STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT
ISSUED BY
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
AND
FIRST COVA LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 1998 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-LIFE.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 1998.
TABLE OF CONTENTS
Page
COMPANY 3
EXPERTS 3
LEGAL OPINIONS 4
DISTRIBUTION 4
PERFORMANCE INFORMATION 4
Total Return 4
Historical Unit Values 5
Reporting Agencies 5
Performance Information 6
FEDERAL TAX STATUS 7
General 7
Diversification 8
Multiple Contracts 9
Contracts Owned by Other than Natural Persons 9
Tax Treatment of Assignments 10
Income Tax Withholding 10
Tax Treatment of Withdrawals - Non-Qualified Contracts 10
Qualified Plans 11
Tax Treatment of Withdrawals - Qualified Contracts 12
ANNUITY PROVISIONS 12
Variable Annuity 12
Fixed Annuity 13
Annuity Unit 13
Net Investment Factor 13
Mortality and Expense Guarantee 14
FINANCIAL STATEMENTS 14
COMPANY
First Cova Life Insurance Company (the "Company") was organized under the laws
of the state of New York on December 31, 1992. The Company is presently
licensed to do business only in the state of New York. The Company is a
wholly-owned subsidiary of Cova Financial Services Life Insurance Company
("Cova Life"), a Missouri insurance company. On December 31, 1992, Cova Life
acquired Wausau Underwriters Life Insurance Company ("Wausau"), a stock life
insurance company organized under the laws of the state of Wisconsin. On April
16, 1993, Wausau was merged into the Company, with the Company as the
surviving corporation.
On June 1, 1995, a wholly-owned subsidiary of General American Life Insurance
Company ("General American") purchased Cova Life from Xerox Financial
Services, Inc. The acquisition of Cova Life included related companies,
including the Company. On June 1, 1995, the Company changed its name to
First Cova Life Insurance Company.
General American is a St. Louis-based mutual company with more than $300
billion of life insurance in force and approximately $24 billion in assets.
It provides life and health insurance, retirement plans, and related financial
services to individuals and groups.
EXPERTS
The statutory statements of admitted assets, liabilities, and capital stock and
surplus of the Company as of December 31, 1997 and 1996, and the related
statutory statements of operations, capital stock and surplus, and cash flow for
each of the years in the three-year period ended December 31, 1997, and the
statement of assets and liabilities of the Separate Account as of December 31,
1997, and the related statement of operations, statement of changes in contract
owners' equity, and the financial highlights for the period from commencement of
operations through December 31, 1997, have been included herein in reliance upon
the reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP covering the
statutory financial statements of the Company contains an explanatory paragraph
which states that the financial statements were prepared using accounting
practices prescribed or permitted by the New York State Insurance Department,
which practices differ from generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles are described in the
notes to the financial statements.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
DISTRIBUTION
Cova Life Sales Company ("Life Sales") acts as the distributor. Prior to June
1, 1995, Cova Life Sales Company was known as Xerox Life Sales Company. Life
Sales is an affiliate of the Company. The offering is on a continuous basis.
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.
HISTORICAL UNIT VALUES
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the investment
portfolios against established market indices such as the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average or other
management investment companies which have investment objectives similar to
the investment portfolio being compared. The Standard & Poor's 500
Composite Stock Price Index is an unmanaged, unweighted average of 500 stocks,
the majority of which are listed on the New York Stock Exchange. The Dow
Jones Industrial Average is an unmanaged, weighted average of thirty blue chip
industrial corporations listed on the New York Stock Exchange. Both the
Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average assume quarterly reinvestment of dividends.
REPORTING AGENCIES
The Company may also distribute sales literature which compares the
performance of the Accumulation Unit values of the Contracts with the unit
values of variable annuities issued by other insurance companies. Such
information will be derived from the Lipper Variable Insurance Products
Performance Analysis Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is
published by Lipper Analytical Services, Inc., a publisher of statistical data
which currently tracks the performance of almost 4,000 investment
companies.The rankings compiled by Lipper may or may not reflect the deduction
of asset-based insurance charges. The Company's sales literature utilizing
these rankings will indicate whether or not such charges have been deducted.
Where the charges have not been deducted, the sales literature will indicate
that if the charges had been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect
the deduction of asset-based insurance charges. In addition, VARDS prepares
risk adjusted rankings, which consider the effects of market risk on total
return performance. This type of ranking may address the question as to which
funds provide the highest total return with the least amount of risk. Other
ranking services may be used as sources of performance comparison, such as
CDA/Weisenberger.
Morningstar rates a variable annuity against its peers with similar investment
objectives. Morningstar does not rate any variable annuity that has less than
three years of performance data.
PERFORMANCE INFORMATION
The Growth and Income Portfolio of Lord Abbett Series Fund, Inc., and the
Select Equity, Small Cap Stock, Large Cap Stock, International Equity,
Quality Bond and Bond Debenture Portfolios of Cova Series Trust were not
available under the contract until February 3, 1997 and the Mid-Cap Value,
Large Cap Research and Developing Growth Portfolios of Cova Series Trust
were available under the contract on November 15, 1997. The Money Market
Fund of General American Capital Company became available under the Contract
on May 1, 1997. However, these funds have been in existence for some time
and consequently have an investment performance history. In order to
demonstrate how investment experience of these 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 of the Portfolios is calculated for a
specified period of time by assuming an initial Purchase Payment of
$1,000 allocated to the Portfolio. There are performance figures for the
Accumulation Units which reflect the insurance charges as well as the
portfolio expenses. There are also performance figures for the Accumulation
Units which reflect the insurance charges, the contract maintenance charge,
the portfolio expenses, and assume that you make a withdrawal at the end of
the period and therefore the withdrawal charge is reflected. The
percentage increases (decreases) are determined by subtracting the
initial Purchase Payment from the ending value and dividing the remainder
by the beginning value. The performance may also show figures when no
withdrawal is assumed.
FEDERAL TAX STATUS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF
THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE
TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE
FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT
SPECIAL RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS.
MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER
TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. An Owner is
not taxed on increases in the value of a Contract until distribution occurs,
either in the form of a lump sum payment or as annuity payments under the
Annuity Option selected. For a lump sum payment received as a total withdrawal
(total surrender), the recipient is taxed on the portion of the payment that
exceeds the cost basis of the Contract. For Non-Qualified Contracts, this cost
basis is generally the purchase payments, while for Qualified Contracts there
may be no cost basis. The taxable portion of the lump sum payment is taxed at
ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments
based on a fixed annuity option is determined by multiplying the payment by
the ratio that the cost basis of the Contract (adjusted for any period or
refund feature) bears to the expected return under the Contract. The exclusion
amount for payments based on a variable annuity option is determined by
dividing the cost basis of the Contract (adjusted for any period certain or
refund guarantee) by the number of years over which the annuity is expected to
be paid. Payments received after the investment in the Contract has been
recovered (i.e. when the total of the excludable amount equals the
investment in the Contract) are fully taxable. The taxable portion is taxed at
ordinary income tax rates. For certain types of Qualified Plans there may be
no cost basis in the Contract within the meaning of Section 72 of the Code.
Owners, Annuitants and Beneficiaries under the Contracts should seek competent
financial advice about the tax consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury
Department ("Treasury Department"), adequately diversified. Disqualification
of the Contract as an annuity contract would result in the imposition of
federal income tax to the Owner with respect to earnings allocable to the
Contract prior to the receipt of payments under the Contract. The Code
contains a safe harbor provision which provides that annuity contracts such as
the Contract meet the diversification requirements if, as of the end of each
quarter, the underlying assets meet the diversification standards for a
regulated investment company and no more than fifty-five percent (55%) of the
total assets consist of cash, cash items, U.S. Government securities and
securities of other regulated investment companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas.
Reg.1.817-5), which established diversification requirements for the
investment portfolios underlying variable contracts such as the Contract. The
Regulations amplify the diversification requirements for variable contracts
set forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if: (1) no more than 55% of the value of the total
assets of the portfolio is represented by any one investment; (2) no more than
70% of the value of the total assets of the portfolio is represented by any
two investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer."
The Company intends that all investment portfolios underlying the Contracts
will be managed in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be
contained in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available,
would cause the Owner to be considered as the owner of the assets of the
Separate Account resulting in the imposition of federal income tax to the
Owner with respect to earnings allocable to the Contract prior to receipt of
payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owners
being retroactively determined to be the owners of the assets of the Separate
Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from
such combination of contracts. 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; 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 may also be used as Qualified Contracts. Owners,
Annuitants and Beneficiaries are cautioned that benefits under a Qualified
Contract 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. The
following discussion of Qualified Contracts is not exhaustive and is for
general informational purposes only. The tax rules regarding Qualified
Contracts are very complex and will have differing applications depending on
individual facts and circumstances. Each purchaser should obtain competent tax
advice prior to purchasing Qualified Contracts.
