investment
portfolio;
2. subtracting from that amount any insurance charges and any other charges
such as taxes we have deducted; and
3. dividing this amount by the number of outstanding accumulation units.
The value of an accumulation unit may go up or down from day to day.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited is determined by dividing the
amount of the purchase payment allocated to an investment portfolio divided by
the value of the accumulation unit for that investment portfolio.
We calculate the value of an accumulation unit for each investment portfolio
after the New York Stock Exchange closes each day and then credit your contract.
EXAMPLE:
On Monday we receive an additional purchase payment of $5,000 from you. You have
told us you want this to go to the Quality Bond Portfolio. When the New York
Stock Exchange closes on that Monday, we determine that the value of an
accumulation unit for the Quality Bond Portfolio is $13.90. We then divide
$5,000 by $13.90 and credit your contract on Monday night with 359.71
accumulation units for the Quality Bond Portfolio.
4. INVESTMENT OPTIONS
The Contract offers 31 investment portfolios which are described below.
Additional investment portfolios may be available in the future.
YOU SHOULD READ THE PROSPECTUSES FOR THESE FUNDS CAREFULLY BEFORE INVESTING.
COPIES OF THESE PROSPECTUSES ARE ATTACHED TO THIS PROSPECTUS.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM Variable Insurance Funds, Inc. is a mutual fund with multiple portfolios.
AIM Advisors, Inc. is the investment adviser to each portfolio. The following
portfolios are available under the contract:
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Alliance Variable Products Series Fund, Inc. is a mutual fund with multiple
portfolios. Alliance Capital Management L.P. is the investment adviser to each
portfolio. The following portfolios are available under the contract:
Premier Growth Portfolio
Real Estate Investment Portfolio
LIBERTY VARIABLE INVESTMENT TRUST
Liberty Variable Investment Trust is a mutual fund with multiple portfolios.
Keyport Advisory Services Corp. (KASC) is the investment manager to the Trust.
KASC has engaged Newport Fund Management, Inc. as sub-adviser to provide
investment advice for the Newport Tiger, Variable Series. The following
portfolio is available under the contract:
Newport Tiger, Variable Series (a portfolio investing in equity securities of
companies located in certain countries of Asia).
GENERAL AMERICAN CAPITAL COMPANY
General American Capital Company is a mutual fund with multiple portfolios. Each
portfolio is managed by Conning Asset Management Company. The following
portfolio is available under the contract:
Money Market Fund
COVA SERIES TRUST
Cova Series Trust is managed by Cova Investment Advisory Corporation (Cova
Advisory), which is an affiliate of Cova. Cova Series Trust is a mutual fund
with multiple portfolios. Cova Advisory has engaged sub-advisers to provide
investment advice for the individual investment portfolios. The following
portfolios are available under the contract:
J.P. Morgan Investment Management Inc. is the sub-adviser to the following
portfolios:
Small Cap Stock Portfolio
Large Cap Stock Portfolio
Select Equity Portfolio
International Equity Portfolio
Quality Bond Portfolio
Lord, Abbett & Co. is the sub-adviser to the following portfolios:
Bond Debenture Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Mid Cap Value Portfolio
Lord Abbett Growth & Income Portfolio
INVESTORS FUND SERIES
Investors Fund Series is a mutual fund with multiple portfolios. Zurich Kemper
Investments, Inc. (ZKI) is the investment adviser for the Kemper Government
Securities Portfolio and the Kemper Small Cap Growth Portfolio. Zurich Kemper
Value Advisors, Inc., a wholly owned subsidiary of ZKI, is the investment
adviser for the Kemper Small Cap Value Portfolio. The following portfolios are
available under the contract:
Kemper Small Cap Value Portfolio
Kemper Government Securities Portfolio
Kemper Small Cap Growth Portfolio
LORD ABBETT SERIES FUND, INC.
Lord Abbett Series Fund, Inc. is a mutual fund with multiple portfolios. Each
portfolio is managed by Lord, Abbett & Co. The following portfolio is available
under the contract:
Growth and Income Portfolio
MFS VARIABLE INSURANCE TRUST
MFS Variable Insurance Trust is a mutual fund with multiple portfolios.
Massachusetts Financial Services Company is the investment adviser to each
portfolio. The following portfolios are available under the contract:
MFS Emerging Growth Series
MFS Research Series
MFS Growth With Income Series
MFS High Income Series
MFS World Governments Series
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Variable Account Funds is a mutual fund with multiple portfolios.
OppenheimerFunds, Inc. is the investment adviser to each portfolio. The
following portfolios are available under the contract:
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
TRANSFERS
You can transfer money among the fixed account and the 31 investment portfolios.
TRANSFERS DURING THE ACCUMULATION PHASE. You can make 12 transfers every year
during the accumulation phase without charge. We measure a year from the
anniversary of the day we issued your Contract. You can make a transfer to or
from the fixed account and to or from any investment portfolio. If you make more
than 12 transfers in a year, there is a transfer fee deducted. The fee is $25
per transfer or, if less, 2% of the amount transferred. The following apply to
any transfer during the accumulation phase:
1. Your request for transfer must clearly state which investment portfolio(s)
or the fixed account are involved in the transfer.
2. Your request for transfer must clearly state how much the transfer is for.
3. You cannot make any transfers within 7 calendar days of the annuity date.
TRANSFERS DURING THE INCOME PHASE. You can only make transfers between the
investment portfolios once each year. We measure a year from the anniversary of
the day we issued your contract. You cannot transfer from the fixed account to
an investment portfolio, but you can transfer from one or more investment
portfolios to the fixed account at any time. If you make more than 12 transfers
in a year, a transfer fee will be charged.
Cova has reserved the right during the year to terminate or modify the transfer
provisions described above.
You can make transfers by telephone. If you own the contract with a joint owner,
unless Cova is instructed otherwise, Cova will accept instructions from either
you or the other owner. Cova will use reasonable procedures to confirm that
instructions given us by telephone are genuine. If Cova fails to use such
procedures, we may be liable for any losses due to unauthorized or fraudulent
instructions. Cova tape records all telephone instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount each month from the Money Market Fund or the fixed account to any of the
other investment portfolio(s). By allocating amounts on a regular schedule as
opposed to allocating the total amount at one particular time, you may be less
susceptible to the impact of market fluctuations.
The minimum amount which can be transferred each month is $500. You must have at
least $6,000 in the Money Market Fund or the fixed account, (or the amount
required to complete your program, if less) in order to participate in the
Dollar Cost Averaging Program.
All Dollar Cost Averaging transfers will be made on the 15th day of the month
unless that day is not a business day. If it is not, then the transfer will be
made the next business day.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
AUTOMATIC REBALANCING PROGRAM
Once your money has been allocated among the investment portfolios, the
performance of each portfolio may cause your allocation to shift. You can direct
us to automatically rebalance your contract to return to your original
percentage allocations by selecting our Automatic Rebalancing Program. You can
tell us whether to rebalance quarterly, semi-annually or annually. We will
measure these periods from the anniversary of the date we issued your contract.
The transfer date will be the 1st day after the end of the period you selected.
If you participate in the Automatic Rebalancing Program, the transfers made
under the program are not taken into account in determining any transfer fee.
EXAMPLE:
Assume that you want your initial purchase payment split between 2 investment
portfolios. You want 40% to be in the Quality Bond Portfolio and 60% to be in
the Select Equity Portfolio. Over the next 2-1 2 months the bond market does
very well while the stock market performs poorly. At the end of the first
quarter, the Quality Bond Portfolio now represents 50% of your holdings because
of its increase in value. If you had chosen to have your holdings rebalanced
quarterly, on the first day of the next quarter, Cova would sell some of your
units in the Quality Bond Portfolio to bring its value back to 40% and use the
money to buy more units in the Select Equity Portfolio to increase those
holdings to 60%.
APPROVED ASSET ALLOCATION PROGRAMS
Cova recognizes the value to certain owners of having available, on a continuous
basis, advice for the allocation of your money among the investment options
available under the contracts. Certain providers of these types of services have
agreed to provide such services to owners in accordance with Cova's
administrative rules regarding such programs.
Cova has made no independent investigation of these programs. Cova has only
established that these programs are compatible with our administrative systems
and rules. Approved asset allocation programs are only available during the
accumulation phase.
Even though Cova permits the use of approved asset allocation programs, the
contract was not designed for professional market timing organizations. Repeated
patterns of frequent transfers are disruptive to the operations of the
investment portfolios, and when Cova becomes aware of such disruptive practices,
we may modify the transfer provisions of the contract.
If you participate in an Approved Asset Allocation Program, the transfers made
under the program are not taken into account in determining any transfer fee.
VOTING RIGHTS
Cova is the legal owner of the investment portfolio shares. However, Cova
believes that when an investment portfolio solicits proxies in conjunction with
a vote of shareholders, it is required to obtain from you and other owners
instructions as to how to vote those shares. When we receive those instructions,
we will vote all of the shares we own in proportion to those instructions. This
will also include any shares that Cova owns on its own behalf. Should Cova
determine that it is no longer required to comply with the above, we will vote
the shares in our own right.
SUBSTITUTION
Cova may be required to substitute one of the investment portfolios you have
selected with another portfolio. We would not do this without the prior approval
of the Securities and Exchange Commission. We will give you notice of our intent
to do this.
5. EXPENSES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses are:
INSURANCE CHARGES
Each day, Cova makes a deduction for its insurance charges. Cova does this as
part of its calculation of the value of the accumulation units and the annuity
units. The insurance charge has two parts: 1) the mortality and expense risk
premium and 2) the administrative expense charge.
MORTALITY AND EXPENSE RISK PREMIUM. This charge is equal, on an annual basis, to
1.25% of the daily value of the contracts invested in an investment portfolio,
after expenses have been deducted. This charge is for all the insurance benefits
e.g., guarantee of annuity rates, the death benefits, for certain expenses of
the contract, and for assuming the risk (expense risk) that the current charges
will be sufficient in the future to cover the cost of administering the
contract. If the charges under the contract are not sufficient, then Cova will
bear the loss. Cova does, however, expect to profit from this charge. The
mortality and expense risk premium cannot be increased. Cova may use any profits
we make from this charge to pay for the costs of distributing the contract.
ADMINISTRATIVE EXPENSE CHARGE. This charge is equal, on an annual basis, to .15%
of the daily value of the contracts invested in an investment portfolio, after
expenses have been deducted. This charge, together with the contract maintenance
charge (see below), is for all the expenses associated with the administration
of the contract. Some of these expenses are: preparation of the contract,
confirmations, annual reports and statements, maintenance of contract records,
personnel costs, legal and accounting fees, filing fees, and computer and
systems costs. Because this charge is taken out of every unit value, you may pay
more in administrative costs than those that are associated solely with your
contract. Cova does not intend to profit from this charge. However, if this
charge and the contract maintenance charge are not enough to cover the costs of
the contracts in the future, Cova will bear the loss.
CONTRACT MAINTENANCE CHARGE
During the accumulation phase, every year on the anniversary of the date when
your contract was issued, Cova deducts $30 from your contract as a contract
maintenance charge. This charge is for administrative expenses (see above). This
charge can not be increased.
Cova will not deduct this charge, if when the deduction is to be made, the value
of your contract is $50,000 or more. Cova may some time in the future
discontinue this practice and deduct the charge.
If you make a complete withdrawal from your contract, the contract maintenance
charge will also be deducted. A pro rata portion of the charge will be deducted
if the annuity date is other than an anniversary. After the annuity date, the
charge will be collected monthly out of the annuity payment.
