[Federal Register Volume 62, Number 58 (Wednesday, March 26, 1997)]
[Notices]
[Pages 14484-14486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7645]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-22576; File No. 812-10462]


Cova Financial Services Life Insurance Company, et al.

March 20, 1997.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``1940 Act'').

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APPLICANTS: Cova Financial Services Life Insurance Company (``Cova 
Life'') and Cova Variable Annuity Account One (``Variable Account 
One'')

RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 26(b) 
approving the proposed substitution of securities.

SUMMARY OF APPLICATION: Applicants seek an order approving the proposed 
substitution of shares of the International Equity Portfolio of Cova 
Series Trust (``Cova Trust'') for shares of the Global Equity Portfolio 
of Lord Abbett Series Fund, Inc. (``Lord Abbett Fund'') which currently 
are held by Variable Account One to fund certain single purchase 
payment and flexible purchase payment variable annuity contracts 
(``Contracts'') issued by Cova Life.

FILING DATE: The application was filed on December 13, 1996, and 
amended and restated on march 18, 1997.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
Persons may request a hearing by writing to the Secretary of the 
Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m., on April 14, 1997, and should be accompanied 
by proof of service on Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the requester's interest, the reason for the request, and the 
issue contested. Persons may request notification of a hearing by 
writing to the Secretary of the SEC.

ADDRESSES: SEC, Secretary, 450 Fifth Street, NW., Washington, D.C. 
20549. Applicants, c/o Raymond A. O'Hara III, Blazzard, Grodd & 
Hasenauer, P.C., P.O. Box 5108, Westport, Connecticut, 06881. Copies to 
Jeffery K. Hoelzel, Esq., Senior Vice President, General Counsel and 
Secretary, Cova Financial Services Life Insurance Company, One Tower 
Lane, Suite 3000, Oakbrook Terrace, Il 60181-4644.

FOR FURTHER INFORMATION CONTACT: Megan L. Dunphy, Staff Attorney, or 
Patrice M. Pitts, Branch Chief, Office of Insurance Products, Division 
of Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the application. 
The complete application may be obtained for a fee from the Public 
Reference Branch of the SEC.

[[Page 14485]]