Qualified Contracts include special provisions restricting Contract provisions
that may otherwise be available as described herein. Generally, Qualified
Contracts are not transferable except upon surrender or annuitization.
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. Qualified Contracts 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.
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity (IRA).
THE CONTRACTS ARE NOT AVAILABLE AS QUALIFIED CONTRACTS UNTIL AN IRA
ENDORSEMENT IS APPROVED BY THE STATE OF NEW YORK INSURANCE DEPARTMENT. 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.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
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 Section 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
Annuitant reaches age 59 1/2; (b) distributions following the death or
disability of the Annuitant (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (c) distributions that are part of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the Annuitant or the joint lives (or
joint life expectancies) of the Annuitant and his or her designated
Beneficiary; (d) 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; (e) 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); (f)
distributions from an Individual Retirement Annuity made to the Owner or
Annuitant (as applicable) to the extent such distributions do not exceed the
qualified higher education expenses (as defined in Section 72(t)(7) of the
Code) of the Owner or Annuitant (as applicable) for the taxable year; and
(g) distributions from an Individual Retirement Annuity made to the Owner or
Annuitant (as applicable) which are qualified first-time home buyer
distributions (as defined in Section 72(t)(8) of the Code).
Generally, distributions from a qualified plan must commence no later than
April 1 of the calendar year following the year in which the employee attains
age 70 1/2. 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.
ANNUITY PROVISIONS
VARIABLE ANNUITY
A variable annuity is an annuity with payments which: (1) are not
predetermined as to dollar amount; and (2) will vary in amount with the net
investment results of the applicable investment portfolio(s) of the Separate
Account. At the Annuity Date, the Contract Value in each investment portfolio
will be applied to the applicable Annuity Tables. The Annuity Table used will
depend upon the Annuity Option chosen. If, as of the Annuity Date, the then
current Annuity Option rates applicable to this class of Contracts provide a
first Annuity Payment greater than guaranteed under the same Annuity Option
under this Contract, the greater payment will be made. The dollar amount of
Annuity Payments after the first is determined as follows:
(1) the dollar amount of the first Annuity Payment is divided by the
value of an Annuity Unit as of the Annuity Date. This establishes the number
of Annuity Units for each monthly payment. The number of Annuity Units remains
fixed during the Annuity Payment period.
(2) the fixed number of Annuity Units is multiplied by the Annuity Unit
value for the last Valuation Period of the month preceding the month for which
the payment is due. This result is the dollar amount of the payment.
The total dollar amount of each Variable Annuity Payment is the sum of all
investment portfolios' Variable Annuity Payments reduced by the applicable
Contract Maintenance Charge.
FIXED ANNUITY
A fixed annuity is a series of payments made during the Annuity Period which
are guaranteed as to dollar amount by the Company and do not vary with the
investment experience of the Separate Account. The General Account Value on
the day immediately preceding the Annuity Date will be used to determine the
Fixed Annuity monthly payment. The first monthly Annuity Payment will be based
upon the Annuity Option elected and the appropriate Annuity Option Table.
ANNUITY UNIT
The value of an Annuity Unit for each investment portfolio was arbitrarily set
initially at $10. This was done when the first investment portfolio shares
were purchased. The investment portfolio Annuity Unit value at the end of any
subsequent Valuation Period is determined by multiplying the investment
portfolio Annuity Unit value for the immediately preceding Valuation Period by
the product of (a) the Net Investment Factor for the day for which the Annuity
Unit value is being calculated, and (b) 0.999919.
NET INVESTMENT FACTOR
The Net Investment Factor for any investment portfolio for any Valuation
Period is determined by dividing:
(a) the Accumulation Unit value as of the close of the current
Valuation Period, by
(b) the Accumulation Unit value as of the close of the immediately
preceding Valuation Period.
The Net Investment Factor may be greater or less than one, as the Annuity Unit
value may increase or decrease.
MORTALITY AND EXPENSE GUARANTEE
The Company guarantees that the dollar amount of each Annuity Payment after
the first Annuity Payment will not be affected by variations in mortality or
expense experience.
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be considered
only as bearing upon the ability of the Company to meet its obligations under
the Contracts.
INDEPENDENT AUDITORS' REPORT
The Contract Owners of Cova Variable
Annuity Account One, Board of
Directors and Shareholder of First Cova Life Insurance Company:
We have audited the accompanying statement of assets and liabilities of the Bond
Debenture, Quality Bond, Small Cap Stock, Large Cap Stock, Select Equity, and
International Equity sub-accounts (investment options within the Cova Series
Trust) and the Growth and Income sub-account (investment option within the Lord
Abbett Series Fund, Inc.) of First Cova Variable Annuity Account One of First
Cova Life Insurance Company (the Separate Account), as of December 31, 1997, and
the related statement of operations, statement of changes in contract owners'
equity, and the financial highlights for the period from commencement of
operations through December 31, 1997. These financial statements and financial
highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1997, by
correspondence with transfer agents. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
sub-accounts of First Cova Variable Annuity Account One of First Cova Life
Insurance Company as of December 31, 1997, and the results of its operations,
the changes in its contract owners' equity, and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
Chicago, Illinois
February 20, 1998
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Assets and Liabilities
December 31, 1997
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ASSETS
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Investments:
Cova Series Trust:
<S> <C> <C> <C> <C>
Bond Debenture Portfolio - 9,496 shares at a net asset value of $12.11 per share (cost $114,969) $ 115,015
Quality Bond Portfolio - 2,217 shares at a net asset value of $10.40 per share (cost $22,968) 23,069
Small Cap Stock Portfolio - 545 shares at a net asset value of $13.10 per share (cost $6,843) 7,146
Large Cap Portfolio - 3,019 shares at a net asset value of $13.85 per share (cost $42,399) 41,801
Select Equity Portfolio - 1,330 shares at a net asset value of $13.97 per share (cost $17,465) 18,567
International Equity Portfolio - 3,833 shares at a net asset value of $11.47 per share (cost $45,941) 43,976
Lord Abbett Series Fund, Inc. Growth and Income Portfolio - 8,768 shares at a net asset value of
$19.51 per share (cost $178,810) 171,066
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 420,640
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND CONTRACT OWNERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
Liabilities:
Trust Bond Debenture $ 4
Trust Quality Bond 1
Trust Small Cap Stock -
Trust Large Cap Stock 2
Trust Select Equity 1
Trust International Equity 2
Fund Growth and Income 6
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 16
- --------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Trust Bond Debenture - 8,928 accumulation units at $12.882042 per unit 115,011
Trust Quality Bond - 2,068 accumulation units at $11.155130 per unit 23,068
Trust Small Cap Stock - 530 accumulation units at $13.492111 per unit 7,146
Trust Large Cap Stock - 2,807 accumulation units at $14.889594 per unit 41,799
Trust Select Equity - 1,321 accumulation units at $14.053502 per unit 18,566
Trust International Equity - 3,836 accumulation units at $11.462941 per unit 43,974
Fund Growth and Income - 5,547 accumulation units at $30.837096 per unit 171,060
- --------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity 420,624
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and contract owners' equity $ 420,640
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Operations
Period from commencement of operations through December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
Lord Abbett
Series Fund,
Cova Series Trust Inc.
----------------------------------------------------------------- -------------
Small Large Interna- Growth
Bond Quality Cap Cap Select tional and
Debenture Bond Stock Stock Equity Equity Income Total
- ----------------------------------------------------------------------------------------------------------------------------
Investment income:
Dividends and capital gains
<S> <C> <C> <C> <C> <C> <C> <C> <C>
distributions $ 3,442 755 17 2,373 103 424 13,386 20,500
- ----------------------------------------------------------------------------------------------------------------------------
Total investment income 3,442 755 17 2,373 103 424 13,386 20,500
- ----------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 370 96 15 133 62 239 739 1,654
Administrative fee 45 12 2 16 7 29 89 200
- ----------------------------------------------------------------------------------------------------------------------------
Total expenses 415 108 17 149 69 268 828 1,854
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 3,027 647 - 2,224 34 156 12,558 18,646
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments 77 3 1 (4) 1 184 1,447 1,709
Net change in unrealized
gain (loss) on investments 46 101 303 (598) 1,102 (1,965) (7,744) (8,755)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 123 104 304 (602) 1,103 (1,781) (6,297) (7,046)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity
resulting from operations $ 3,150 751 304 1,622 1,137 (1,625) 6,261 11,600
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Statement of Changes in Contract Owners' Equity
Period from commencement of operations through December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
Lord Abbett
Series Fund,
Cova Series Trust Inc.