WITHDRAWAL CHARGE
During the accumulation phase, you can make withdrawals from your contract. Cova
keeps track of each purchase payment. Once a year after the first year, you can
withdraw up to 10% of your total purchase payments and no withdrawal charge will
be assessed on the 10%, if on the day you make your withdrawal the value of your
contract is $5,000 or more. Otherwise, the charge is 5% of each purchase payment
you take out. However, after Cova has had a purchase payment for 5 years, there
is no charge when you withdraw that purchase payment. For purposes of the
withdrawal charge, Cova treats withdrawals as coming from the oldest purchase
payment first. When the withdrawal is for only part of the value of your
contract, the withdrawal charge is deducted from the remaining value in your
contract.
NOTE: For tax purposes, withdrawals are considered to have come from the last
money into the contract. Thus, for tax purposes, earnings are considered to come
out first.
Cova does not assess the withdrawal charge on any payments paid out as annuity
payments or as death benefits.
After you have owned the contract for one year, if you, or your joint owner, has
been confined to a nursing home or hospital for at least 90 consecutive days
under a doctor's care and you need part or all of the money from your contract,
Cova will not impose a withdrawal charge. You or your joint owner cannot have
been so confined when you purchased your contract if you want to take advantage
of this provision. This is called the Nursing Home Waiver.
REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE
Cova will reduce or eliminate the amount of the withdrawal charge when the
contract is sold under circumstances which reduce its sales expense. Some
examples are: if there is a large group of individuals that will be purchasing
the contract or a prospective purchaser already had a relationship with Cova.
Cova will not deduct a withdrawal charge under a contract issued to an officer,
director or employee of Cova or any of its affiliates.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. Cova is responsible for the payment of these
taxes and will make a deduction from the value of the contract for them. Some of
these taxes are due when the contract is issued, others are due when annuity
payments begin. It is Cova's current practice to not charge anyone for these
taxes until annuity payments begin. Cova may some time in the future discontinue
this practice and assess the charge when the tax is due. Premium taxes generally
range from 0% to 4%, depending on the state.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 or 2% of the amount that is transferred whichever is less.
If the transfer is part of the Dollar Cost Averaging Program, the Automatic
Rebalancing Program or an Approved Asset Allocation Program, it will not count
in determining the transfer fee.
INCOME TAXES
Cova will deduct from the contract for any income taxes which it incurs because
of the contract. At the present time, we are not making any such deductions.
INVESTMENT PORTFOLIO EXPENSES
There are deductions from and expenses paid out of the assets of the various
investment portfolios, which are described in the attached fund prospectuses.
6. TAXES
NOTE: Cova has prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. Cova has
included in the Statement of Additional Information an additional discussion
regarding taxes.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of contract -
qualified or non-qualified (see following sections).
You, as the owner, will not be taxed on increases in the value of your contract
until a distribution occurs - either as a withdrawal or as annuity payments.
When you make a withdrawal you are taxed on the amount of the withdrawal that is
earnings. For annuity payments, different rules apply. A portion of each annuity
payment is treated as a partial return of your purchase payments and will not be
taxed. The remaining portion of the annuity payment will be treated as ordinary
income. How the annuity payment is divided between taxable and non-taxable
portions depends upon the period over which the annuity payments are expected to
be made. Annuity payments received after you have received all of your purchase
payments are fully includible in income.
When a non-qualified contract is owned by a non-natural person (e.g.,corporation
or certain other entities other than tax-qualified trusts), the contract will
generally not be treated as an annuity for tax purposes.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the contract as an individual and not under any pension plan,
specially sponsored program or an individual retirement annuity, your contract
is referred to as a non-qualified contract.
If you purchase the contract under a pension plan, specially sponsored program,
or an individual retirement annuity, your contract is referred to as a qualified
contract. Examples of qualified plans are: Individual Retirement Annuities
(IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b) contracts),
H.R. 10 Plans (sometimes referred to as Keogh Plans), and pension and profit
plans, which include 401(k) plans.
WITHDRAWALS - NON-QUALIFIED CONTRACTS
If you make a withdrawal from your contract, the Code treats such a withdrawal
as first coming from earnings and then from your purchase payments. Such
withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts: (1) paid on or after the
taxpayer reaches age 59 1/2; (2) paid after you die; (3) paid if the taxpayer
becomes totally disabled (as that term is defined in the Code); (4) paid in a
series of substantially equal payments made annually (or more frequently) under
a lifetime annuity; (5) paid under an immediate annuity; or (6) which come from
purchase payments made prior to August 14, 1982.
WITHDRAWALS - QUALIFIED CONTRACTS
The above information describing the taxation of non-qualified contracts does
not apply to qualified contracts. There are special rules that govern with
respect to qualified contracts. We have provided a more complete discussion in
the Statement of Additional Information.
WITHDRAWALS - TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of purchase payments made by owners from certain
Tax-Sheltered Annuities. Withdrawals can only be made when an owner: (1) reaches
age 59 1/2; (2) leaves his/her job; (3) dies; (4) becomes disabled (as that term
is defined in the Code); or (5) in the case of hardship. However, in the case of
hardship, the owner can only withdraw the purchase payments and not any
earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Cova believes that the investment portfolios are being managed
so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Cova would be
considered the owner of the shares of the investment portfolios. If this occurs,
it will result in the loss of the favorable tax treatment for the contract. It
is unknown to what extent owners are permitted to select investment portfolios,
to make transfers among the investment portfolios or the number and type of
investment portfolios owners may select from. If any guidance is provided which
is considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the owner of the
contract, could be treated as the owner of the investment portfolios.
Due to the uncertainty in this area, Cova reserves the right to modify the
contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
You can have access to the money in your contract: (1) by making a withdrawal
(either a partial or a complete withdrawal); (2) by electing to receive annuity
payments; or (3) when a death benefit is paid to your beneficiary. Under most
circumstances, withdrawals can only be made during the accumulation phase.
When you make a complete withdrawal you will receive the value of the contract
on the day you made the withdrawal less any applicable withdrawal charge, less
any premium tax and less any contract maintenance charge. (See Section 5.
Expenses for a discussion of the charges.)
Unless you instruct Cova otherwise, any partial withdrawal will be made pro rata
from all the investment portfolios and the fixed account you selected. Under
most circumstances the amount of any partial withdrawal must be for at least
$500. Cova requires that after a partial withdrawal is made you keep at least
$500 in any selected investment portfolio.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE.
There are limits to the amount you can withdraw from a qualified plan referred
to as a 403(b) plan. For a more complete explanation see Section 6. Taxes and
the discussion in the Statement of Additional Information.
SYSTEMATIC WITHDRAWAL PROGRAM
If you are 59 1/2 or older, you may use the Systematic Withdrawal Program. This
program provides an automatic monthly payment to you of up to 10% of your total
purchase payments each year. No withdrawal charge will be made for these
payments. Cova does not have any charge for this program, but reserves the right
to charge in the future. If you use this program, you may not also make a single
10% free withdrawal. For a discussion of the withdrawal charge and the 10% free
withdrawal, see Section 5. Expenses.
All Systematic Withdrawals will be paid on the 15th day of the month unless that
day is not a business day. If it is not, then the payment will be the next
business day.
INCOME TAXES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
8. PERFORMANCE
Cova periodically advertises performance of the various investment portfolios.
Cova will calculate performance by determining the percentage change in the
value of an accumulation unit by dividing the increase (decrease) for that unit
by the value of the accumulation unit at the beginning of the period. This
performance number reflects the deduction of the insurance charges and the
investment portfolio expenses. It does not reflect the deduction of any
applicable contract maintenance charge and withdrawal charge. The deduction of
any applicable contract maintenance charge and withdrawal charges would reduce
the percentage increase or make greater any percentage decrease. Any
advertisement will also include total return figures which reflect the deduction
of the insurance charges, contract maintenance charges, withdrawal charges and
the investment portfolio expenses.
For periods starting prior to the date the contracts were first offered, the
performance will be based on the historical performance of the corresponding
portfolios, modified to reflect the charges and expenses of the contract as if
the contracts had been in existence during the period stated in the
advertisement. These figures should not be interpreted to reflect actual
historic performance.
Cova may, from time to time, include in its advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
The Appendix contains performance information that you may find informative.
Future performance will vary and the results shown are not necessarily
representative of future results.
9. DEATH BENEFIT
UPON YOUR DEATH
If you die before annuity payments begin, Cova will pay a death benefit to your
beneficiary (see below). If you have a joint owner, the death benefit will be
paid when the first of you dies. Joint owners must be spouses. The surviving
joint owner will be treated as the beneficiary.
The amount of the death benefit depends on how old you or your joint owner is.
Prior to you, or your joint owner, reaching age 80, the death benefit will be
the greater of:
1. Total purchase payments, less withdrawals (and any withdrawal charges paid
on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent five year anniversary before
the date of death, plus any subsequent purchase payments, less any
withdrawals (and any withdrawal charges paid on the withdrawals).
After you, or your joint owner, reaches age 80, the death benefit will be the
greater of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent five year anniversary on or
before you or your joint owner reaches age 80, plus any subsequent purchase
payments, less any withdrawals (and any withdrawal charges paid on the
withdrawals).
The entire death benefit must be paid within 5 years of the date of death unless
the beneficiary elects to have the death benefit payable under an annuity
option. The death benefit payable under an annuity option must be paid over the
beneficiary's lifetime or for a period not extending beyond the beneficiary's
life expectancy. Payment must begin within one year of the date of death. If the
beneficiary is the spouse of the owner, he/she can continue the contract in
his/her own name at the then current value. If a lump sum payment is elected and
all the necessary requirements are met, the payment will be made within 7 days.
DEATH OF ANNUITANT
If the annuitant, not an owner or joint owner, dies before annuity payments
begin, you can name a new annuitant. If no annuitant is named within 30 days of
the death of the annuitant, you will become the annuitant. However, if the owner
is a non-natural person (for example, a corporation), then the death or change
of annuitant will be treated as the death of the owner, and a new annuitant may
not be named.
Upon the death of the annuitant after annuity payments begin, the death benefit,
if any, will be as provided for in the annuity option selected.
10. OTHER INFORMATION
COVA
Cova Financial Life Insurance Company ("Cova") was originally incorporated on
September 6, 1972 as Industrial Indemnity Life Insurance Company, a California
corporation and changed its name to Xerox Financial Life Insurance Company in
1986. On June 1, 1995, a wholly-owned subsidiary of General American Life
Insurance Company purchased Cova which on that date changed its name to Cova
Financial Life Insurance Company.
Cova is presently licensed to do business in the state of California.
THE SEPARATE ACCOUNT
Cova has established a separate account, Cova Variable Annuity Account Five
(Separate Account), to hold the assets that underlie the contracts. The Board of
Directors of Cova adopted a resolution to establish the Separate Account under
California insurance law on March 24, 1992. We have registered the Separate
Account with the Securities and Exchange Commission as a unit investment trust
under the Investment Company Act of 1940.
The assets of the Separate Account are held in Cova's name on behalf of the
Separate Account and legally belong to Cova. However, those assets that underlie
the contracts, are not chargeable with liabilities arising out of any other
business Cova may conduct. All the income, gains and losses (realized or
unrealized) resulting from these assets are credited to or charged against the
contracts and not against any other contracts Cova may issue.
DISTRIBUTOR
Cova Life Sales Company (Life Sales), One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644, acts as the distributor of the contracts. Life
Sales is an affiliate of Cova.
Commissions will be paid to broker-dealers who sell the contracts.
Broker-dealers will be paid commissions up to 5.5% of purchase payments. During
the initial period in which the Contracts are offered, Cova may pay an
additional .5% commission. Sometimes, Cova enters into an agreement with the
broker-dealer to pay the broker-dealer persistency bonuses, in addition to the
standard commissions. To the extent that the withdrawal charge is insufficient
to cover the actual cost of distribution, Cova may use any of its corporate
assets, including any profit from the mortality and expense risk premium, to
make up any difference.