Applicants' Representations

    1. Cova Life originally was incorporated on August 17, 1981, as 
Assurance Life Company, a Missouri corporation, and changed its name to 
Xerox Financial Services Life Insurance Company in 1985. On June 1, 
1995 a wholly-owned subsidiary of General American Life Insurance 
Company purchased Cova Life from Xerox Financial Services, Inc. The 
acquisition of Cova Life included related companies. On June 1, 1995, 
Cova Life changed its name to Cova Financial Services Life Insurance 
Company. Cova Life presently is licensed to do business in the District 
of Columbia and in all states except California, Maine, New Hampshire, 
New York and Vermont.
    2. Variable Account One is a separate account registered under the 
1940 Act as a unit investment trust and established for the purpose of 
funding certain variable annuity contracts, including the Contracts. 
Variable Account One currently is divided into twelve sub-accounts, 
each of which reflects the investment performance of a corresponding 
portfolio of Cova Trust, Lord Abbett Fund and another registered mutual 
fund.
    3. The Lord Abbett Fund currently offers shares of its portfolios 
to corresponding sub-accounts of Variable Account One and to separate 
accounts of other insurance companies. Lord Abbett Fund was 
incorporated under the laws of Maryland on August 28, 1989, and is 
registered under the 1940 Act as an open-end management investment 
company of the series type. Lord Abbett Fund currently is comprised of 
three Portfolios, only one of which--the Global Equity Portfolio--is 
relevant herein.
    4. The investment objective of the Global Equity Portfolio is long-
term growth of capital and income consistent with reasonable risk. The 
production of current income is a secondary consideration for the 
portfolio. The Global Equity Portfolio normally invests primarily in 
common stocks (including securities convertible into common stocks) of 
domestic and foreign companies in sound financial condition, which 
common stocks are expected to show above-average price appreciation. 
Under normal circumstances, the portfolio will invest its total assets 
in domestic and foreign securities with at least 65% of such assets 
invested in equity securities primarily traded in at least three 
countries, including the United States.
    5. Lord, Abbett & Co. (``Lord Abbett'') is the investment manager 
of the Lord Abbett Fund. Lord Abbett retains Dunedin Fund Managers 
Limited as a sub-adviser to the Global Equity Portfolio. Lord Abbett 
receives a monthly management fee, based on average daily net assets 
for each month, at an annual rate of .75 of 1%. Since inception of the 
Global Equity Portfolio, Lord Abbett has voluntarily waived this 
management fee and reimbursed a portion of the expenses of the 
portfolio. Lord Abbett is under no legal obligation to continue fee 
waivers and expense reimbursements.
    6. The shares of Cova Trust are sold exclusively to separate 
accounts of Cova Life (including Variable Account One) and its 
affiliated insurance companies to fund benefits under the Contracts and 
certain other variable annuity contracts issued by affiliates of Cova 
Life. Cova Trust is an unincorporated business trust that was 
established under Massachusetts law by a Declaration of Trust dated 
July 9, 1987. Cova Trust is registered under the 1940 Act as an open-
end management investment company of the series type. Cova Trust 
currently offers eleven portfolios, only one of which--the 
International Equity Portfolio--is relevant herein.
    7. The investment objective of the International Equity Portfolio 
is to provide a high total return from a portfolio of equity securities 
of foreign corporations. In normal circumstances, the International 
Equity Portfolio should be essentially fully invested with at least 65% 
of the value of its total assets in equity securities of foreign 
issuers, consisting of common stocks and other securities with equity 
characteristics such as preferred stock, warrants, rights and 
convertible securities.
    8. Cova Investment Advisory Corporation (``Cova Advisory'') is the 
investment adviser for Cova Trust. Cova Advisory is a wholly-owned 
subsidiary of Cova Life Management Company, which is a wholly-owned 
subsidiary of Cova Corporation, which is a wholly-owned subsidiary of 
General American Life Insurance Company. Cova Advisory has engaged J.P. 
Morgan Investment Management Inc., a wholly-owned subsidiary of J.P. 
Morgan & Co., Inc., as sub-adviser to the International Equity 
Portfolio. The maximum management fee Cova Advisory receives is .85% of 
the net assets of the International Equity Portfolio. Cova Advisory has 
undertaken to pay the expenses of the International Equity Portfolio 
until May 1, 1998, to the extent that expenses of the portfolio, other 
than investment advisory fees, exceed the annual rate of 10% of the 
portfolio's average net assets.
    9. The Global Equity Portfolio commenced operations on April 9, 
1990. After experiencing slow sales of portfolio shares the management 
of Cova Life and the management of Lord Abbett determined that it was 
unlikely that the Global Equity Portfolio would grow to a sufficient 
size to promote consistent investment performance or to reduce 
operating expenses. The sale of shares of the Global Equity Portfolio 
to Variable Account One was discontinued on May 1, 1992 (except for the 
acceptance of certain additional purchase payments received after that 
date in connection with dollar cost averaging program of Cova Life).
    10. International Equity Portfolio began selling its shares to 
Variable Account One on May 1, 1996. As of December 31, 1996, the 
portfolio had $15,619,255 in net assets, more than six times the asset 
size of the Global Equity Portfolio. Management of Cova Life believes 
that the International Equity Portfolio will continue to grow at a 
steady pace. In addition to sales to Variable Account One, Cova Life 
anticipates commencing sales of the International Equity Portfolio to 
additional separate accounts of Cova Life and its affiliates in the 
near future; that should result in a further increase in the net assets 
of the International Equity Portfolio.
    11. Applicants propose to substitutes shares of the International 
Equity Portfolio of Cova Trust (the ``substitute fund'') for shares of 
the Global Equity Portfolio of Lord Abbett Fund (the ``removed fund''). 
The prospectuses for the Contracts will be amended by supplement to 
describe the proposed substitution. The supplement will be distributed 
to all Contract owners.
    12. Affected Contract owners will not incur any fees or charges as 
a result of the substitution, nor will their rights or the obligations 
of Cova Life under the Contracts be altered in any way.
    13. From the date of the supplement until the date of the proposed 
substitution, Contract owners may transfer any or all of their 
respective Contract value invested in the Global Equity sub-account to 
another sub-account of Variable Account One without any limitation or 
charge. For the 30-day period following the substitution, Cova Life 
will permit transfers from the International Equity sub-account to any 
other sub-account of Variable Account One without any limitation or 
charge being imposed. The proposed substitution will not be considered 
a ``transfer'' for purposes of calculating any transfer fee that may 
otherwise be payable under a Contract.
    14. The proposed substitution will take place at net asset value 
with no change in the amount of any Contract owner's Contract value or 
in the dollar