----------------------------------------------------------------- -------------
Small Large Interna- Growth
Bond Quality Cap Cap Select tional and
Debenture Bond Stock Stock Equity Equity Income Total
- ----------------------------------------------------------------------------------------------------------------------------
From operations:
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income $ 3,027 647 - 2,224 34 156 12,558 18,646
Net realized gain (loss)
on investments 77 3 1 (4) 1 184 1,447 1,709
Net change in unrealized
gain (loss) on investments 46 101 303 (598) 1,102 (1,965) (7,744) (8,755)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity
resulting from operations 3,150 751 304 1,622 1,137 (1,625) 6,261 11,600
- ----------------------------------------------------------------------------------------------------------------------------
From account unit transactions:
Proceeds from units
of the account sold 89,575 - 5,151 14,027 14,032 31,664 134,766 289,215
Payments for units of
the account redeemed (381) (350) (9) (341) (145) 52 (851) (2,025)
Account transfers, net 22,667 22,667 1,700 26,491 3,542 13,883 30,884 121,834
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in contract
owners' equity from account
unit transactions 111,861 22,317 6,842 40,177 17,429 45,599 164,799 409,024
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in
contract owner's equity 115,011 23,068 7,146 41,799 18,566 43,974 171,060 420,624
- ----------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Beginning of period - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------
End of period $ 115,011 23,068 7,146 41,799 18,566 43,974 171,060 420,624
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Cova Series Trust - Bond Debenture Portfolio (Managed by Lord, Abbett & Co.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
May 15, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 11.74
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .46
Net realized and unrealized
gain from security
transactions .68
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 1.14
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 12.88
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 9.71%
Contract owners' equity,
end of period $ 115,011
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity 10.11%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Cova Series Trust - Quality Bond Portfolio (Managed by J.P. Morgan Investment Management, Inc.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
May 15, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 10.45
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .50
Net realized and unrealized
gain from security
transactions .21
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .71
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 11.16
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 6.79%
Contract owners' equity,
end of period $ 23,068
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity 8.36%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Cova Series Trust - Small Cap Stock Portfolio (Managed by J.P. Morgan Investment Management, Inc.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
March 17, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 10.92
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (.05)
Net realized and unrealized
gain from security
transactions 2.62
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 2.57
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 13.49
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 23.53%
Contract owners' equity,
end of period $ 7,146
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity .04%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Cova Series Trust - Large Cap Stock Portfolio (Managed by J.P. Morgan Investment Management, Inc.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
March 11, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 12.40
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .79
Net realized and unrealized
gain from security
transactions 1.70
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 2.49
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 14.89
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 20.08%
Contract owners' equity,
end of period $ 41,799
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity 20.65%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Cova Series Trust - Select Equity Portfolio (Managed by J.P. Morgan Investment Management, Inc.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
March 11, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 11.76
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income -
Net realized and unrealized
gain from security
transactions 2.29
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 2.29
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 14.05
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 19.47%
Contract owners' equity,
end of period $ 18,566
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity .67%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Cova Series Trust - International Equity Portfolio (Managed by J.P. Morgan Investment Management, Inc.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
March 11, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 11.14
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .02
Net realized and unrealized
gain from security
transactions .30
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .32
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 11.46
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 2.87%
Contract owners' equity,
end of period $ 43,974
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity .81%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Financial Highlights
Period from commencement of operations through December 31, 1997
Financial Highlights for each accumulation unit outstanding throughout the
period per sub-account are presented below:
Lord Abbett Series Fund, Inc. Growth and Income Portfolio (Managed by Lord, Abbett & Co.)
- ---------------------------------------------------------------------------------------------------------------------------
Period from
March 11, 1997
through
December 31,
1997
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
<S> <C>
beginning of period $ 27.01
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 2.07
Net realized and unrealized
gain from security
transactions 1.76
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 3.83
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation unit value,
end of period $ 30.84
- ---------------------------------------------------------------------------------------------------------------------------
Total return* 14.18%
Contract owners' equity,
end of period $ 171,060
Ratio of expenses to average
contract owners' equity 1.40%**
Ratio of net investment
income to average
contract owners' equity 21.06%**
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Investment return does not reflect any contract based fees (withdrawal fees,
contract maintenance fees or account transfer fees), but does reflect
mortality and expense fees, administration expense fees, as well as all
expenses of the underlying portfolio (investment advisory fees and portfolio
operating expenses).
**Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) ORGANIZATION
First Cova Variable Annuity Account One (the Separate Account) is a
separate investment account established by a resolution of the Board of
Directors of First Cova Life Insurance Company (Cova). The Separate
Account operates as a Unit Investment Trust under the Investment Company
Act of 1940.
The Separate Account is divided into sub-accounts with the assets of
each sub-account invested in the Cova Series Trust (Trust) or Lord
Abbett Series Fund, Inc. (Fund). The Trust offers six portfolios, of
which one portfolio is managed by Lord, Abbett & Co. and five portfolios
are managed by J.P. Morgan Investment Management, Inc. The Trust
portfolios are the Bond Debenture, Quality Bond, Small Cap Stock, Large
Cap Stock, Select Equity, and International Equity portfolios. The Fund
offers the Growth and Income portfolio. Not all portfolios are available
for investment depending upon the nature and specific terms of the
different contracts currently being offered for sale. The Trust and Fund
are diversified, open-end, management investment companies which are
intended to meet differing investment objectives.
The sub-accounts commenced operations as follows:
March 11, 1997 Trust Large Cap Stock, Trust Select Equity
Trust International Equity and
Fund Growth and Income
March 17, 1997 Trust Small Cap Stock
May 15, 1997 Trust Bond Debenture and Trust Quality Bond
(2) SIGNIFICANT ACCOUNTING POLICIES
(A) INVESTMENT VALUATION
Investments in shares of the Trust and Fund are carried in the statement
of assets and liabilities at the underlying net asset value of the Trust
and Fund. The net asset value of the Trust and Fund has been determined
on the market value basis and is valued daily by the Trust and Fund
investment managers. Realized gains and losses are calculated by the
average cost method.
(B) REINVESTMENT OF DIVIDENDS
Dividends received from net investment income and net realized capital
gain distributions are reinvested in additional shares of the portfolio
of the Trust or Fund making the distribution. Dividends and capital gain
distributions are recorded as income on the ex-dividend date.
(C) FEDERAL INCOME TAXES
Operations of the Separate Account form a part of Cova, which is taxed
as a "Life Insurance Company" under the Internal Revenue Code (Code).
Under current provisions of the Code, no Federal income taxes are
payable by Cova with respect to earnings of the Separate Account.
Under the principles set forth in Internal Revenue Ruling 81-225 and
Section 817(h) of the Code and regulations thereunder, Cova believes
that it will be treated as the owner of the assets invested in the
Separate Account for Federal income tax purposes, with the result that
earnings and gains, if any, derived from those assets will not be
included in a contract owner's gross income until amounts are withdrawn
or received pursuant to an Optional Payment Plan.
(3) CONTRACT FEES
There are no deductions made from purchase payments for sales fees at
the time of purchase. However, if all or a portion of the contract value
is withdrawn, a withdrawal fee is calculated and deducted from the
contract value. The withdrawal fee is imposed on withdrawals of contract
values attributable to purchase payments within seven years after
receipt and is equal to 7% of the purchase payment withdrawn in the
first and second years, 5% of the purchase payment withdrawn in the
third, fourth and fifth years, and 3% of the purchase payment withdrawn
in the sixth and seventh years. After the first contract anniversary
year, provided that the contract value prior to the withdrawal exceeds
$5,000, an owner may make a withdrawal each contract year of up to 10%
of the aggregate purchase payments free from withdrawal fees.
An annual contract maintenance fee of $30 is imposed on all contracts
with contract values less than $50,000 on their policy anniversary. The
fee covers the cost of contract administration for the previous year and
is prorated between the sub-accounts to which the contract value is
allocated.
Subject to certain restrictions, the contract owner may transfer all or
a part of the accumulated value of the contract among other offered and
available account options of the Separate Account and fixed rate
annuities of Cova. If more than 12 transfers have been made in the
contract year, a transfer fee of $25 per transfer or, if less, 2% of the
amount transferred will be deducted from the account value. If the owner
is participating in the Dollar Cost Averaging program, such related
transfers are not taken into account in determining any transfer fee.
For the period from commencement of operations through December 31,
1997, there were no withdrawal, account transfer, or contract
maintenance fees deducted from the contract values in the Separate
Account.