OWNERSHIP
OWNER. You, as the owner of the contract, have all the rights under the
contract. Prior to the annuity date, the owner is as designated at the time the
contract is issued, unless changed. On and after the annuity date, the annuitant
is the owner. The beneficiary becomes the owner when a death benefit is payable.
JOINT OWNER. The contract can be owned by joint owners. Any joint owner must be
the spouse of the other owner. Upon the death of either joint owner, the
surviving spouse will be the designated beneficiary. Any other beneficiary
designation at the time the contract was issued or as may have been later
changed will be treated as a contingent beneficiary unless otherwise indicated.
BENEFICIARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued unless
changed at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before you die.
ASSIGNMENT
You can assign the contract at any time during your lifetime. Cova will not be
bound by the assignment until it receives the written notice of the assignment.
Cova will not be liable for any payment or other action we take in accordance
with the contract before we receive notice of the assignment. AN ASSIGNMENT MAY
BE A TAXABLE EVENT.
If the contract is issued pursuant to a qualified plan, there may be limitations
on your ability to assign the contract.
SUSPENSION OF PAYMENTS OR TRANSFERS
Cova may be required to suspend or postpone payments for withdrawals or
transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the
investment portfolios is not reasonably practicable or Cova cannot
reasonably value the shares of the investment portfolios;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of owners.
Cova has reserved the right to defer payment for a withdrawal or transfer from
the fixed account for the period permitted by law but not for more than six
months.
FINANCIAL STATEMENTS
The consolidated financial statements of Cova and the Separate Account have been
included in the Statement of Additional Information.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Company
Experts
Legal Opinions
Distribution
Performance Information
Tax Status
Annuity Provisions
Financial Statements
APPENDIX
PERFORMANCE INFORMATION
FUTURE PERFORMANCE WILL VARY AND THE RESULTS SHOWN ARE NOT NECESSARILY
REPRESENTATIVE OF FUTURE RESULTS.
The accumulation units are new and therefore have no performance history.
However, the corresponding portfolios have been in existence for sometime and
consequently have an investment performance history. In order to show how the
historical investment performance of the portfolios affects accumulation unit
values, the following performance information was developed. The information is
based upon the historical experience of the portfolios and is for the periods
shown.
The chart below shows the investment performance of the portfolios and the
accumulation units performance calculated by assuming that accumulation units
were invested in the portfolio for the same periods.
The performance figures in Column A reflect the fees and expenses paid by the
portfolio. Column B presents performance figures for the accumulation units
which reflect the insurance charges as well as the fees and expenses of the
portfolio. Column C presents performance figures for the accumulation units
which reflect the insurance charges, the contract maintenance charge, the fees
and expenses of the portfolio, and assumes that you make a withdrawal at the end
of the period and therefore the withdrawal charge is reflected.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/96
[Enlarge/Download Table]
Column A Column B Column C
Portfolio Performance Accumulation Unit Performance
---------------------- ---------------------- ----------------------
Portfolio 10 yrs/ 10 yrs/ 10 yrs/
Inception since since since
Portfolio Date 1 yr 5 yrs inception 1 yr 5 yrs inception 1 yr 5 yrs inception
----------------- ------------ ---------------------- ---------------------- ----------------------
AIM VARIABLE INSURANCE
FUNDS, INC.
AIM V.I. Capital
Appreciation
AIM V.I. International
Equity
AIM V.I. Value
ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.
Premier Growth
Real Estate Investment
LIBERTY VARIABLE INVESTMENT
TRUST
Newport Tiger, Variable Series
GENERAL AMERICAN CAPITAL
COMPANY
Money Market
COVA SERIES TRUST
Small Cap Stock
Large Cap Stock
Select Equity
International Equity
Quality Bond
Bond Debenture
INVESTORS FUND SERIES
Kemper Small Cap Value
Kemper Government Securities
Kemper Small Cap Growth
LORD ABBETT SERIES FUND, INC.
Growth and Income
MFS VARIABLE INSURANCE TRUST
MFS Emerging Growth
MFS Research
MFS Growth With Income
MFS High Income
MFS World Governments
OPPENHEIMER VARIABLE ACCOUNT
FUNDS
Oppenheimer High Income
Oppenheimer Bond
Oppenheimer Growth
Oppenheimer Growth & Income
Oppenheimer Strategic Bond
---------------------------
--------------------------- STAMP
---------------------------
Cova Financial Life Insurance Company
Attn: Variable Products
One Tower Lane
Suite 3000
Oakbrook Terrace, Illinois 60181-4644
Please send me, at no charge, the Statement of Additional Information
dated ______, 1997 for The Annuity Contract issued by Cova.
(Please print or type and fill in all information)
---------------------------------------------------------------------------
Name
---------------------------------------------------------------------------
Address
---------------------------------------------------------------------------
City State Zip Code
CC-___(_/97) COVA VA
PART A - VERSION B
Cova Financial Life Insurance Company _____, 1997
PROFILE of the Fixed and Variable Annuity Contract
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
CONSIDER AND KNOW BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED IN THE PROSPECTUS WHICH ACCOMPANIES THIS PROFILE. PLEASE READ THE
PROSPECTUS CAREFULLY.
1. THE ANNUITY CONTRACT. The fixed and variable annuity contract offered by Cova
is a contract between you, the owner, and Cova, an insurance company. The
Contract provides a means for investing on a tax-deferred basis in a fixed
account of Cova and 5 investment portfolios. The Contract is intended for
retirement savings or other long-term investment purposes and provides for a
death benefit and guaranteed income options.
The fixed account offers an interest rate that is guaranteed by the insurance
company, Cova. While your money is in the fixed account, the interest your money
will earn as well as your principal is guaranteed by Cova.
This Contract also offers 5 investment portfolios which are listed in Section 4.
These portfolios are designed to offer a better return than the fixed account.
However, this is NOT guaranteed. You can also lose your money.
You can put money into any or all of the investment portfolios and the fixed
account. You can transfer between accounts up to 12 times a year without charge
or tax implications. After 12 transfers, the charge is $25 or 2% of the amount
transferred, whichever is less.
The Contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving regular payments
from your Contract.
The amount of money you are able to accumulate in your account during the
accumulation phase will determine the amount of income payments during the
income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE). If you want to receive regular income
from your annuity, you can choose one of three options: (1) monthly payments for
your life (assuming you are the annuitant); (2) monthly payments for your life,
but with payments continuing to the beneficiary for 5, 10 or 20 years (as you
select) if you die before the end of the selected period; and (3) monthly
payments for your life and for the life of another person (usually your spouse)
selected by you. Once you begin receiving regular payments, you cannot change
your payment plan.
During the income phase, you have the same investment choices you had during the
accumulation phase. You can choose to have payments come from the fixed account,
the investment portfolios or both. If you choose to have any part of your
payments come from the investment portfolios, the dollar amount of your payments
may go up or down.
3. PURCHASE. You can buy this Contract with $5,000 or more under most
circumstances. You can add $2,000 or more any time you like during the
accumulation phase. Your registered representative can help you fill out the
proper forms.
4. INVESTMENT OPTIONS. You can put your money in any or all of these investment
portfolios which are described in the prospectuses for the funds:
[Download Table]
Managed by Frank Russell Managed by Conning Asset
Investment Management Company Management Company
Multi-Style Equity Money Market
Aggressive Equity
Non-U.S.
Core Bond
Depending upon market conditions, you can make or lose money in any of these
portfolios.
5. EXPENSES. The Contract has insurance features and investment features, and
there are costs related to each.
Each year Cova deducts a $30 contract maintenance charge from your Contract.
Cova currently waives this charge if the value of your Contract is at least
$50,000. Cova also deducts for its insurance charges which total 1.40% of the
average daily value of your Contract allocated to the investment portfolios.
There are also investment charges which range from .205% to 1.30% of the average
daily value of the investment portfolio depending upon the investment portfolio.
If you take your money out, Cova may assess a withdrawal charge which is equal
to 5% of the purchase payment you withdraw. When you begin receiving regular
income payments from your annuity, Cova will assess a state premium tax charge,
if applicable, which ranges from 0-4% depending upon the state.
The following chart is designed to help you understand the expenses in the
Contract. The column "Total Annual Expenses" shows the total of the $30 contract
maintenance charge (which is represented as .10% below), the 1.40% insurance
charges and the investment expenses for each investment portfolio. The next two
columns show you two examples of the expenses, in dollars, you would pay under a
Contract. The examples assume that you invested $1,000 in a Contract which earns
5% annually and that you withdraw your money: (1) at the end of year 1, and (2)
at the end of year 10. For year 1, the Total Annual Expenses are assessed as
well as the withdrawal charges. For year 10, the example shows the aggregate of
all the annual expenses assessed for the 10 years, but there is no withdrawal
charge.
The premium tax is assumed to be 0% in both examples.
[Enlarge/Download Table]
Examples:
Total Annual
Total Annual Total Annual Total Expenses At End of:
Insurance Portfolio Annual (1) (2)
Portfolio Charges Expenses Expenses 1 Year 10 Years
--------------------- ------------- ------------- ------------- ------ --------
Managed by Frank Russell Investment
Management Company
Multi-Style Equity 1.50% 0.92% 2.42% $_____ $______
Aggressive Equity 1.50% 1.25% 2.75% $_____ $______
Non-U.S. 1.50% 1.30% 2.80% $_____ $______
Core Bond 1.50% 0.80% 2.30% $_____ $______
Managed by Conning Asset
Management Company
Money Market 1.50% 0.205% 1.705% $_____ $______
The expenses reflect any expense reimbursement or fee waiver. For more detailed
information, see the Fee Table in the Prospectus for the Contract.
6. TAXES. Your earnings are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty on the earnings. Payments during the income
phase are considered partly a return of your original investment. That part of
each payment is not taxable as income.
7. ACCESS TO YOUR MONEY. You can take money out at any time during the
accumulation phase. After the first year, you can take up to 10% of your total
purchase payments each year without charge from Cova. Withdrawals in excess of
that will be charged 5% of each payment you take out. Each purchase payment you
add to your Contract has its own 5 year withdrawal charge period. After Cova has
had a payment for 5 years, there is no charge for withdrawing that payment. Of
course, you may also have to pay income tax and a tax penalty on any money you
take out.
8. PERFORMANCE. The value of the Contract will vary up or down depending upon
the investment performance of the Portfolio(s) you choose. Cova may provide
total return figures for each investment portfolio.
9. DEATH BENEFIT. If you die before moving to the income phase, the person you
have chosen as your beneficiary will receive a death benefit. This death benefit
will be the greater of three amounts: 1) the money you've put in less any money
you've taken out, and the related withdrawal charges, or 2) the value of your
Contract at the time the death benefit is to be paid, or 3) the value of your
Contract at the most recent 5th-year-anniversary before the date of death plus
any money you've added since that anniversary minus any money you've taken out
since that anniversary, and the related withdrawal charges. If you die after age
80, slightly different rules apply.
10. OTHER INFORMATION.
Free Look. If you cancel the Contract within 10 days after receiving it (or
within 30 days if you are 60 years or older when we issue the Contract), we will
send your money back without assessing a withdrawal charge. You will receive
whatever your Contract is worth on the day we receive your request. This may be
more or less than your original payment. If we're required by law to return your
original payment, we will put your money in the Money Market Fund during the
free-look period.
No Probate. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
Who should purchase the Contract? This Contract is designed for people
seeking long-term tax-deferred accumulation of assets, generally for retirement
or other long-term purposes. The tax-deferred feature is most attractive to
people in high federal and state tax brackets. You should not buy this Contract
if you are looking for a short-term investment or if you cannot take the risk of
getting back less money than you put in.