[[Page 14486]]

value of his or her investment in Variable Account One. Cova life will 
redeem shares of the Global Equity Portfolio in cash and purchase 
shares of the International Equity Portfolio with the proceeds.
    15. Contract owners will not incur any fees or charges as a result 
of the proposed substitution, nor will their rights under the Contracts 
be altered in any way. All expenses incurred in connection with the 
proposed substitution, including legal, accounting and other fees and 
expenses, will be paid by Cova Life. The proposed substitution will not 
cause the Contract fees and charges currently being paid by existing 
Contract owners to be greater after the proposed substitution than 
before the proposed substitution.
    16. Within five days of the substitution, affected Contract owners 
will receive written notice of the substitution reiterating their right 
to make transfers from the International Equity sub-account to any 
other sub-account of Variable Account One for a period of 30 days from 
the date of the notice without any limitation or charge being imposed. 
Cova Life will include in such mailing a supplement to the prospectus 
of Variable Account One which describes the substitution.
    17. Following the substitution, Contract owners will be afforded 
the same contract rights, including surrender and other transfer rights 
with regard to amounts invested under the Contracts, as they currently 
have.

Applicants' Legal Analysis and Conditions

    1. Section 26(b) of the 1940 Act provides, in pertinent part, that 
``[i]t shall be unlawful for any depositor or trustee of a registered 
unit investment trust holding the security of a single issuer to 
substitute another security for such security unless the Commission 
shall have approved such substitution.'' Applicants assert that the 
purpose of Section 26(b) is to protect the expectation of investors in 
a unit investment trust that the unit investment trust will accumulate 
the shares of a particular issuer, and to prevent unscrutinized 
substitutions which in effect might force shareholders dissatisfied 
with the substituted security to redeem their shares, thereby possibly 
incurring either a loss of the sales load deducted from initial 
purchase payments, an additional sales load upon reinvestment of the 
redemption proceeds, or both. Section 26(b) affords this protection to 
investors by preventing a depositor or trustee of a unit investment 
trust holding the shares of one issuer from substitution for those 
shares the shares of another issuer, unless the Commission approves 
that substitution.
    2. Applicants maintain that the purposes, terms and conditions of 
the Substitution are consistent with the principles and purposes of 
Section 26(b) and do not entail any of the abuses that Section 26(b) is 
designed to prevent. Applicant assert that the substitute fund is a 
suitable and appropriate investment vehicle for Contract owners. 
Applicants further assert that effecting the proposed substitution will 
not result in greater (aggregate) fees and charges under the Contracts.
    3. Applicants represent that the proposed substitution will not 
result in the type of costly forced redemption that section 26(b) was 
intended to guard against, and is consistent with the protection of 
investors and the purposes fairly intended by the 1940 Act for the 
following reasons: prior to the substitution and for a period of thirty 
(30) days thereafter, Contract owners may transfer Global Equity sub-
account values to any other sub-account of Variable Account One without 
any limitation or charge being imposed; the investment objective of the 
substitute fund is similar to that of the removed fund; the 
substitution will be at the net asset value of the respective portfolio 
shares, with no change in a Contract owner's contract value or in the 
dollar value of the Contract owner's investment in Variable Account 
One; Contract owners will not incur any fees or charges as a result of 
the proposed substitution, nor will their rights under the Contracts be 
altered in any way; all expenses incurred in connection with the 
proposed substitution, including legal, accounting and other fees and 
expenses, will be paid by Cova Life; the proposed substitution will not 
impose any tax liability on Contract owners; Contract owners may choose 
to withdraw amounts credited to them following the substitution under 
the conditions that currently exist, subject to any applicable deferred 
sales charge.
    4. Applicants assert that the substitute fund is substantially 
larger than the removed fund, and that the substitute fund should grow 
further. Applicants anticipate that, after the proposed substitution, 
the substitute fund will provide Contract owners with comparable or 
more favorable investment results than would be the case if the 
proposed substitution did not take place.
    5. Applicants also note that within 5 days after the proposed 
substitution, any affected Contract owners will be sent a written 
notice informing them that shares of the International Equity Portfolio 
have been substituted for shares of the Global Equity Portfolio. Cova 
Life will include in such a mailing a supplement to the prospectus of 
Variable Account one which describes the substitution.

Conclusion

    For the reasons set forth above, Applicants represent that the 
order requested, approving the proposed substitution, is necessary and 
appropriate in the public interest and consistent with the protection 
of investors and purposes fairly intended by the policy and provisions 
of the 1940 Act and should be granted.

    For the Commission, by the Division of Investment management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 97-7645 Filed 3-25-97; 8:45 am]
BILLING CODE 8010-01-M