Mortality and expense risks assumed by Cova are compensated by a fee
equivalent to an annual rate of 1.25% of the value of net assets. The
mortality risks assumed by Cova arise from its contractual obligation to
make annuity payments after the annuity date for the life of the
annuitant, and to waive the withdrawal fee in the event of the death of
the contract owner.
In addition, the Separate Account bears certain administration expenses,
which are equivalent to an annual rate of .15% of net assets. These fees
cover the cost of establishing and maintaining the contracts and
Separate Account.
Cova currently advances any premium taxes due at the time purchase
payments are made and then deducts premium taxes from the contract value
at the time annuity payments begin or upon withdrawal if Cova is unable
to obtain a refund. Cova, however, reserves the right to deduct premium
taxes when incurred.
(4) GAINS (LOSSES) ON INVESTMENTS
The table below summarizes the realized and change in unrealized gains
and losses on investments.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Period from
commencement of
operations through
December 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Trust Bond Debenture Portfolio:
<S> <C>
Aggregate proceeds from sales $ 24,281
Aggregate cost of redemptions 24,204
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 77
- ---------------------------------------------------------------------------------------------------------------------------
Trust Quality Bond Portfolio:
Aggregate proceeds from sales $ 172
Aggregate cost of redemptions 169
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 3
- ---------------------------------------------------------------------------------------------------------------------------
Trust Small Cap Stock Portfolio:
Aggregate proceeds from sales $ 17
Aggregate cost of redemptions 16
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 1
- ---------------------------------------------------------------------------------------------------------------------------
Trust Large Cap Stock Portfolio:
Aggregate proceeds from sales $ 1,700
Aggregate cost of redemptions 1,704
- ---------------------------------------------------------------------------------------------------------------------------
Net realized loss on investments $ (4)
- ---------------------------------------------------------------------------------------------------------------------------
Trust Select Equity Portfolio:
Aggregate proceeds from sales $ 1,651
Aggregate cost of redemptions 1,650
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 1
- ---------------------------------------------------------------------------------------------------------------------------
Trust International Equity Portfolio:
Aggregate proceeds from sales $ 25,579
Aggregate cost of redemptions 25,395
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 184
- ---------------------------------------------------------------------------------------------------------------------------
Fund Growth and Income Portfolio:
Aggregate proceeds from sales $ 74,949
Aggregate cost of redemptions 73,502
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 1,447
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Period from
commencement of
operations through
December 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Trust Bond Debenture Portfolio:
<S> <C>
End of period $ 46
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gain on investments $ 46
- ---------------------------------------------------------------------------------------------------------------------------
Trust Quality Bond Portfolio:
End of period $ 101
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gain on investments $ 101
- ---------------------------------------------------------------------------------------------------------------------------
Trust Small Cap Stock Portfolio:
End of period $ 303
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gain on investments $ 303
- ---------------------------------------------------------------------------------------------------------------------------
Trust Large Cap Stock Portfolio:
End of period $ (598)
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized loss on investments $ (598)
- ---------------------------------------------------------------------------------------------------------------------------
Trust Select Equity Portfolio:
End of period $ 1,102
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gain on investments $ 1,102
- ---------------------------------------------------------------------------------------------------------------------------
Trust International Equity Portfolio:
End of period $ (1,965)
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized loss on investments $ (1,965)
- ---------------------------------------------------------------------------------------------------------------------------
Fund Growth and Income Portfolio:
End of period $ (7,744)
Beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized loss on investments $ (7,744)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
FIRST COVA VARIABLE ANNUITY ACCOUNT ONE
Notes to Financial Statements
- --------------------------------------------------------------------------------
(5) UNIT TRANSACTIONS
The change in the number of accumulation units resulting from account
transactions from commencement operations through December 31, 1997 is as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Lord Abbett
Series Fund,
Cova Series Trust Inc.
------------------------------------------------------------------- ---------------
Small Large Interna- Growth
Bond Quality Cap Cap Select tional and
Debenture Bond Stock Stock Equity Equity Income
- ----------------------------------------------------------------------------------------------------------------------------
Balance at commencement of
<S> <C> <C> <C> <C> <C> <C> <C>
operations - - - - - - -
Units sold 7,125 - 390 978 1,037 2,663 4,526
Units redeemed (28) (32) - (23) (8) (15) (15)
Units transferred, net 1,831 2,100 140 1,852 292 1,188 1,036
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 8,928 2,068 530 2,807 1,321 3,836 5,547
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
First Cova Life Insurance Company:
We have audited the accompanying statutory statements of admitted assets,
liabilities, and capital stock and surplus of First Cova Life Insurance Company
(the Company) as of December 31, 1997 and 1996, and the related statutory
statements of operations, capital stock and surplus, and cash flow for each of
the years in the three-year period ended December 31, 1997. These statutory
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these statutory financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in note 2 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the New York State Insurance Department, which practices differ
from generally accepted accounting principles. The effects on the financial
statements of the variances between the statutory basis of accounting and
generally accepted accounting principles are also described in note 2.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of First Cova Life Insurance Company as of December 31, 1997 and 1996, or the
results of its operations or its cash flows for each of the years in the
three-year period ended December 31, 1997.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities, and capital stock
and surplus of First Cova Life Insurance Company as of December 31, 1997 and
1996, and the results of its operations and its cash flow for each of the years
in the three-year period ended December 31, 1997, on the basis of accounting
described in note 2.
Our audits were made for the purpose of forming an opinion on the basic
statutory financial statements taken as a whole. The supplementary information
included in the accompanying schedule is presented for purposes of additional
analysis and is not a required part of the basic statutory financial statements.
Such information has been subjected to the auditing procedures applied in the
audits of the basic statutory financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic statutory
financial statements taken as a whole.
Chicago, Illinois
March 5, 1998
FIRST COVA LIFE INSURANCE COMPANY
Statutory Statements of Admitted Assets, Liabilities,
and Capital Stock and Surplus
December 31, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ADMITTED ASSETS 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bonds $ 159,738 155,710
Mortgage loans on real estate 8,866 8,747
Policy loans 20,544 18,893
Cash and short-term investments 3,026 3,989
- ----------------------------------------------------------------------------------------------------------------------------
Total cash and investments 192,174 187,339
Investment income due and accrued 3,017 2,582
Federal income taxes recoverable 66 -
Other assets 9 1
- ----------------------------------------------------------------------------------------------------------------------------
Total admitted assets excluding separate account assets 195,266 189,922
Separate account assets 421 -
- ----------------------------------------------------------------------------------------------------------------------------
Total admitted assets $ 195,687 189,922
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND CAPITAL STOCK AND SURPLUS
- ----------------------------------------------------------------------------------------------------------------------------
Aggregate reserve for life policies and annuity contracts 164,208 158,304
Supplementary contracts without life contingencies 120 91
Life policy and annuity contract claims 726 272
Interest maintenance reserve 1,583 1,461
General expenses due or accrued 95 63
Transfers to separate accounts due or accrued (21) -
Taxes, licenses, and fees due or accrued
excluding Federal income taxes 220 211
Federal income taxes - 333
Remittances and items not allocated (14) 5
Unearned investment income 3 -
Asset valuation reserve 1,529 1,470
Payable to parent, subsidiaries, and affiliates 35 30
Reinsurance payable to parent 2,372 2,457
Checks outstanding 46 72
Accounts payable - security purchases - 2,010
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities excluding separate account liabilities 170,902 166,779
Separate account liabilities 421 -
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 171,323 166,779
- ----------------------------------------------------------------------------------------------------------------------------
Common capital stock, $10 par value. Authorized,
issued, and outstanding 200,000 shares 2,000 2,000
Gross paid-in and contributed surplus 11,501 11,501
Unassigned surplus 10,863 9,642
- ----------------------------------------------------------------------------------------------------------------------------
Total capital stock and surplus 24,364 23,143
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and capital stock and surplus $ 195,687 189,922
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
FIRST COVA LIFE INSURANCE COMPANY
Statutory Statements of Operations
Years ended December 31, 1997, 1996, and 1995
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C>
Deposit-type funds $ 6,851 569 127
Considerations for supplementary contracts
without life contingencies 54 81 33
Net investment income 13,771 13,507 12,526
Amortization of interest maintenance reserve (244) (206) (211)
- ----------------------------------------------------------------------------------------------------------------------------