Additional Features. This Contract has additional features you might be
interested in. These include:
You can arrange to have money automatically sent to you each month while
your Contract is still in the accumulation phase. Of course, you'll have to pay
taxes on money you receive. We call this feature the Systematic Withdrawal
Program.
You can arrange to have a regular amount of money automatically invested in
investment portfolios each month, theoretically giving you a lower average cost
per unit over time than a single one time purchase. We call this feature Dollar
Cost Averaging.
You can arrange to automatically readjust the money between investment
portfolios periodically to keep the blend you select. We call this feature
Automatic Rebalancing.
Under certain circumstances, Cova will give you your money without a
withdrawal charge if you need it while you're in a nursing home. We call this
feature the Nursing Home Waiver.
These features may not be suitable for your particular situation.
11. INQUIRIES. If you need more information, please contact us at:
Cova Life Sales Company
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181
800-523-1661
THE FIXED
AND VARIABLE ANNUITY
ISSUED BY
COVA VARIABLE ANNUITY ACCOUNT FIVE
AND
COVA FINANCIAL LIFE INSURANCE COMPANY
This prospectus describes the Fixed and Variable Annuity Contract offered by
Cova Financial Life Insurance Company (Cova).
The annuity contract has 6 investment choices - a fixed account which offers an
interest rate which is guaranteed by Cova, and 5 investment portfolios listed
below. The 5 investment portfolios are part of Russell Insurance Funds or
General American Capital Company. You can put your money in the fixed account
and/or any of these investment portfolios.
RUSSELL INSURANCE FUNDS
Managed by Frank Russell Investment Management Company
Multi-Style Equity
Aggressive Equity
Non-U.S.
Core Bond
GENERAL AMERICAN CAPITAL COMPANY
Managed by Conning Asset Management Company
Money Market
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the Cova Fixed and Variable
Annuity Contract.
To learn more about the Cova Fixed and Variable Annuity Contract, you can obtain
a copy of the Statement of Additional Information (SAI) dated _____, 1997. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
legally a part of the prospectus. The Table of Contents of the SAI is on Page __
of this prospectus. For a free copy of the SAI, call us at (800) 831-5433 or
write us at : One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______, 1997.
TABLE OF CONTENTS
Page
INDEX OF SPECIAL TERMS
FEE TABLE
EXAMPLES
1. THE ANNUITY CONTRACT
2. ANNUITY PAYMENTS (THE INCOME PHASE)
3. PURCHASE
Purchase Payments
Allocation of Purchase Payments
Accumulation Units
4. INVESTMENT OPTIONS
Russell Insurance Funds
General American Capital Company
Transfers
Dollar Cost Averaging Program
Automatic Rebalancing Program
Approved Asset Allocation Programs
Voting Rights
Substitution
5. EXPENSES
Insurance Charges
Contract Maintenance Charge
Withdrawal Charge
Reduction or Elimination of the
Withdrawal Charge
Premium Taxes
Transfer Fee
Income Taxes
Investment Portfolio Expenses
6. TAXES
Annuity Contracts in General
Qualified and Non-Qualified Contracts
Withdrawals - Non-Qualified Contracts
Withdrawals - Qualified Contracts
Withdrawals - Tax-Sheltered Annuities
Diversification
7. ACCESS TO YOUR MONEY
Systematic Withdrawal Program
8. PERFORMANCE
9. DEATH BENEFIT
Upon Your Death
Death of Annuitant
10. OTHER INFORMATION
Cova
The Separate Account
Distributor
Ownership
Beneficiary
Assignment
Suspension of Payments or Transfers
Financial Statements
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
APPENDIX - PERFORMANCE INFORMATION
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the contract, however, certain technical words
or terms are unavoidable. We have identified the following as some of these
words or terms. They are identified in the text in italic and the page that is
indicated here is where we believe you will find the best explanation for the
word or term.
Page
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Date
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Fixed Account
Income Phase
Investment Portfolios
Joint Owner
Non-Qualified
Owner
Purchase Payment
Qualified
Tax Deferral
COVA VARIABLE ANNUITY ACCOUNT FIVE FEE TABLE
[Download Table]
OWNER TRANSACTION EXPENSES
Withdrawal Charge (see Note 2 below) 5% of purchase payment withdrawn
TRANSFER FEE (see Note 3 below)
No charge for first 12 transfers in a contract year; thereafter, the fee
is $25 per transfer or, if less, 2% of the amount transferred.
[Download Table]
CONTRACT MAINTENANCE CHARGE (see Note 4 below) $30 per contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Premium 1.25%
Administrative Expense Charge .15%
-----
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES 1.40%
[Enlarge/Download Table]
INVESTMENT PORTFOLIO EXPENSES
(as a percentage of the average daily net assets of an investment portfolio)
Management Fees Other Expenses (after Total Annual
(after fee waiver)* expense reimbursement)* Portfolio Expenses
------------------- ---------------------- ---------------
RUSSELL INSURANCE FUNDS
Managed by Frank Russell
Investment Management Company
Multi-Style Equity .22% .70% .92%
Aggressive Equity .26% .99% 1.25%
Non-U.S. 0% 1.30% 1.30%
Core Bond 0% .80% .80%
<FN>
*The manager has voluntarily agreed to waive a portion of the management fee, up
to the full amount of the fee, equal to the amount by which the Fund's total
operating expenses exceed the amounts set forth above under "Total Portfolio
annual Expenses." Additionally, the manager has voluntarily agreed to reimburse
the Fund for all remaining expenses after fee waivers which exceed the amount
set forth above for each Fund under "Total Annual Portfolio Expenses". Absent
such waiver and reimbursement, the management fees and total operating expenses
would be .78% and 1.68% for the Multi-Style Equity Fund; .95% and 2.31% for the
Aggressive Equity Fund; .95% and 5.31% for the Non-U.S. Fund; and .60% and 2.36%
for the Core Bond Fund.
</FN>
[Download Table]
General American Capital Company
Managed by Conning Asset
Management Company
Money Market .205% 0% .205%
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
(a) upon surrender at the end of each time period;
(b) if the contract is not surrendered or is annuitized.
[Download Table]
Time Periods
1 year 3 years
--------- ----------
RUSSELL INSURANCE FUNDS
Managed by Frank Russell
Investment Management Company
Multi-Style Equity (a)$_____ (a)$______
(b)$_____ (b)$______
Aggressive Equity (a)$_____ (b)$______
(b)$_____ (b)$______
Non-U.S. (a)$_____ (a)$______
(b)$_____ (b)$______
Core Bond (a)$_____ (a)$______
(b)$_____ (b)$______
GENERAL AMERICAN CAPITAL COMPANY
Managed by Conning Asset
Management Company
Money Market (a)$_____ (a)$______
(b)$_____ (b)$______
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the Fee Table is to show you the various expenses you will
incur directly or indirectly with the contract. The Fee Table reflects
expenses of the Separate Account as well as of the investment portfolios.
2. The withdrawal charge is 5% of the purchase payments you withdraw. After
Cova has had a purchase payment for 5 years, there is no charge by Cova for
a withdrawal of that purchase payment. You may also have to pay income tax
and a tax penalty on any money you take out. After the first year, you can
take up to 10% of your total purchase payments each year without a charge
from Cova.
3. Cova will not charge you the transfer fee even if there are more than 12
transfers in a year if the transfer is for the Dollar Cost Averaging,
Automatic Rebalancing or approved Asset Allocation Programs.
4. Cova will not charge the contract maintenance charge if the value of your
contract is $50,000 or more, although, if you make a complete withdrawal,
Cova will charge the contract maintenance charge.
5. Premium taxes are not reflected. Premium taxes may apply depending on the
state where you live.
6. The assumed average contract size is $30,000.
7. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1. THE ANNUITY CONTRACT
This Prospectus describes the Fixed and Variable Annuity Contract offered by
Cova.
An annuity is a contract between you, the owner, and an insurance company (in
this case Cova), where the insurance company promises to pay you an income, in
the form of annuity payments, beginning on a designated date that's at least 30
days in the future. Until you decide to begin receiving annuity payments, your
annuity is in the accumulation phase. Once you begin receiving annuity payments,
your contract switches to the income phase. The contract benefits from tax
deferral.
Tax deferral means that you are not taxed on earnings or appreciation on the
assets in your contract until you take money out of your contract.
The contract is called a variable annuity because you can choose among 5
investment portfolios, and, depending upon market conditions, you can make or
lose money in any of these portfolios. If you select the variable annuity
portion of the contract, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the investment performance
of the investment portfolio(s) you select. The amount of the annuity payments
you receive during the income phase from the variable annuity portion of the
contract also depends upon the investment performance of the investment
portfolios you select for the income phase.
The contract also contains a fixed account. The fixed account offers an interest
rate that is guaranteed by Cova. Cova guarantees that the interest credited to
the fixed account will not be less than 3% per year. If you select the fixed
account, your money will be placed with the other general assets of Cova. If you
select the fixed account, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the total interest credited
to your contract. The amount of the annuity payments you receive during the
income phase from the fixed account portion of the contract will remain level
for the entire income phase.
As owner of the contract, you exercise all rights under the contract. You can
change the owner at any time by notifying Cova in writing. You and your spouse
can be named joint owners. We have described more information on this in Section
10 - Other Information.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
Under the contract you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the annuity
date. Your annuity date must be the first day of a calendar month. You can also
choose among income plans. We call those annuity options.
We ask you to choose your annuity date and annuity option when you purchase the
contract. You can change either at any time before the annuity date with 30 days
notice to us. Your annuity date cannot be any earlier than one month after you
buy the contract. Annuity payments must begin by the annuitant's 85th birthday
or 10 years from the date the contract was issued, whichever is later. The
annuitant is the person whose life we look to when we make annuity payments.
If you do not choose an annuity option at the time you purchase the contract, we
will assume that you selected Option 2 which provides a life annuity with 10
years of guaranteed payments.
During the income phase, you have the same investment choices you had just
before the start of the income phase. At the annuity date, you can choose
whether payments will come from the fixed account, the investment portfolio(s)
or a combination of both. If you don't tell us otherwise, your annuity payments
will be based on the investment allocations that were in place on the annuity
date.
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things: 1) the value of your contract in the investment portfolio(s) on the
annuity date, 2) the 3% assumed investment rate used in the annuity table for
the contract, and 3) the performance of the investment portfolios you selected.
If the actual performance exceeds the 3% assumed rate, your annuity payments
will increase. Similarly, if the actual rate is less than 3%, your annuity
payments will decrease.
You can choose one of the following annuity options. After annuity payments
begin, you cannot change the annuity option.
Option 1. Life Annuity. Under this option, we will make an annuity payment each
month so long as the annuitant is alive. After the annuitant dies, we stop
making annuity payments.
Option 2. Life Annuity with 5, 10 or 20 Years Guaranteed. Under this option, we
will make an annuity payment each month so long as the annuitant is alive.
However, if, when the annuitant dies, we have made annuity payments for less
than the selected guaranteed period, we will then continue to make annuity
payments for the rest of the guaranteed period to the beneficiary. If the
beneficiary does not want to receive annuity payments, he or she can ask us for
a single lump sum.
Option 3. Joint and Last Survivor Annuity. Under this option, we will make
annuity payments each month so long as the annuitant and a second person are
both alive. When either of these people dies, we will continue to make annuity
payments, so long as the survivor continues to live. The amount of the annuity
payments we will make to the survivor can be equal to 100%, 66 2/3% or 50% of
the amount that we would have paid if both were alive.
Annuity payments are made monthly unless you have less than $5,000 to apply
toward a payment. In that case, Cova may provide your annuity payment in a
single lump sum. Likewise, if your annuity payments would be less than $100 a
month, Cova has the right to change the frequency of payments so that your
annuity payments are at least $100.
3. PURCHASE
PURCHASE PAYMENTS
A purchase payment is the money you give us to buy the contract. The minimum we
will accept is $5,000 when the contract is bought as a non-qualified contract.
If you are buying the contract as part of an IRA (Individual Retirement
Annuity), 401(k) or other qualified plan, the minimum we will accept is $2,000.
The maximum we accept is $1 million without our prior approval. You can make
additional purchase payments of $2,000 or more to either type of contract.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your purchase payment to the
fixed account and/or one or more of the investment portfolios you have selected.
If you make additional purchase payments, we will allocate them in the same way
as your first purchase payment unless you tell us otherwise.
If you change your mind about owning this contract, you can cancel it within 10
days after receiving it (or within 30 days if you are 60 years or older when we
issue the contract). When you cancel the contract within this time period, Cova
will not assess a withdrawal charge. You will receive back whatever your
contract is worth on the day we receive your request. If you have purchased the
contract as an IRA, we are required to give you back your purchase payment if
you decide to cancel your contract within 10 days after receiving it (or
whatever period is required). If that is the case, we will put your purchase
payment in the Money Market Portfolio of the Cova Series Trust for 15 days after
we allocate your first purchase payment. At the end of that period, we will
re-allocate those funds as you selected.
Once we receive your purchase payment and the necessary information, we will
issue your contract and allocate your first purchase payment within 2 business
days. If you do not give us all of the information we need, we will contact you
to get it. If for some reason we are unable to complete this process within 5
business days, we will either send back your money or get your permission to
keep it until we get all of the necessary information. If you add more money to
your contract by making additional purchase payments, we will credit these
amounts to your contract within one business day. Our business day closes when
the New York Stock Exchange closes, usually 4:00 P.M. Eastern time.
ACCUMULATION UNITS
The value of the variable annuity portion of your contract will go up or down
depending upon the investment performance of the investment portfolio(s) you
choose. In order to keep track of the value of your contract, we use a unit of
measure we call an accumulation unit. (An accumulation unit works like a share
of a mutual fund.) During the income phase of the contract we call the unit an
annuity unit.
Every day we determine the value of an accumulation unit for each of the
investment portfolios. We do this by:
1. determining the total amount of money invested in the particular investment
portfolio;
2. subtracting from that amount any insurance charges and any other charges
such as taxes we have deducted; and
3. dividing this amount by the number of outstanding accumulation units.
The value of an accumulation unit may go up or down from day to day.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited is determined by dividing the
amount of the purchase payment allocated to an investment portfolio divided by
the value of the accumulation unit for that investment portfolio.
We calculate the value of an accumulation unit for each investment portfolio
after the New York Stock Exchange closes each day and then credit your contract.
EXAMPLE:
On Monday we receive an additional purchase payment of $5,000 from you. You have
told us you want this to go to the Multi-Style Equity Fund. When the New York
Stock Exchange closes on that Monday, we determine that the value of an
accumulation unit for the Multi-Style Equity Fund is $13.90. We then divide
$5,000 by $13.90 and credit your contract on Monday night with 359.71
accumulation units for the Multi-Style Equity Fund.
4. INVESTMENT OPTIONS
The Contract offers 5 investment portfolios which are described below.
Additional investment portfolios may be available in the future.
YOU SHOULD READ THE PROSPECTUSES FOR THESE FUNDS CAREFULLY BEFORE INVESTING.
COPIES OF THESE PROSPECTUSES ARE ATTACHED TO THIS PROSPECTUS.
Russell Insurance Funds is managed by Frank Russell Investment Management
Company. Russell Insurance Funds is a mutual fund with four portfolios, each its
own investment objective. The following portfolios are available under the
contract:
Multi-Style Equity Fund
Aggressive Equity Fund
Non-U.S. Fund
Core Bond Fund
GENERAL AMERICAN CAPITAL COMPANY
General American Capital Company is a mutual fund with multiple portfolios. Each
portfolio is managed by Conning Asset Management Company. The following
portfolio is available under the contract:
Money Market Fund
TRANSFERS
You can transfer money among the fixed account and the 5 investment portfolios.
TRANSFERS DURING THE ACCUMULATION PHASE. You can make 12 transfers every year
during the accumulation phase without charge. We measure a year from the
anniversary of the day we issued your Contract. You can make a transfer to or
from the fixed account and to or from any investment portfolio. If you make more
than 12 transfers in a year, there is a transfer fee deducted. The fee is $25
per transfer or, if less, 2% of the amount transferred. The following apply to
any transfer during the accumulation phase:
1. Your request for transfer must clearly state which investment portfolio(s)
or the fixed account are involved in the transfer.
2. Your request for transfer must clearly state how much the transfer is for.
3. You cannot make any transfers within 7 calendar days of the annuity date.
TRANSFERS DURING THE INCOME PHASE. You can only make transfers between the
investment portfolios once each year. We measure a year from the anniversary of
the day we issued your contract. You cannot transfer from the fixed account to
an investment portfolio, but you can transfer from one or more investment
portfolios to the fixed account at any time. If you make more than 12 transfers
in a year, a transfer fee will be charged.
Cova has reserved the right during the year to terminate or modify the transfer
provisions described above.
You can make transfers by telephone. If you own the contract with a joint owner,
unless Cova is instructed otherwise, Cova will accept instructions from either
you or the other owner. Cova will use reasonable procedures to confirm that
instructions given us by telephone are genuine. If Cova fails to use such
procedures, we may be liable for any losses due to unauthorized or fraudulent
instructions. Cova tape records all telephone instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount each month from the Money Market Fund or the fixed account to any of the
other investment portfolio(s). By allocating amounts on a regular schedule as
opposed to allocating the total amount at one particular time, you may be less
susceptible to the impact of market fluctuations.
The minimum amount which can be transferred each month is $500. You must have at
least $6,000 in the Money Market Fund or the fixed account, (or the amount
required to complete your program, if less) in order to participate in the
Dollar Cost Averaging Program.
All Dollar Cost Averaging transfers will be made on the 15th day of the month
unless that day is not a business day. If it is not, then the transfer will be
made the next business day.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
AUTOMATIC REBALANCING PROGRAM
Once your money has been allocated among the investment portfolios, the
performance of each portfolio may cause your allocation to shift. You can direct
us to automatically rebalance your contract to return to your original
percentage allocations by selecting our Automatic Rebalancing Program. You can
tell us whether to rebalance quarterly, semi-annually or annually. We will
measure these periods from the anniversary of the date we issued your contract.
The transfer date will be the 1st day after the end of the period you selected.
If you participate in the Automatic Rebalancing Program, the transfers made
under the program are not taken into account in determining any transfer fee.
EXAMPLE:
Assume that you want your initial purchase payment split between 2 investment
portfolios. You want 40% to be in the Core Bond Fund and 60% to be in the
Multi-Style Equity Fund. Over the next 2 1/2 months the bond market does very
well while the stock market performs poorly. At the end of the first quarter,
the Core Bond Fund now represents 50% of your holdings because of its increase
in value. If you had chosen to have your holdings rebalanced quarterly, on the
first day of the next quarter, Cova would sell some of your units in the Core
Bond Fund to bring its value back to 40% and use the money to buy more units in
the Multi-Style Equity Fund to increase those holdings to 60%.
APPROVED ASSET ALLOCATION PROGRAMS
Cova recognizes the value to certain owners of having available, on a continuous
basis, advice for the allocation of your money among the investment options
available under the contracts. Certain providers of these types of services have
agreed to provide such services to owners in accordance with Cova's
administrative rules regarding such programs.
Cova has made no independent investigation of these programs. Cova has only
established that these programs are compatible with our administrative systems
and rules. Approved asset allocation programs are only available during the
accumulation phase.
Even though Cova permits the use of approved asset allocation programs, the
contract was not designed for professional market timing organizations. Repeated
patterns of frequent transfers are disruptive to the operations of the
investment portfolios, and when Cova becomes aware of such disruptive
practices, we may modify the transfer provisions of the contract.
If you participate in an Approved Asset Allocation Program, the transfers made
under the program are not taken into account in determining any transfer fee.
VOTING RIGHTS
Cova is the legal owner of the investment portfolio shares. However, Cova
believes that when an investment portfolio solicits proxies in conjunction with
a vote of shareholders, it is required to obtain from you and other owners
instructions as to how to vote those shares. When we receive those instructions,
we will vote all of the shares we own in proportion to those instructions. This
will also include any shares that Cova owns on its own behalf. Should Cova
determine that it is no longer required to comply with the above, we will vote
the shares in our own right.
SUBSTITUTION
Cova may be required to substitute one of the investment portfolios you have
selected with another portfolio. We would not do this without the prior approval
of the Securities and Exchange Commission. We will give you notice of our intent
to do this.
5. EXPENSES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses are:
INSURANCE CHARGES
Each day, Cova makes a deduction for its insurance charges. Cova does this as
part of its calculation of the value of the accumulation units and the annuity
units. The insurance charge has two parts: 1) the mortality and expense risk
premium and 2) the administrative expense charge.
MORTALITY AND EXPENSE RISK PREMIUM. This charge is equal, on an annual basis, to
1.25% of the daily value of the contracts invested in an investment portfolio,
after expenses have been deducted. This charge is for all the insurance benefits
e.g., guarantee of annuity rates, the death benefits, for certain expenses of
the contract, and for assuming the risk (expense risk) that the current charges
will be sufficient in the future to cover the cost of administering the
contract. If the charges under the contract are not sufficient, then Cova will
bear the loss. Cova does, however, expect to profit from this charge. The
mortality and expense risk premium cannot be increased. Cova may use any profits
we make from this charge to pay for the costs of distributing the contract.
ADMINISTRATIVE EXPENSE CHARGE. This charge is equal, on an annual basis, to .15%
of the daily value of the contracts invested in an investment portfolio, after
expenses have been deducted. This charge, together with the contract maintenance
charge (see below), is for all the expenses associated with the administration
of the contract. Some of these expenses are: preparation of the contract,
confirmations, annual reports and statements, maintenance of contract records,
personnel costs, legal and accounting fees, filing fees, and computer and
systems costs. Because this charge is taken out of every unit value, you may pay
more in administrative costs than those that are associated solely with your
contract. Cova does not intend to profit from this charge. However, if this
charge and the contract maintenance charge are not enough to cover the costs of
the contracts in the future, Cova will bear the loss.
CONTRACT MAINTENANCE CHARGE
During the accumulation phase, every year on the anniversary of the date when
your contract was issued, Cova deducts $30 from your contract as a contract
maintenance charge. This charge is for administrative expenses (see above). This
charge can not be increased.
Cova will not deduct this charge, if when the deduction is to be made, the value
of your contract is $50,000 or more. Cova may some time in the future
discontinue this practice and deduct the charge.
If you make a complete withdrawal from your contract, the contract maintenance
charge will also be deducted. A pro rata portion of the charge will be deducted
if the annuity date is other than an anniversary. After the annuity date, the
charge will be collected monthly out of the annuity payment.
WITHDRAWAL CHARGE
During the accumulation phase, you can make withdrawals from your contract. Cova
keeps track of each purchase payment. Once a year after the first year, you can
withdraw up to 10% of your total purchase payments and no withdrawal charge will
be assessed on the 10%, if on the day you make your withdrawal the value of your
contract is $5,000 or more. Otherwise, the charge is 5% of each purchase payment
you take out. However, after Cova has had a purchase payment for 5 years, there
is no charge when you withdraw that purchase payment. For purposes of the
withdrawal charge, Cova treats withdrawals as coming from the oldest purchase
payment first. When the withdrawal is for only part of the value of your
contract, the withdrawal charge is deducted from the remaining value in your
contract.