Total income 20,432 13,951 12,475
- ----------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Death benefits 3,294 2,691 2,101
Annuity benefits 365 - 359
Surrender benefits and other fund withdrawals 7,222 8,719 9,185
Interest on policy or contract funds 11 10 9
Payment on supplementary contracts without
life contingencies 24 12 6
Increase (decrease) in aggregate reserves
for life policies and annuity contracts 5,904 (928) 1,911
Increase in reserve for supplementary
contracts without life contingencies 30 66 25
Commissions on premiums and annuity
considerations 239 20 2
Commissions and expense allowances on
reinsurance assumed 423 400 439
General insurance expenses 966 663 665
Insurance taxes, licenses, and fees,
excluding Federal income taxes 142 25 811
Net transfers to separate accounts 386 - -
Other expenses 1 1 1
- ----------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 19,007 11,679 15,514
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations before Federal income taxes
and realized capital gains 1,425 2,272 (3,039)
Federal income tax expense (benefit),
excluding tax on capital gains 145 445 (1,007)
- ----------------------------------------------------------------------------------------------------------------------------
Net gain (loss) from operations before realized capital gains 1,280 1,827 (2,032)
Realized capital gains (net of tax benefit of $89, $111, and $3,509 in 1997,
1996, and 1995, respectively, and net of amounts transferred to the IMR of
$(122), $(153), and $(4,647)
in 1997, 1996, and 1995, respectively) - - -
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,280 1,827 (2,032)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
FIRST COVA LIFE INSURANCE COMPANY
Statutory Statements of Capital Stock and Surplus
Years ended December 31, 1997, 1996, and 1995
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital stock - balance at beginning and end of year $ 2,000 2,000 2,000
- ----------------------------------------------------------------------------------------------------------------------------
Gross paid-in and contributed surplus:
Balance at beginning of year 11,501 11,501 10,501
Capital contribution - - 1,000
- ----------------------------------------------------------------------------------------------------------------------------
Balance at end of year 11,501 11,501 11,501
- ----------------------------------------------------------------------------------------------------------------------------
Unassigned surplus:
Balance at beginning of year 9,642 8,028 10,211
Net income (loss) 1,280 1,827 (2,032)
Change in non-admitted assets - - 204
Change in asset valuation reserve (59) (285) (355)
Prior period FIT adjustment - 72 -
- ----------------------------------------------------------------------------------------------------------------------------
Balance at end of year 10,863 9,642 8,028
- ----------------------------------------------------------------------------------------------------------------------------
Total capital stock and surplus $ 24,364 23,143 21,529
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
FIRST COVA LIFE INSURANCE COMPANY
Statutory Statements of Cash Flow
Years ended December 31, 1997, 1996, and 1995
(In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Cash from operations:
<S> <C> <C> <C>
Deposit-type funds $ 6,852 569 127
Considerations for supplementary contracts without 54 81 33
life contingencies
Net investment income 13,310 13,499 13,037
Miscellaneous income - 72 -
- -------------------------------------------------------------------------------------------------------------------------
20,216 14,221 13,197
- -------------------------------------------------------------------------------------------------------------------------
Death benefits 2,842 2,716 1,955
Surrender benefits and other fund withdrawals 7,222 8,719 9,185
Other benefits to policyholders, primarily annuity benefits 399 23 381
Commissions, other expenses, and taxes paid,
excluding Federal income tax 1,709 1,089 1,170
Net transfers to separate accounts 407 - -
Federal income taxes paid (recovered), excluding
tax on capital gains 544 156 (1,413)
- -------------------------------------------------------------------------------------------------------------------------
13,123 12,703 11,278
- -------------------------------------------------------------------------------------------------------------------------
Net cash from operations 7,093 1,518 1,919
- -------------------------------------------------------------------------------------------------------------------------
Cash from investments:
Proceeds from investments sold, matured, or repaid:
Bonds 40,473 40,506 156,913
Mortgage loans 364 1,316 112
Net losses on cash and short-term investments - - (20)
- -------------------------------------------------------------------------------------------------------------------------
Total investment proceeds 40,837 41,822 157,005
- -------------------------------------------------------------------------------------------------------------------------
Taxes recovered on capital losses 67 84 2,527
- -------------------------------------------------------------------------------------------------------------------------
Cost of investments acquired:
Bonds 44,688 41,686 156,015
Mortgage loans 479 - 10,171
- -------------------------------------------------------------------------------------------------------------------------
Total investments acquired 45,167 41,686 166,186
- -------------------------------------------------------------------------------------------------------------------------
Net increase in policy loans 1,651 1,970 1,277
- -------------------------------------------------------------------------------------------------------------------------
Net cash from investments (4,330) 136 (9,181)
- -------------------------------------------------------------------------------------------------------------------------
Cash from financing and miscellaneous sources:
Cash provided:
Capital and surplus paid-in - - 1,000
Other cash provided 13 2,015 1,379
- -------------------------------------------------------------------------------------------------------------------------
Total cash provided 13 2,015 2,379
Cash applied - other (2,155) (935) (13)
- -------------------------------------------------------------------------------------------------------------------------
Net cash from financing and miscellaneous sources (2,142) 1,080 2,366
- -------------------------------------------------------------------------------------------------------------------------
Net change in cash and short-term investments (963) 848 (3,646)
Cash and short-term investments at beginning of year 3,989 3,141 6,787
- -------------------------------------------------------------------------------------------------------------------------
Cash and short-term investments at end of year $ 3,026 3,989 3,141
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
FIRST COVA LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
December 31, 1997, 1996, and 1995
- --------------------------------------------------------------------------------
(1) COMPANY OWNERSHIP AND NATURE OF BUSINESS
COMPANY OWNERSHIP
First Cova Life Insurance Company (the Company) is a wholly owned
subsidiary of Cova Financial Services Life Insurance Company (CFSLIC).
On June 1, 1995, a subsidiary of General American Life Insurance Company
(GALIC), a Missouri domiciled life insurance company, purchased the
Company's parent and its affiliates from their previous owner, Xerox
Financial Services, Incorporated (XFSI), a wholly owned subsidiary of
Xerox Corporation, for approximately $106.1 million in cash and
additional future contingent consideration. Following the acquisition,
the Company's name changed from First Xerox Life Insurance Company to
First Cova Life Insurance Company.
NATURE OF BUSINESS
The Company is licensed to do business in the state of New York. The
Company markets and services single premium deferred annuities and
variable annuities. Most of the policies issued present no significant
mortality nor longevity risk to the Company, but rather represent
investment deposits by the policyholders. Life insurance policies
provide policy beneficiaries with mortality benefits amounting to a
multiple, which declines with age, of the original premium.
Under the deferred annuity contracts, interest rates credited to
policyholder deposits are guaranteed by the Company for periods from one
to seven years, but in no case may renewal rates be less than 3%. The
Company may assess surrender fees against amounts withdrawn prior to
scheduled rate reset and adjust account values based on current
crediting rates. Policyholders may also incur certain Federal income tax
penalties on withdrawals.
Although the Company markets its products through numerous distributors,
including regional brokerage firms, national brokerage firms, and banks,
approximately 58% of the Company's sales were through Dreyfus Service
Organization and 40% through Edward Jones and Company in 1997.
Approximately 91% and 92% of the Company's sales were through one
specific brokerage firm, Advest, in 1996 and 1995, respectively.
(2) BASIS OF PRESENTATION
The accompanying statutory financial statements have been prepared in
conformity with accounting practices prescribed or permitted by the New
York State Insurance Department, which is a comprehensive basis of
accounting other than generally accepted accounting principles.
Prescribed statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners
(NAIC). Permitted statutory accounting practices encompass all
accounting practices that are not prescribed; such practices differ from
state to state, may differ from company to company within a state, and
may change in the future. All material transactions recorded by the
Company during 1997, 1996, and 1995 are in conformity with prescribed
practices.
Generally accepted accounting principles (GAAP) differ in certain
respects from the accounting practices prescribed or permitted by
insurance regulatory authorities (statutory accounting principles).
The major differences arise principally from the immediate expense
recognition of policy acquisition costs and intangible assets for
statutory reporting, determination of policy reserves based on
different discount rates and methods, the non-recognition of financial
reinsurance for GAAP reporting, the establishment of an Asset
Valuation Reserve as a contingent liability based on the credit
quality of the Company's investment securities on a statutory basis,
and the establishment of an Interest Maintenance Reserve on a
statutory basis as an unearned liability to defer the realized gains
and losses of fixed income investments presumably resulting from
changes to interest rates and amortize them into income over the
remaining life of the investment sold. In addition, adjustments to
record the carrying values of debt securities and certain equity
securities at market are applied only under GAAP reporting.
Another difference arises from Federal income taxes being charged to
operations based on income that is currently taxable. Deferred income
taxes are not provided for the tax effect of temporary differences
between book and tax basis of assets and liabilities on a statutory
basis.
Purchase accounting creates another difference as it requires the
restatement of GAAP assets and liabilities to their estimated fair
values and shareholder's equity to the net purchase price. Statutory
accounting does not recognize the purchase method of accounting.
The following schedules set forth the adjustments to statutory net
income and capital stock and surplus necessary to present them in
accordance with generally accepted accounting principles (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Net income (loss):
<S> <C> <C> <C>
As reported under statutory accounting practices $ 1,280 1,827 (2,032)
Deferred acquisition costs 477 48 186
Change in reserve for policies and contracts 344 409 3,757
Interest maintenance reserve 122 53 (4,437)
Deferred income taxes (827) (642) (925)
Amortization of intangible assets and liabilities (216) (189) (526)
Other, net 421 163 252
- ---------------------------------------------------------------------------------------------------------------------------
As reported under generally accepted accounting principles $ 1,601 1,669 (3,725)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's net loss for 1995 reported under GAAP of $3,725 includes
the periods from January 1, 1995 to May 31, 1995 (the pre-sale period)
and June 1, 1995 to December 31, 1995 (the post-sale period). These
periods are considered to be separate and distinct accounting periods
under GAAP as the Company was sold on June 1, 1995 (see note 1) causing
the Company's GAAP balance sheet and income statement to be restated
according to purchase accounting.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Capital stock and surplus:
<S> <C> <C> <C>
As reported under statutory accounting practices $ 24,364 23,143 21,529
Deferred acquisition costs 525 48 -
Reserves for policies and contracts 5,173 4,829 4,423
Asset valuation reserve 1,528 1,470 1,185
Interest maintenance reserve 1,583 1,461 1,408
Unrealized appreciation (depreciation) of investments 2,964 (1,470) 3,328
Deferred income taxes (1,163) 325 (610)
Present value of future profits 3,350 5,572 5,249
Goodwill 2,131 2,254 2,377
Other, net - (5) -
- ---------------------------------------------------------------------------------------------------------------------------
As reported under generally accepted accounting principles $ 40,455 37,627 38,889
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
In March 1998, the NAIC adopted the Codification of Statutory Accounting
Principles (the Codification). The Codification will constitute the only
source of "prescribed" statutory accounting practices. Accordingly, once
implemented, the definitions of what comprises prescribed versus
permitted statutory accounting practices may result in changes to the
accounting policies that insurance enterprises use to prepare their
statutory financial statements. The implementation date is ultimately
dependent on an insurer's state of domicile. The Company is currently
evaluating the impact of the Codification on its statutory financial
statements.
In preparing the statutory financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly from
those estimates. Investment valuation is most affected by the use of
estimates and assumptions.
The fair value of the Company's investments is subject to the risk that
interest rates will change and cause a temporary increase or decrease in
the liquidation value of debt securities. To the extent that
fluctuations in interest rates cause the cash flow of assets and
liabilities to change, the Company might have to liquidate assets prior
to their maturity and recognize a gain or a loss. Interest rate exposure
for the investment portfolio is managed through asset/liability
management techniques which attempt to control the risks presented by
differences in the probable cash flows and reinvestment of assets with
the timing of crediting rate changes in the Company's policies and
contracts. Changes in the estimated prepayments of mortgage-backed
securities also may cause retrospective changes in the amortization
period of such securities and the related recognition of income.
(3) BASIS OF VALUATION AND INCOME RECOGNITION OF INVESTED ASSETS
Asset values are generally stated as follows:
Investments are valued as prescribed by the NAIC.
Bonds not backed by other loans are valued at amortized cost using
the interest method.
Mortgage-backed bonds, included in bonds, are valued at amortized
cost. Amortization of the discount or premium from the purchase of
these securities is recognized using a level-yield method which
considers the estimated timing and amount of prepayments of the
underlying mortgage loans. Actual prepayment experience is
periodically reviewed and effective yields are recalculated when
differences arise between the prepayments originally anticipated
and the actual prepayments received and currently anticipated. When
such differences occur, the net investment in the mortgage-backed
bond is adjusted to the amount that would have existed had the new
effective yield been applied since the acquisition of the bond with
a corresponding charge or credit to interest income (the
retrospective method).
Mortgage loans and policy loans are stated at the aggregate unpaid
principal value. Short-term investments are carried at amortized cost
which approximates fair value.
Investment income is recorded when earned. Realized capital gains and
losses on the sales of investments are determined on the basis of
specific costs of investments and are credited or charged to income net
of federal income taxes.
(4) REVENUE AND EXPENSE RECOGNITION
Premiums, annuity considerations and deposit-type funds are credited to
revenue when collected. Expenses, including acquisition costs related to
acquiring new business, are charged to operations as incurred.
(5) ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
Life insurance companies are required to establish an Asset Valuation
Reserve (AVR) and an Interest Maintenance Reserve (IMR). The AVR
provides for a standardized statutory investment valuation reserve for
bonds, preferred stocks, short-term investments, mortgage loans, common
stocks, real estate, and other invested assets. The IMR is designed to
defer net realized capital gains and losses presumably resulting from
changes in the level of interest rates in the market and to amortize
them into income over the remaining life of the bond or mortgage loan
sold.
The IMR represents the unamortized portion not yet taken into income.
(6) FEDERAL INCOME TAXES
Federal income taxes are charged to operations based on income that is
currently taxable. No charge to operations is made nor liability
established for the tax effect of timing differences between financial
reporting and taxable income.
For 1997, the Company will file a consolidated Federal income tax return
with its parent company, CFSLIC. The method of allocation between the
companies is both subject to written agreement and approval by the Board
of Directors. Allocation is to be based upon separate return
calculations, adjusted for any tax deferred intercompany transactions,
with current credit for net losses to the extent recoverable in the
consolidated return. Intercompany tax balances are to be settled no
later than 30 days after related returns are filed.
Amounts payable or recoverable related to periods before June 1, 1995
are subject to an indemnification agreement with Xerox Corporation which
has the effect that the Company is not at risk for any income taxes or
entitled to recoveries related to those periods.
The actual Federal income tax expense differed from the expected tax
expense computed by applying the U.S. Federal statutory rate to the
1997, 1996, and 1995 net gain from operations before Federal income
taxes as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax expense $ 499 35.0% $ 795 35.0% $ (1,064) 35.0%
Tax basis reserve adjustment 13 .9 (30) (1.3) 847 (27.9)
IMR amortization 85 6.0 72 3.2 74 (2.4)
Proxy tax on insurance
acquisition costs 33 2.3 4 .2 (455) 15.0
Adjustment for prior years (127) (8.9) - - - -
Intangible amortization (376) (26.4) (376) (16.6) (126) 4.1
Tax-exempt income, net - - - - - -
Other 18 1.3 (20) (.9) (283) 9.3
- ---------------------------------------------------------------------------------------------------------------------------
$ 145 10.2% $ 445 19.6% $ (1,007) 33.1%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Budget Reconciliation Act of 1990 requires life insurers to
capitalize and amortize a "proxy" amount of policy acquisition costs
beginning in 1990. This proxy amount is based on a percentage of the
life insurance company's premium income and not on actual policy
acquisition costs.
(7) INFORMATION CONCERNING PARENT AND AFFILIATES
The Company was organized under the laws of the State of New York on
December 31, 1992 and became licensed to do business in the State of New
York on March 12, 1993. The Company is a wholly owned subsidiary of
CFSLIC (formerly Xerox Financial Services Life Insurance Company), a
Missouri domiciled life insurance company. On December 31, 1992, Xerox
Financial Services Life Insurance Company acquired Wausau Underwriters
Life Insurance Company (Wausau Life), a stock life insurance company
organized under the laws of the state of Wisconsin and licensed to
transact life insurance in Wisconsin and New York. On April 16, 1993,
Wausau Life was merged into the Company, with the Company as the
surviving corporation.
The Company has entered into a service agreement and an investment
accounting service agreement with its parent, CFSLIC. The Company has
also entered into an investment services agreement with Conning Asset
Management Company, a Missouri corporation and an affiliate of the
Company, pursuant to which the Company receives investment advice. Under
the terms of the agreements, the companies (Service Providers) perform
various services for the Company which include investment, underwriting,
claims, and certain administrative functions. The Service Providers are
reimbursed for their services. Expenses and fees paid to affiliated
companies during 1997, 1996, and 1995 were $339,670, $337,994, and
$349,771, respectively.
(8) CAPITAL STOCK AND SURPLUS RESTRICTIONS
The amount of dividends which can be paid by State of New York insurance
companies to shareholders is subject to prior approval of the Insurance
Commissioner. There have been no other restrictions placed on the
unassigned surplus funds.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About
Fair Value of Financial Instruments (SFAS 107), extends fair value
disclosure practices with regard to financial instruments, both assets
and liabilities, for which it is practical to estimate fair value. In
cases where quoted market prices are not readily available, fair values
are based on estimates that use present value or other valuation
techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Although
fair value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions or market conditions
could cause these estimates to vary materially. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in the
immediate settlement of the instruments. SFAS 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS
AND ACCRUED INVESTMENT INCOME
The carrying value amounts reported in the balance sheets for these
instruments approximate their fair values.