NOTE: For tax purposes, withdrawals are considered to have come from the last
money into the contract. Thus, for tax purposes, earnings are considered to come
out first.
Cova does not assess the withdrawal charge on any payments paid out as annuity
payments or as death benefits.
After you have owned the contract for one year, if you, or your joint owner, has
been confined to a nursing home or hospital for at least 90 consecutive days
under a doctor's care and you need part or all of the money from your contract,
Cova will not impose a withdrawal charge. You or your joint owner cannot have
been so confined when you purchased your contract if you want to take advantage
of this provision. This is called the Nursing Home Waiver.
REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE
Cova will reduce or eliminate the amount of the withdrawal charge when the
contract is sold under circumstances which reduce its sales expense. Some
examples are: if there is a large group of individuals that will be purchasing
the contract or a prospective purchaser already had a relationship with Cova.
Cova will not deduct a withdrawal charge under a contract issued to an officer,
director or employee of Cova or any of its affiliates.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. Cova is responsible for the payment of these
taxes and will make a deduction from the value of the contract for them. Some of
these taxes are due when the contract is issued, others are due when annuity
payments begin. It is Cova's current practice to not charge anyone for these
taxes until annuity payments begin. Cova may some time in the future discontinue
this practice and assess the charge when the tax is due. Premium taxes generally
range from 0% to 4%, depending on the state.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 or 2% of the amount that is transferred whichever is less.
If the transfer is part of the Dollar Cost Averaging Program, the Automatic
Rebalancing Program or an Approved Asset Allocation Program, it will not count
in determining the transfer fee.
INCOME TAXES
Cova will deduct from the contract for any income taxes which it incurs because
of the contract. At the present time, we are not making any such deductions.
INVESTMENT PORTFOLIO EXPENSES
There are deductions from and expenses paid out of the assets of the various
investment portfolios, which are described in the attached fund prospectuses.
6. TAXES
NOTE: Cova has prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. Cova has
included in the Statement of Additional Information an additional discussion
regarding taxes.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of contract -
qualified or non-qualified (see following sections).
You, as the owner, will not be taxed on increases in the value of your contract
until a distribution occurs - either as a withdrawal or as annuity payments.
When you make a withdrawal you are taxed on the amount of the withdrawal that is
earnings. For annuity payments, different rules apply. A portion of each annuity
payment is treated as a partial return of your purchase payments and will not be
taxed. The remaining portion of the annuity payment will be treated as ordinary
income. How the annuity payment is divided between taxable and non-taxable
portions depends upon the period over which the annuity payments are expected to
be made. Annuity payments received after you have received all of your purchase
payments are fully includible in income.
When a non-qualified contract is owned by a non-natural person (e.g.,corporation
or certain other entities other than tax-qualified trusts), the contract will
generally not be treated as an annuity for tax purposes.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the contract as an individual and not under any pension plan,
specially sponsored program or an individual retirement annuity, your contract
is referred to as a non-qualified contract.
If you purchase the contract under a pension plan, specially sponsored program,
or an individual retirement annuity, your contract is referred to as a qualified
contract. Examples of qualified plans are: Individual Retirement Annuities
(IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b) contracts),
H.R. 10 Plans (sometimes referred to as Keogh Plans), and pension and profit
plans, which include 401(k) plans.
WITHDRAWALS - NON-QUALIFIED CONTRACTS
If you make a withdrawal from your contract, the Code treats such a withdrawal
as first coming from earnings and then from your purchase payments. Such
withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts: (1) paid on or after the
taxpayer reaches age 59 1/2; (2) paid after you die; (3) paid if the taxpayer
becomes totally disabled (as that term is defined in the Code); (4) paid in a
series of substantially equal payments made annually (or more frequently) under
a lifetime annuity; (5) paid under an immediate annuity; or (6) which come from
purchase payments made prior to August 14, 1982.
WITHDRAWALS - QUALIFIED CONTRACTS
The above information describing the taxation of non-qualified contracts does
not apply to qualified contracts. There are special rules that govern with
respect to qualified contracts. We have provided a more complete discussion in
the Statement of Additional Information.
WITHDRAWALS - TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of purchase payments made by owners from certain
Tax-Sheltered Annuities. Withdrawals can only be made when an owner: (1) reaches
age 59 1/2; (2) leaves his/her job; (3) dies; (4) becomes disabled (as that term
is defined in the Code); or (5) in the case of hardship. However, in the case of
hardship, the owner can only withdraw the purchase payments and not any
earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Cova believes that the investment portfolios are being managed
so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Cova would be
considered the owner of the shares of the investment portfolios. If this occurs,
it will result in the loss of the favorable tax treatment for the contract. It
is unknown to what extent owners are permitted to select investment portfolios,
to make transfers among the investment portfolios or the number and type of
investment portfolios owners may select from. If any guidance is provided which
is considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the owner of the
contract, could be treated as the owner of the investment portfolios.
Due to the uncertainty in this area, Cova reserves the right to modify the
contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
You can have access to the money in your contract: (1) by making a withdrawal
(either a partial or a complete withdrawal); (2) by electing to receive annuity
payments; or (3) when a death benefit is paid to your beneficiary. Under most
circumstances, withdrawals can only be made during the accumulation phase.
When you make a complete withdrawal you will receive the value of the contract
on the day you made the withdrawal less any applicable withdrawal charge, less
any premium tax and less any contract maintenance charge. (See Section 5.
Expenses for a discussion of the charges.)
Unless you instruct Cova otherwise, any partial withdrawal will be made pro rata
from all the investment portfolios and the fixed account you selected. Under
most circumstances the amount of any partial withdrawal must be for at least
$500. Cova requires that after a partial withdrawal is made you keep at least
$500 in any selected investment portfolio.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE.
There are limits to the amount you can withdraw from a qualified plan referred
to as a 403(b) plan. For a more complete explanation see Section 6. Taxes and
the discussion in the Statement of Additional Information.
SYSTEMATIC WITHDRAWAL PROGRAM
If you are 59 1/2 or older, you may use the Systematic Withdrawal Program. This
program provides an automatic monthly payment to you of up to 10% of your total
purchase payments each year. No withdrawal charge will be made for these
payments. Cova does not have any charge for this program, but reserves the right
to charge in the future. If you use this program, you may not also make a single
10% free withdrawal. For a discussion of the withdrawal charge and the 10% free
withdrawal, see Section 5. Expenses.
All Systematic Withdrawals will be paid on the 15th day of the month unless that
day is not a business day. If it is not, then the payment will be the next
business day.
INCOME TAXES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
8. PERFORMANCE
Cova periodically advertises performance of the various investment portfolios.
Cova will calculate performance by determining the percentage change in the
value of an accumulation unit by dividing the increase (decrease) for that unit
by the value of the accumulation unit at the beginning of the period. This
performance number reflects the deduction of the insurance charges and the
expenses of the investment portfolio. It does not reflect the deduction of any
applicable contract maintenance charge and withdrawal charge. The deduction of
any applicable contract maintenance charge and withdrawal charges would reduce
the percentage increase or make greater any percentage decrease. Any
advertisement will also include total return figures which reflect the deduction
of the insurance charges, contract maintenance charge, withdrawal charges and
the expenses of the investment portfolio.
For periods starting prior to the date the contracts were first offered, the
performance will be based on the historical performance of the corresponding
portfolios, modified to reflect the charges and expenses of the contract as if
the contracts had been in existence during the period stated in the
advertisement. These figures should not be interpreted to reflect actual
historical performance.
Cova may, from time to time, include in its advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
The Appendix contains performance information that you may find informative.
Future performance will vary and the results shown are not necessarily
representative of future results.
9. DEATH BENEFIT
UPON YOUR DEATH
If you die before annuity payments begin, Cova will pay a death benefit to your
beneficiary (see below). If you have a joint owner, the death benefit will be
paid when the first of you dies. Joint owners must be spouses. The surviving
joint owner will be treated as the beneficiary.
The amount of the death benefit depends on how old you or your joint owner is.
Prior to you, or your joint owner, reaching age 80, the death benefit will be
the greater of:
1. Total purchase payments, less withdrawals (and any withdrawal charges paid
on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent five year anniversary before
the date of death, plus any subsequent purchase payments, less any
withdrawals (and any withdrawal charges paid on the withdrawals).
After you, or your joint owner, reaches age 80, the death benefit will be the
greater of:
1. Total purchase payments, less any withdrawals (and any withdrawal charges
paid on the withdrawals);
2. The value of your contract at the time the death benefit is to be paid; or
3. The value of your contract on the most recent five year anniversary on or
before you or your joint owner reaches age 80, plus any subsequent purchase
payments, less any withdrawals (and any withdrawal charges paid on the
withdrawals).
The entire death benefit must be paid within 5 years of the date of death unless
the beneficiary elects to have the death benefit payable under an annuity
option. The death benefit payable under an annuity option must be paid over the
beneficiary's lifetime or for a period not extending beyond the beneficiary's
life expectancy. Payment must begin within one year of the date of death. If the
beneficiary is the spouse of the owner, he/she can continue the contract in
his/her own name at the then current value. If a lump sum payment is elected and
all the necessary requirements are met, the payment will be made within 7 days.
DEATH OF ANNUITANT
If the annuitant, not an owner or joint owner, dies before annuity payments
begin, you can name a new annuitant. If no annuitant is named within 30 days of
the death of the annuitant, you will become the annuitant. However, if the owner
is a non-natural person (for example, a corporation), then the death or change
of annuitant will be treated as the death of the owner, and a new annuitant may
not be named.
Upon the death of the annuitant after annuity payments begin, the death benefit,
if any, will be as provided for in the annuity option selected.
10. OTHER INFORMATION
COVA
Cova Financial Life Insurance Company ("Cova") was originally incorporated on
September 6, 1972 as Industrial Indemnity Life Insurance Company, a California
corporation and changed its name to Xerox Financial Life Insurance Company in
1986. On June 1, 1995, a wholly-owned subsidiary of General American Life
Insurance Company purchased Cova which on that date changed its name to Cova
Financial Life Insurance Company.
Cova is presently licensed to do business in the state of California.
THE SEPARATE ACCOUNT
Cova has established a separate account, Cova Variable Annuity Account Five
(Separate Account), to hold the assets that underlie the contracts. The Board of
Directors of Cova adopted a resolution to establish the Separate Account under
California insurance law on March 24, 1992. We have registered the Separate
Account with the Securities and Exchange Commission as a unit investment trust
under the Investment Company Act of 1940.
The assets of the Separate Account are held in Cova's name on behalf of the
Separate Account and legally belong to Cova. However, those assets that underlie
the contracts, are not chargeable with liabilities arising out of any other
business Cova may conduct. All the income, gains and losses (realized or
unrealized) resulting from these assets are credited to or charged against the
contracts and not against any other contracts Cova may issue.
DISTRIBUTOR
Cova Life Sales Company (Life Sales), One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644, acts as the distributor of the contracts. Life
Sales is an affiliate of Cova.
Commissions will be paid to broker-dealers who sell the contracts.
Broker-dealers will be paid commissions up to 5.5% of purchase payments. During
the initial period in which the Contracts are offered, Cova may pay an
additional .5% commission. Sometimes, Cova enters into an agreement with the
broker-dealer to pay the broker-dealer persistency bonuses, in addition to the
standard commissions. To the extent that the withdrawal charge is insufficient
to cover the actual cost of distribution, Cova may use any of its corporate
assets, including any profit from the mortality and expense risk premium, to
make up any difference.
OWNERSHIP
OWNER. You, as the owner of the contract, have all the rights under the
contract. Prior to the annuity date, the owner is as designated at the time the
contract is issued, unless changed. On and after the annuity date, the annuitant
is the owner. The beneficiary becomes the owner when a death benefit is payable.