INVESTMENT SECURITIES AND MORTGAGE LOANS
(INCLUDING MORTGAGE-BACKED SECURITIES)
Fair value for bonds are based on quoted market prices, where available.
For bonds not actively traded, fair values are estimated using values
obtained from independent pricing services. In some cases, such as
private placements, certain mortgage-backed securities, and mortgage
loans, fair values are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit
quality, and maturity of the investments. (See note 11 for fair value
disclosures). As of December 31, 1997 and 1996, the fair value of the
Company's mortgage loans are equivalent to the carrying value.
POLICY LOANS
Fair values of policy loans approximate carrying value as the interest
rates on the majority of policy loans are reset periodically and,
therefore, approximate current interest rates.
INVESTMENT CONTRACTS
The Company's policy contracts require beneficiaries commence receipt of
payments by the later of age 85 or 10 years after purchase, and
substantially all permit earlier surrenders, generally subject to fees
and adjustments. Fair values for the Company's liabilities under
investment type contracts are estimated as the amount payable on demand.
As of December 31, 1997, the cash surrender value of policyholder funds
on deposit was $159,521,000 and the carrying value was $164,208,000. As
of December 31, 1996, the cash surrender value of policyholder funds on
deposit was $154,674,632 and the carrying value was $158,304,214.
(10) LIFE AND ANNUITY ACTUARIAL RESERVES
There are no deferred fractional premiums on any policies sold or
currently in force. There are no premiums beyond the date of death.
There are no required reserves for the waiver of deferred fractionals or
refund of premiums beyond the date of death.
Substandard policies are valued using a modification of the standard
valuation tables based on the substandard rating. The modification is a
25% additional mortality increase of the standard table for each table
rating.
As of December 31, 1997, the Company had no insurance in force for which
the gross premiums were less than the net premiums according to the
standard valuation set by the State of New York.
The tabular interest has been determined from the basic data for the
calculation of policy reserves.
Tabular interest for funds not involving life contingencies for each
valuation rate and contractual guaranteed rate was determined as the
statutory amount required to support the required statutory reserve
based on the Commissioner's annuity reserve valuation method. Generally
it is 1/100 of the product of such valuation rate of interest times the
mean funds at the beginning and end of the valuation period or issue
date of the policy, if less.
The life and annuity actuarial reserves as provided in the accompanying
statutory financial statements segregated by type and valuation
characteristics for 1997 and 1996 are given below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 Valuation Withdrawal
- ---------------------------------------------------------------------------------------------------------------------------
Type reserve reserve basic/rate characteristic
(in thousands)
<S> <C> <C> <C> <C>
Structured settlements $ 1,058 1,027 1983 IAM 8.25% No withdrawal permitted
SPDA - 1 year 11,732 11,818 CARVM 5.75% - 7.00% Fixed surrender charge
SPDA - 5 year 15,030 14,320 CARVM 7.00% - 8.00% Withdrawal limited to
10% per year
SPDA - 6 year 37 - CARVM 5.75% Market value adjustment
SPDA - 5 year 285 - CARVM 7.25% Market value adjustment
SPDA - 7 year 6,027 - CARVM 7.25% Market value adjustment
Variable 75 - CARVM 5.50% Fixed surrender charge
Ordinary life 116 107 1958 CSO 3.5% NL Fixed surrender charge
Ordinary life 39 36 1980 CSO CRVM Fixed surrender charge
Ordinary life 243 228 1980 CSO 4.5% NO Fixed surrender charge
Ordinary life 2 2 Group conversion Fixed surrender charge
excess mortality
Ordinary life 3 3 Guaranteed insurability Fixed surrender charge
Ordinary life 18,747 19,536 1958 CSO ALB 5.5% NL Fixed surrender charge
Group life 31,291 31,528 1958 CSO ALB 5.5% NL Fixed surrender charge
Ordinary life 20,849 20,453 1980 CSO ANB Male Fixed surrender charge
5.5% NL
Group life 21,581 21,642 1980 CSO ANB Male Fixed surrender charge
5.5% NL
Ordinary life 18,564 18,394 1980 CSO ANB Female Fixed surrender charge
5.5% NL
Group life 19,990 20,613 1980 CSO ANB Female Fixed surrender charge
5.5% NL
Miscellaneous 16 7 - -
Reinsurance ceded (1,477) (1,410) - -
- ---------------------------------------------------------------------------------------------------------------------------
$ 164,208 158,304
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(11) INVESTMENTS
The cost or amortized cost and estimated fair value of bonds at December
31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997
Cost or Gross Gross Estimated
amortized unrealized unrealized fair Carrying
cost gains losses value value
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Bonds:
<S> <C> <C> <C> <C>
Governments $ 1,267 2 - 1,269 1,267
Public utilities 7,134 13 - 7,148 7,134
Industrial and miscellaneous 151,337 3,261 299 154,299 151,337
- ---------------------------------------------------------------------------------------------------------------------------
Total bonds $ 159,738 3,276 299 162,716 159,738
- ---------------------------------------------------------------------------------------------------------------------------
1996
Cost or Gross Gross Estimated
amortized unrealized unrealized fair Carrying
cost gains losses value value
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Bonds:
Governments $ 764 - (33) 731 764
Nonguaranteed bonds -
U.S. Government 41,241 60 (175) 41,126 41,241
Public utilities 7,789 19 (231) 7,577 7,789
Industrial and miscellaneous 105,916 421 (1,531) 104,806 105,916
- ---------------------------------------------------------------------------------------------------------------------------
Total bonds $ 155,710 500 (1,970) 154,240 155,710
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of bonds at December 31,
1997, by contractual maturity, are shown in the following table.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties. Maturities of mortgage-backed
securities will be substantially shorter than their contractual maturity
because they may require monthly principal installments and mortgagees
may prepay principal.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Estimated
Carrying fair
value value
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Due in one year or less $ 406 406
Due after one year through five years 26,233 26,524
Due after five years through ten years 48,743 50,070
Due after ten years 14,662 14,961
Mortgage-backed securities 69,694 70,755
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 159,738 162,716
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Approximately 56.8% of the Company's bonds are of highest quality, 35.6%
are of high quality, and 7.6% are of medium quality based on NAIC rating
methodology. No provision was made for possible decline in the fair
value of individual bonds, other than the establishment of AVR, as of
December 31, 1997 or 1996, as the Company intends to hold the
investments until such time as no significant loss would result.
The components of net investment income were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Income on bonds $ 11,354 11,274 7,907
Income on mortgage loans 786 940 373
Income on short-term investments 197 106 3,132
Income on cash on deposit 7 4 -
Income on policy loans 1,531 1,281 1,281
Miscellaneous interest - 4 -
- ---------------------------------------------------------------------------------------------------------------------------
Total investment income 13,875 13,609 12,693
Investment expenses (104) (102) (167)
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $ 13,771 13,507 12,526
- ---------------------------------------------------------------------------------------------------------------------------
Realized capital losses:
Bonds (211) (264) (8,136)
Short-term investments - - (20)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized losses on investments $ (211) (264) (8,156)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales, redemptions, and paydowns of investments in bonds
during 1997 were $40,473,142. Gross gains of $213,835 and gross losses
of $424,506 were realized on those sales.
Proceeds from sales, redemptions, and paydowns of investments in bonds
during 1996 were $40,506,099. Gross gains of $51,375 and gross losses of
$315,006 were realized on those sales.
Proceeds from sales, redemptions, and paydowns of investments in bonds
during 1995 were $156,912,944. Gross gains of $1,830,297 and gross
losses of $9,966,745 were realized on those sales.
Bonds with a carrying value of approximately $817,610 at December 31,
1997 were deposited with governmental authorities as required by law.
The Company held the following individual securities which exceeded 10%
of capital stock and surplus as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997
Long-term debt Amortized Long-term debt Amortized
securities cost securities cost
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
FNMA Remic Tr 1992-159 Pk $ 9,858 Salomon Inc. $ 4,870
Countryside Mtg. 1993-12 A4 8,957 American Trans Air 1996-1 4,850
FNMA Remic Tr 1993 Ser 54-J 6,663 Newmont Mining Corp. 4,084
Community First Bankshares 6,000 Res Funding Mtg. Svcs 1993-S26 A8 4,009
Time Warner 5,419 Union Acceptance Corp.