JOINT OWNER. The contract can be owned by joint owners. Any joint owner must be
the spouse of the other owner. Upon the death of either joint owner, the
surviving spouse will be the designated beneficiary. Any other beneficiary
designation at the time the contract was issued or as may have been later
changed will be treated as a contingent beneficiary unless otherwise indicated.
BENEFICIARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued unless
changed at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before you die.
ASSIGNMENT
You can assign the contract at any time during your lifetime. Cova will not be
bound by the assignment until it receives the written notice of the assignment.
Cova will not be liable for any payment or other action we take in accordance
with the contract before we receive notice of the assignment. AN ASSIGNMENT MAY
BE A TAXABLE EVENT.
If the contract is issued pursuant to a qualified plan, there may be limitations
on your ability to assign the contract.
SUSPENSION OF PAYMENTS OR TRANSFERS
Cova may be required to suspend or postpone payments for withdrawals or
transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the
investment portfolios is not reasonably practicable or Cova cannot
reasonably value the shares of the investment portfolios;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of owners.
Cova has reserved the right to defer payment for a withdrawal or transfer from
the fixed account for the period permitted by law but not for more than six
months.
FINANCIAL STATEMENTS
The consolidated financial statements of Cova and the Separate Account have been
included in the Statement of Additional Information.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Company
Experts
Legal Opinions
Distribution
Performance Information
Tax Status
Annuity Provisions
Financial Statements
APPENDIX
PERFORMANCE INFORMATION
FUTURE PERFORMANCE WILL VARY AND THE RESULTS SHOWN ARE NOT NECESSARILY
REPRESENTATIVE OF FUTURE RESULTS.
The accumulation units are new and therefore have no performance history.
However, the corresponding portfolios have been in existence for sometime and
consequently have an investment performance history. In order to show how the
historical investment performance of the portfolios affects accumulation unit
values, the following performance information was developed. The information is
based upon the historical experience of the portfolios and is for the periods
shown.
The chart below shows the investment performance of the portfolios and the
accumulation units performance calculated by assuming that accumulation units
were invested in the portfolio for the same periods.
The performance figures in Column A reflect the fees and expenses paid by the
portfolio. Column B presents performance figures for the accumulation units
which reflect the insurance charges as well as the fees and expenses of the
portfolio. Column C presents performance figures for the accumulation units
which reflect the insurance charges, the contract maintenance charge, the fees
and expenses of the portfolio, and assumes that you make a withdrawal at the end
of the period and therefore the withdrawal charge is reflected.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/96
[Enlarge/Download Table]
Column A Column B Column C
Portfolio Performance Accumulation Unit Performance
---------------------- ---------------------- ----------------------
Portfolio 10 yrs/ 10 yrs/ 10 yrs/
Inception since since since
Portfolio Date 1 yr 5 yrs inception 1 yr 5 yrs inception 1 yr 5 yrs inception
----------------- ------------ ---------------------- ---------------------- ----------------------
RUSSELL INSURANCE FUNDS
Multi-Style Equity
Aggressive Equity
Non-U.S.
Core Bond
GENERAL AMERICAN
COMPANY
Money Market
---------------------------
--------------------------- STAMP
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Cova Financial Life Insurance Company
Attn: Variable Products
One Tower Lane
Suite 3000
Oakbrook Terrace, Illinois 60181-4644
Please send me, at no charge, the Statement of Additional Information
dated _____, 1997 for The Annuity Contract issued by Cova.
(Please print or type and fill in all information)
---------------------------------------------------------------------------
Name
---------------------------------------------------------------------------
Address
---------------------------------------------------------------------------
City State Zip Code
CC-___(_/97) COVA VA
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT
issued by
COVA VARIABLE ANNUITY ACCOUNT FIVE
AND
COVA FINANCIAL LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 1997, FOR THE INDIVIDUAL
FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT WHICH IS DESCRIBED HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE THE
COMPANY AT: One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644,
(800) 831-5433.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 1997.
TABLE OF CONTENTS
Page
COMPANY
EXPERTS
LEGAL OPINIONS
DISTRIBUTION
Reduction or Elimination of the Withdrawal Charge
PERFORMANCE INFORMATION
Total Return
Historical Unit Values
Reporting Agencies
TAX STATUS
General
Diversification
Multiple Contracts
Contracts Owned by Other than Natural Persons
Tax Treatment of Assignments
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
Tax-Sheltered Annuities - Withdrawal Limitations
ANNUITY PROVISIONS
Variable Annuity
Fixed Annuity
Annuity Unit
Net Investment Factor
Mortality and Expense Guarantee
FINANCIAL STATEMENTS
COMPANY
Cova Financial Life Insurance Company (the "Company") was originally
incorporated on September 6, 1972 as Industrial Indemnity Life Insurance
Company, a California corporation and changed its name on January 1, 1986 to
Xerox Financial Life Insurance Company. The Company presently is licensed to do
business in the state of California. On June 1, 1995 a wholly-owned subsidiary
of General American Life Insurance Company ("General American") purchased Xerox
Financial Services Life Insurance Company ("Xerox Life"), an affiliate of the
Company, from Xerox Financial Services, Inc. The acquisition of Xerox Life
included related companies, including the Company. On June 1, 1995 the Company
changed its name to Cova Financial Life Insurance Company.
General American is a St. Louis-based mutual company with more than $250 billion
of life insurance in force and approximately $19 billion in assets. It provides
life and health insurance, retirement plans, and related financial services to
individuals and groups.
EXPERTS
The Balance Sheet of the Company as of December 31, 1996 and 1995 and the
related consolidated Statements of Income, Shareholder's Equity and Cash Flows
for the year ended December 31, 1996 and the periods from June 1, 1995 through
December 31, 1995 and January 1, 1995 through May 31, 1995 and for the year
ended December 31, 1994 and the Statements of Assets and Liabilities and
Contract Owners' Equity of the Separate Account as of December 31, 1996 and the
related Statement of Operations for the year then ended and the Statement of
Change in Contract Owners' Equity for the year ended December 31, 1996 and the
period from June 19, 1995 through December 31, 1995, included herein, have been
included herein in reliance upon the reports of _____________________,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
LEGAL OPINIONS
Legal matters in connection with the Contracts described herein are being passed
upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
DISTRIBUTION
Cova Life Sales Company ("Life Sales") acts as the distributor. Prior to June 1,
1995, Cova Life Sales Company was known as Xerox Life Sales Company. Life Sales
is an affiliate of the Company. The offering is on a continuous basis.
REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE
The amount of the Withdrawal Charge on the Contracts may be reduced or
eliminated when sales of the Contracts are made to individuals or to a group of
individuals in a manner that results in savings of sales expenses. The
entitlement to reduction of the Withdrawal Charge will be determined by the
Company after examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made will be
considered. Generally, the sales expenses for a larger group are less than for a
smaller group because of the ability to implement large numbers of Contracts
with fewer sales contacts.
2. The total amount of purchase payments to be received will be considered.
Per Contract sales expenses are likely to be less on larger purchase payments
than on smaller ones.
3. Any prior or existing relationship with the Company will be considered.
Per Contract sales expenses are likely to be less when there is a prior existing
relationship because of the likelihood of implementing the Contract with fewer
sales contacts.
4. There may be other circumstances, of which the Company is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines that
there will be a reduction in sales expenses, the Company may provide for a
reduction or elimination of the Withdrawal Charge.
The Withdrawal Charge may be eliminated when the Contracts are issued to an
officer, director or employee of the Company or any of its affiliates. In no
event will any reduction or elimination of the Withdrawal Charge be permitted
where the reduction or elimination will be unfairly discriminatory to any
person.
PERFORMANCE INFORMATION
Total Return
From time to time, the Company may advertise performance data. Such data will
show the percentage change in the value of an Accumulation Unit based on the
performance of an investment portfolio over a period of time, usually a calendar
year, determined by dividing the increase (decrease) in value for that unit by
the Accumulation Unit value at the beginning of the period.
Any such advertisement will include total return figures for the time periods
indicated in the advertisement. Such total return figures will reflect the
deduction of a 1.25% Mortality and Expense Risk Premium, a .15% Administrative
Expense Charge, the expenses for the underlying investment portfolio being
advertised and any applicable Contract Maintenance Charges and Withdrawal
Charges.
The hypothetical value of a Contract purchased for the time periods described in
the advertisement will be determined by using the actual Accumulation Unit
values for an initial $1,000 purchase payment, and deducting any applicable
Contract Maintenance Charges and any applicable Withdrawal Charges to arrive at
the ending hypothetical value. The average annual total return is then
determined by computing the fixed interest rate that a $1,000 purchase payment
would have to earn annually, compounded annually, to grow to the hypothetical
value at the end of the time periods described. The formula used in these
calculations is: n P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods
used (or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the time
periods used.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of any
Withdrawal Charge. The deduction of any Withdrawal Charge would reduce any
percentage increase or make greater any percentage decrease.
Owners should note that the investment results of each investment portfolio will
fluctuate over time, and any presentation of the investment portfolio's total
return for any period should not be considered as a representation of what an
investment may earn or what an Owner's total return may be in any future period.
The Accumulation Units are new and therefore have no performance history.
However, the corresponding Portfolios have been in existence for sometime and
consequently have an investment performance history. In order to show how the
historical investment performance of the Portfolios affects 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 a chart of performance information.
Future performance of the Portfolios will vary and the results shown are not
necessarily representative of future results. Performance for periods ending
after those shown may vary substantially from the examples shown. The
performance for a Portfolio is calculated for a specified period of time by
assuming an initial Purchase Payment of $1,000 allocated to the Portfolio. There
are performance figures for the Accumulation Units which reflect the insurance
charges as well as the Portfolio expenses. There are also performance figures
for the Accumulation Units which reflect the insurance charges, the contract
maintenance charge, the Portfolio expenses, and assume that you make a
withdrawal at the end of the period and therefore the withdrawal charge is
reflected. The percentage increases (decreases) are determined by subtracting
the initial Purchase Payment from the ending value and dividing the remainder by
the beginning value. The performance may also show figures when no withdrawal is
assumed.
Historical Unit Values
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the investment
portfolios against established market indices such as the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average or other
management investment companies which have investment objectives similar to the
investment portfolio being compared. The Standard & Poor's 500 Composite Stock
Price Index is an unmanaged, unweighted average of 500 stocks, the majority of
which are listed on the New York Stock Exchange. The Dow Jones Industrial
Average is an unmanaged, weighted average of thirty blue chip industrial
corporations listed on the New York Stock Exchange. Both the Standard & Poor's
500 Composite Stock Price Index and the Dow Jones Industrial Average assume
quarterly reinvestment of dividends.
Reporting Agencies
The Company may also distribute sales literature which compares the performance
of the Accumulation Unit values of the Contracts with the unit values of
variable annuities issued by other insurance companies. Such information will be
derived from the Lipper Variable Insurance Products Performance Analysis
Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is published
by Lipper Analytical Services, Inc., a publisher of statistical data which
currently tracks the performance of almost 4,000 investment companies. The
rankings compiled by Lipper may or may not reflect the deduction of asset-based
insurance charges. The Company's sales literature utilizing these rankings will
indicate whether or not such charges have been deducted. Where the charges have
not been deducted, the sales literature will indicate that if the charges had
been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect the
deduction of asset-based insurance charges. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparison, such as
CDA/Weisenberger.
Morningstar rates a variable annuity against its peers with similar investment
objectives. Morningstar does not rate any variable annuity that has less than
three years of performance data.