Develope Div Rlty 5,053 Senior Notes 4,000
Swire Pacific Finance Ltd. 5,003 Independent Natl Mtg. 1995-M A2 3,998
CS First Bost. Fin. Co. Sr Pru Home Mtg. Sec 1993-31 A10 3,771
Sec 1995-A 144AAA 5,000 Sears Mtg. Securities 1993-7 T5 3,751
American Airlines 4,984 Countrywide Mtg. Sec 1994-7 A5 3,518
FNMA Remic Tr 1992 Ser 124-PH 4,965 Cox Communications Inc. 3,352
FHLMC Mc Mtg. Prt Crt Ser 1406-G 4,954 Pru Home Mtg. Sec 1994-20 A6 3,066
RJR Nabisco Inc. 4,898 Ensearch Exploration 3,000
Alcoa Aluminum 4,894 Enron Corp. 3,000
Telecommunications Inc. 2,851
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1996
Long-term debt Amortized Long-term debt Amortized
securities cost securities cost
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
FNMA Remic Tr 1996-50 A1 $ 10,456 FHLMC Mc Mtg. Prt Crt Ser 1506-G $ 4,939
FNMA Remic Tr 1992-159 Pk 9,821 RJR Nabisco Inc. 4,884
Countryside Mtg. 1993-12 A4 8,908 Salomon Inc. 4,851
FNMA Remic Tr 1993 Ser 5/4-J 6,641 Telecommunications Inc. 4,728
Time Warner 5,499 Nabisco, Inc. 4,492
American Airlines 5,183 Res Funding Mtg. Svcs 1993-S26 A8 4,010
Develope Div Rlty 5,072 Union Acceptance Corp. Senior Notes 4,000
Kirby Corp. 5,035 Independent Nat'l Mtg. 1995-M A2 3,998
Swire Pacific Finance Ltd. 5,003 Pru Home Mtg. Sec 1993-31 A10 3,777
CS First Bost. Fin. Co. Sr Sec
1995-A 144AAA 5,000 Sears Mtg. Securities 1993-7 T5 3,741
American Trans Air 1996-1 5,000 FHLMC MC Mtg. Prt Crt Ser 1266-F 3,459
Washington Water Power Co. 5,000 Enserch Exploration 3,000
FNMA Remic Tr 1992 Ser 124-PH 4,956 First USA Bank 2,967
Alcoa Aluminum 4,948
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(12) NON-ADMITTED ASSETS
Assets must be included in the statements of assets and liabilities at
admitted asset value, and non-admitted assets, principally agents'
balances greater than 90 days past due, must be excluded through a
charge against unassigned surplus.
FIRST COVA LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
- --------------------------------------------------------------------------------
(13) REINSURANCE
In 1993, the Company entered into a reinsurance treaty with its parent,
CFSLIC. The underlying block of business assumed was single premium
whole life policies. Reserves assumed at December 31, 1997 and 1996
approximated $131.0 million and $132.2 million, respectively.
Wausau Life maintained a closed block of whole life policies and
structured settlements which were ceded 100% to Nationwide Life
Insurance Company as of the purchase date of Wausau Life, December 31,
1992. Total reserves ceded to Nationwide at December 31, 1997 and 1996,
were $1,584,622 and $1,409,928, respectively. Reinsurance does not
discharge the Company from its primarily liability to policyholders.
(14) RISK-BASED CAPITAL
The NAIC has developed certain risk-based capital (RBC) requirements for
life insurers. If prescribed levels of RBC are not maintained, certain
actions may be required on the part of the Company or its regulators. At
December 31, 1997, the Company's total adjusted capital and authorized
control level - RBC were $25,892,685 and $2,408,857, respectively. At
this level of adjusted capital, no action is required.
(15) GUARANTY FUND ASSESSMENTS
The Company participates, along with all life insurance companies
licensed in New York, in an association formed to guarantee benefits to
policyholders of insolvent life insurance companies. Under the state
law, the Company is contingently liable for its share of claims covered
by the guaranty association for insolvencies incurred through 1997 but
for which assessments have not yet been determined.
The Company has not established an estimated liability for unassessed
guarantee fund claims incurred prior to December 31, 1997 as management
believes that such assessments are not material to the financial
statements.
(16) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business the Company is involved in various
legal actions for which it establishes reserves where appropriate. In
the opinion of the Company's management, based upon the advice of legal
counsel, the resolution of such litigation is not expected to have a
material adverse effect on the statutory financial statements. Under an
indemnification agreement with Xerox Corporation, the Company is not
liable for any litigation expenses arising from events occurring prior
to the sale of the Company on June 1, 1995.
Schedule 1
FIRST COVA LIFE INSURANCE COMPANY
Schedule of Selected Financial Data from Annual Statement
Year ended December 31, 1997
(In thousands of dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Investment income earned:
<S> <C>
Government bonds $ 48
Other bonds (unaffiliated) 11,306
Bonds of affiliates -
Preferred stocks (unaffiliated) -
Preferred stocks of affiliates -
Common stocks (unaffiliated) -
Common stocks of affiliates -
Mortgage loans 786
Real estate -
Premium notes, policy loans, and liens 1,531
Collateral loans -
Cash on hand and on deposit 7
Short-term investments 197
Other invested assets -
Derivative instruments -
Aggregate write-in for investment income -
- ---------------------------------------------------------------------------------------------------------------------------
Gross investment income 13,875
- ---------------------------------------------------------------------------------------------------------------------------
Real estate owned - book value less encumbrances -
Mortgage loans - book value:
Farm mortgages -
Residential mortgages -
Commercial mortgages 8,866
- ---------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 8,866
- ---------------------------------------------------------------------------------------------------------------------------
Mortgage loans by standing - book value:
Good standing 8,866
Good standing with restructured terms
Interest overdue -
Foreclosure in process -
Other long-term assets - statement value -
Collateral loans -
Bonds and stocks of parents, subsidiaries, and affiliates - book value:
Bonds -
Preferred stocks -
Common stocks -
(Continued)
</TABLE>
Schedule 1
FIRST COVA LIFE INSURANCE COMPANY
Schedule of Selected Financial Data from Annual Statement
(In thousands of dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Bonds and short-term investments by class and maturity: Bonds by maturity -
statement value:
<S> <C> <C>
Due within 1 year or less $ 12,230
Over 1 year through 5 years 65,104
Over 5 years through 10 years 75,280
Over 10 years through 20 years 10,037
Over 20 years 52
- ---------------------------------------------------------------------------------------------------------------------------
Total by maturity 162,703
- ---------------------------------------------------------------------------------------------------------------------------
Bonds by class - statement value:
Class 1 90,789
Class 2 56,884
Class 3 12,065
Class 4 -
Class 5 -
Class 6 -
- ---------------------------------------------------------------------------------------------------------------------------
Total by class 159,738
- ---------------------------------------------------------------------------------------------------------------------------
Total bonds publicly traded 119,877
Total bonds privately placed 39,861
Preferred stocks - statement value -
Common stocks - market value -
Short-term investments - book value 2,965
Financial options owned - statement value -
Financial options written and in force - statement value -
Financial futures contracts open - current price -
Cash on deposit 61
Life insurance in force (000's omitted):
Industrial -
Ordinary 77
Credit life -
Group life 93
- ---------------------------------------------------------------------------------------------------------------------------
Amount of accidental death insurance in
force under ordinary policies 170
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
Schedule 1
FIRST COVA LIFE INSURANCE COMPANY
Schedule of Selected Financial Data from Annual Statement
(In thousands of dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Life insurance policies with disability provisions in force:
<S> <C>
Industrial $ -
Ordinary 2
Credit life -
Group life -
Supplementary contracts in force:
Ordinary - not involving life contingencies 5
Amount on deposit -
Income payable 32
Ordinary - involving life contingencies -
Income payable -
Group - not involving life contingencies -
Amount on deposit -
Income payable -
Group - involving life contingencies -
Income payable -
Annuities:
Ordinary:
Immediate - amount of income payable Deferred - fully paid account
balance 33,888 Deferred - not fully paid - account balance -
Group:
Immediate - amount of income payable -
Fully paid account balance -
Not fully paid - account balance -
Accident and health insurance - premiums in force:
Ordinary -
Group -
Credit -
Deposit funds and dividend accumulations:
Deposit funds - account balance -
Dividend accumulations - account balance -
Claim payments 1996:
Group accident and health year ended December 31, 1997:
1997 -
1996 -
1995 -
</TABLE>
(Continued)
Schedule 1
FIRST COVA LIFE INSURANCE COMPANY
Schedule of Selected Financial Data from Annual Statement
(In thousands of dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Other accident and health:
<S> <C> <C>
1997 $ -
1996 -
1995 -
Other coverages that use developmental methods to calculate claims reserves:
1997 -
1996 -
1995 -
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying independent auditors' report.