TAX STATUS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY
OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS. MOREOVER, NO
ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. An Owner is not
taxed on increases in the value of a Contract until distribution occurs, either
in the form of a lump sum payment or as annuity payments under the Annuity
Option selected. For a lump sum payment received as a total withdrawal (total
surrender), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the Contract. For Non-Qualified Contracts, this cost basis is
generally the purchase payments, while for Qualified Contracts there may be no
cost basis. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period or refund feature) bears
to the expected return under the Contract. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the Contract has been recovered (i.e. when the total of the
excludible amount equals the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Owners, Annuitants and Beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in the imposition of federal income
tax to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contract meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas.
Reg.1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contract. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all investment portfolios underlying the Contracts will
be managed in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owners being
retroactively determined to be the owners of the assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation or certain other entities. Such Contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to a Contract held by a trust or other entity as an
agent for a natural person nor to Contracts held by Qualified Plans. Purchasers
should consult their own tax counsel or other tax adviser before purchasing a
Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Owner are subject to federal income tax withholding. Generally, amounts
are withheld from periodic payments at the same rate as wages and at the rate of
10% from non-periodic payments. However, the Owner, in most cases, may elect not
to have taxes withheld or to have withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or for a specified period of 10
years or more; or b) distributions which are required minimum distributions; or
c) the portion of the distributions not includible in gross income (i.e. returns
of after-tax contributions). Participants should consult their own tax counsel
or other tax adviser regarding withholding requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of the
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his or her Beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
QUALIFIED PLANS
The Contracts offered herein are designed to be suitable for use under various
types of Qualified Plans. Taxation of participants in each Qualified Plan varies
with the type of plan and terms and conditions of each specific plan. Owners,
Annuitants and Beneficiaries are cautioned that benefits under a Qualified Plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Contracts issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. Owners, participants
and Beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts comply with
applicable law. Following are general descriptions of the types of Qualified
Plans with which the Contracts may be used. Such descriptions are not exhaustive
and are for general informational purposes only. The tax rules regarding
Qualified Plans are very complex and will have differing applications depending
on individual facts and circumstances. Each purchaser should obtain competent
tax advice prior to purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
a. H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to establish Qualified
Plans for themselves and their employees, commonly referred to as "H.R. 10" or
"Keogh" plans. Contributions made to the Plan for the benefit of the employees
will not be included in the gross income of the employees until distributed from
the Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions on
all Plans including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Purchasers of Contracts for use with an H.R. 10 Plan should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
b. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employees until the
employees receive distributions from the Contracts. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations" below.) Employee loans are not allowable under the
Contracts. Any employee should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
c. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's gross income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as Individual Retirement Annuities should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
d. Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate employers to establish
various types of retirement plans for employees. These retirement plans may
permit the purchase of the Contracts to provide benefits under the Plan.
Contributions to the Plan for the benefit of employees will not be includible in
the gross income of the employees until distributed from the Plan. The tax
consequences to participants may vary depending upon the particular plan design.
However, the Code places limitations and restrictions on all Plans including on
such items as: amount of allowable contributions; form, manner and timing of
distributions; transferability of benefits; vesting and nonforfeitability of
interests; nondiscrimination in eligibility and participation; and the tax
treatment of distributions, withdrawals and surrenders. (See "Tax Treatment of
Withdrawals - Qualified Contracts" below.) Purchasers of Contracts for use with
Corporate Pension or Profit Sharing Plans should obtain competent tax advice as
to the tax treatment and suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (H.R. 10 and Corporate Pension and
Profit-Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b) (Individual
Retirement Annuities). To the extent amounts are not includible in gross income
because they have been rolled over to an IRA or to another eligible Qualified
Plan, no tax penalty will be imposed. The tax penalty will not apply to the
following distributions: (a) if distribution is made on or after the date on
which the Owner or Annuitant (as applicable) reaches age 59 1/2; (b)
distributions following the death or disability of the Owner or Annuitant (as
applicable) (for this purpose disability is as defined in Section 72(m)(7) of
the Code); (c) after separation from service, distributions that are part of
substantially equal periodic payments made not less frequently than annually for
the life (or life expectancy) of the Owner or Annuitant (as applicable) or the
joint lives (or joint life expectancies) of such Owner or Annuitant (as
applicable) and his or her designated Beneficiary; (d) distributions to an Owner
or Annuitant (as applicable) who separated from service after he has attained
age 55; (e) distributions made to the Owner or Annuitant (as applicable) to the
extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Owner or Annuitant (as applicable) for amounts
paid during the taxable year for medical care; (f) distributions made to an
alternate payee pursuant to a qualified domestic relations order; and (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. The exceptions stated in
(d) and (f) above do not apply in the case of an Individual Retirement Annuity.
The exception stated in (c) above applies to an Individual Retirement Annuity
without the requirement that there be a separation from service.
Generally, distributions from a qualified plan must commence no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
TAX-SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers and transfers between certain Qualified Plans. Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
ANNUITY PROVISIONS
VARIABLE ANNUITY
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable investment portfolio(s) of the Separate Account. At the
Annuity Date, the Contract Value in each investment portfolio will be applied to
the applicable Annuity Tables. The Annuity Table used will depend upon the
Annuity Option chosen. If, as of the Annuity Date, the then current Annuity
Option rates applicable to this class of Contracts provide a first Annuity
Payment greater than guaranteed under the same Annuity Option under this
Contract, the greater payment will be made. The dollar amount of Annuity
Payments after the first is determined as follows:
[Download Table]
(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
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:
[Download Table]
(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 consolidated 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.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
a. FINANCIAL STATEMENTS
The financial statements of the Company and the Separate Account
will be filed by Amendment
b. EXHIBITS
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account*
2. Not Applicable
3. Principal Underwriter's Agreement (to be filed by Amendment)
4. (i) Individual Flexible Purchase Payment Deferred Variable and Fixed
Annuity Contract
(ii) Death Benefit Rider
(iii) Rider - Nursing Home Waiver
5. Application for Variable Annuity (to be filed by Amendment)
6. (i) Copy of Articles of Incorporation of the Company*
(ii) Copy of the Bylaws of the Company*
7. Not Applicable
8. Form of Fund Participation Agreements (to be filed by Amendment)
9. Opinion and Consent of Counsel (to be filed by Amendment)
10. Consent of Independent Accountants (to be filed by Amendment)
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information (to be filed by Amendment)
14. Company Organizational Chart
27. Not Applicable
* incorporated by reference to Xerox Variable Annuity Account Five,
Form N-4 (File No. 33-50174) as filed on July 29, 1992.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR.
The following are the Officers and Directors who are engaged directly or
indirectly in activities relating to the Registrant or the variable annuity
contracts offered by the Registrant and the executive officers of the Company:
[Download Table]
Name and Principal Positions and Offices
Business Address with Depositor
-------------------------------- --------------------------------
Richard A. Liddy Chairman of the Board and Director
700 Market Street
St. Louis, MO 63101
Leonard M. Rubenstein Director
700 Market Street
St. Louis, MO 63101
Lorry J. Stensrud President and Director
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Mark E. Reynolds Executive Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
John W. Barber Director
13045 Tesson Ferry Rd.
St. Louis, MO 63128
Jerome P. Darga Vice President and Assistant Secretary
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Connie A. Doern Vice President
1776 West Lakes Parkway
West Des Moines, IA 50266
Judy M. Drew Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Patricia E. Gubbe Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Philip A. Haley Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Christopher S. Harden Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
J. Robert Hopson Vice President,
One Tower Lane, Suite 3000 Chief Actuary and Director
Oakbrook Terrace, IL 60181-4644
E. Thomas Hughes, Jr. Treasurer and Director
700 Market Street
St. Louis, MO 63101
Lisa O. Kirchner Vice President
1776 West Lakes Parkway
West Des Moines, IA 50266
Douglas E. Jacobs Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
William C. Mair Vice President, Controller and
One Tower Lane, Suite 3000 Director
Oakbrook Terrace, IL 60181-4644
Matthew P. McCauley Assistant Secretary and Director
700 Market Street
St. Louis, MO 63101
Myron H. Sanberg Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
John W. Schaus Vice President
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181-4644
Peter L. Witkewiz Vice President
1776 West Lakes Parkway
West Des Moines, IA 50266
Kent Zimmerman Assistant Treasurer
700 Market Street
St. Louis, MO 63101
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT.
A company organizational chart is filed as Exhibit 14.
ITEM 27. NUMBER OF CONTRACT OWNERS
Not Applicable
ITEM 28. INDEMNIFICATION.
The Bylaws of the Company (Article V, Section 9) provide that:
This corporation shall indemnify, to the fullest extent allowed by California
law, its present and former directors and officers against expenses, judgments,
fines, settlements, and other amounts incurred in connection with any proceeding
or threatened proceeding brought against such directors or officers in their
capacity as such. Such indemnification shall be made in accordance with
procedures set forth by California law. Sums for expenses incurred in defending
any such proceeding may also be advanced to any such director or officer to the
extent and under the conditions provided by California law.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Not Applicable.
Cova Life Sales Company is the principal underwriter for the Contracts. The
following persons are the officers and directors of Cova Life Sales Company. The
principal business address for each officer and director of Cova Life Sales
Company is One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644.
[Download Table]
(b) Name and Principal Positions and Offices
Business Address with Underwriter
----------------------- ---------------------------
Judy M. Drew President, Chief Operations
Officer and Director
Lorry J. Stensrud Director
Patricia E. Gubbe Vice President and Chief
Compliance Officer
William C. Mair Director
Philip A. Haley Vice President
Frances S. Cook Assistant Secretary
Robert A. Miner Treasurer
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Christopher Harden, whose address is One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644 maintains physical possession of the accounts,
books or documents of the Variable Account required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder.
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. Cova Financial Life Insurance Company ("Company") hereby represents that
the fees and charges deducted under the Contracts described in the Prospectus,
in the aggregate, are reasonable in relation to the services rendered, the
expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it has caused this Registration Statement to
be signed on its behalf, in the City of Oakbrook Terrace, and State of Illinois
on this 18th day of August, 1997.
[Download Table]
COVA VARIABLE ANNUITY ACCOUNT FIVE
(Registrant)
By: COVA FINANCIAL LIFE INSURANCE COMPANY
By: /S/ LORRY J. STENSRUD
_________________________________________
Lorry J. Stensrud, President
COVA FINANCIAL LIFE INSURANCE COMPANY
Depositor
By: /S/ LORRY J. STENSRUD
_________________________________________
Lorry J. Stensrud, President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
[Download Table]
Chairman of the Board and
---------------------- Director --------
Richard A. Liddy Date
/S/ LORRY J. STENSRUD President and Director 8-18-97
----------------- --------
Lorry J. Stensrud Date
---------------------- Director --------
Leonard M. Rubenstein Date
Director
---------------------- --------
J. Robert Hopson Date
William C. Mair* Controller and Director 8-18-97
---------------------- --------
William C. Mair Date
E. Thomas Hughes, Jr.* Treasurer and Director 8-18-97
---------------------- --------
E. Thomas Hughes, Jr. Date
Matthew P. McCauley* Director 8-18-97
---------------------- --------
Matthew P. McCauley Date
John W. Barber* Director 8-18-97
---------------------- --------
John W. Barber Date
*By: /S/ LORRY J. STENSRUD
____________________________________
Lorry J. Stensrud, Attorney-in-Fact
INDEX TO EXHIBITS
TO
FORM N-4
COVA VARIABLE ANNUITY ACCOUNT FIVE
EXHIBIT NO. PAGE NO.
EX-99.B4(i) Individual Flexible Purchase Payment Deferred Variable and Fixed
Annuity Contract
EX-99.B4(ii) Death Benefit Rider
EX-99.B4(iii) Rider - Nursing Home Waiver
EX-99.B14 Company Organizational Chart
Dates Referenced Herein and Documents Incorporated by Reference
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